Payments As A Service

The PayPal Recipe

PayPal dropped Seafile GmbH, Dropbox's German competitor, as its client after the company refused to track private data of its customers.

PayPal is showing boldness and creativity in both the method and the ingredients with which it is creating its global platform. Visa and Mastercard are the most recent additions to the recipe, but consumers, merchants and other acquirers are all considerations in PayPal’s cauldron. This formula, once perfected, could allow PayPal to scale, as long as hackers don’t contaminate the brew.

PayPal is making deft maneuvers in its efforts to quickly build and scale a global payments platform. From choosing the right partnerships to managing security and hacker threats, the company has, so far, managed to repel any incoming fire. We take a look at the recent goings on in PayPal’s ecosystem.

PayPal may have ended its relationship with eBay, but it has been aggressively pursuing the store payments space by striking deals with Visa earlier in 2016 and with Mastercard on Sept. 6. PayPal is intent on being accepted as a method of payment at store checkouts throughout Mastercard's and Visa’s mobile contactless payments systems.

But some analysts, according to The Wall Street Journal, see this move as one that will cause a decline in PayPal’s profitability in the short term. PayPal will have to shift from providing free bank transfers to using networks, which charge fees.

According to Reuters, the company's revenue in the second quarter rose more than 15 percent to $2.65 billion from a year earlier, and the volume of payments it processes jumped 28 percent to $86.21 billion. Up to Friday's (Sept. 2) closing stock price of $37.07, the stock had risen 2.4 percent this year.

PayPal explained that the deals with Mastercard and Visa level the playing field, and the growth in payments volume for PayPal will more than make up for any declines in revenue per transaction. PayPal also predicts that merchants will want to pay for PayPal because it is a seamless payments process.

PayPal’s other services, Braintree and Venmo, will also benefit from the Visa and Mastercard alliances; partnering with the two powerhouse acquirers gives more consumers the opportunity to use PayPal.

According to Dan Schulman, chief executive of PayPal: “Customer choice and partnership are fundamental principles for PayPal. With each partnership agreement that we sign, we further expand the ubiquity and value of the PayPal brand and improve our own economics.”

PayPal is also negotiating with banks that issue cards on new products that might promote PayPal. These discussions are important because Apple, already with a popular mobile wallet, is about to roll out online payments, which is in direct competition with PayPal. Not only that, but the big banks are about to roll out a competitor to PayPal’s Venmo, which is called Zelle.

With the Mastercard app, PayPal users can set the credit or debit card as a default payment method. PayPal also will share data on any transactions that use the Mastercard mobile tap. According to Ajay Banga, Mastercard CEO: “Whether paying in the physical or digital world, consumers want to see the familiar Mastercard brand.”

In return, Mastercard has agreed to waive any digital wallet fees and will give PayPal volume discounts. Mastercard will offer its Masterpass on Braintree, and Venmo users can use Mastercard Send for instant transfers. This last capability will allow PayPal to compete with the banks’ real-time payments apps.

Also announced by PayPal this week is that Visa Checkout, a one-click checkout option, will be available to merchants who use Braintree for online shopping carts. This may compete, to some extent, with PayPal’s One Touch button. Braintree is a PayPal company that processes payments for internet firms, such as Airbnb, Eventbrite, Pinterest and Uber. Braintree will enable merchants to use Visa Checkout as another payment option in early 2017.

An interesting perspective, according to InvestorPlace, is that a PayPal acquisition by either Visa or Mastercard could help the two acquirers catch up in the mobile payments space.


Become Highly Visible, Become Highly Hacked

But while PayPal has been very active in striking alliances and positioning itself strategically, it has also been the target of online scammers and phishers.

PayPal’s position as a leader in online money transactions makes it a huge target for scammers, and TechRadar recently reported a Twitter-based ruse that has seen at least two accounts suspended. The latest scam has the perpetrators impersonating Twitter representatives and responding to Twitter requests for customer relations assistance. The scammers contact the requestor and ask them to log into their PayPal account using a link that they provide to a website that looks a lot like the official website.

Scammers are also reaching out by email. Phony PayPal support or PayPal customer care emails are landing in customer inboxes informing them that their accounts are compromised. Of course, the emails contain a convenient but counterfeit link for PayPal customers to log into their accounts and to unwittingly hand over their passwords.

On Sept. 7 and 8, PayPal’s customers were worried when transactions were not showing up in their balances. In some cases, a seller’s balance dropped when a payment had been made by a buyer, according to EcommerceBytes. The problem extended to eBay sellers, who were unable to log in. However, according to PayPal, this glitch was not one caused by hackers.

A statement was later made by a PayPal spokesman:

"PayPal experienced a brief technical issue last evening during a planned system update, which resulted in some consumers being unable to see a transaction in their account history after it had processed. Some merchants may not have received a notification even though the transaction was processed. The technical issue has been fixed, and PayPal is working to have these transactions reflected accurately for both consumers and merchants.”

Consider it a tiny blip in the ever-expanding PayPal digital universe.


Add A Dash Of American Express To Season

PayPal is not overlooking the more granular yet crucial ingredients required to create its global open platform. On the personnel front, according to BetaKit, PayPal Canada has nabbed an ex-American Express executive. Paul Parisi will be general manager of Canadian operations. Operations in Canada serve almost 6.4 million customers and 250,000 small businesses. Parisi was formerly VP and general manager of global commercial payments for American Express Canada.


Stir In Half A Cup Of Guinness

Some Gaelic influence never goes amiss, unless you are Apple, that is. Over in Ireland, PayPal received the Excellence in the Workplace Award on Sept. 8 in Dublin at the 2016 Corporate Social Responsibility Ireland Awards. PayPal was recognized for its culture of diversity and inclusion. This marks the second year in a row that PayPal has won this award, according to Business World, and it is a philosophy driven in large part by PayPal Cofounder Peter Thiel.

Maeve Dorman, head of global operations EMEA, said: "We are fully committed to advancing, cultivating and preserving a culture of inclusion and diversity because it is the right thing to do for employees, our company and the communities we serve. This strategy also makes PayPal a better and more fulfilling place to work and build a career."

PayPal employs 2,600 people at its European Operations Centers in Ballycoolin and Dundalk.


Leave To Prove Until Double In Size

PayPal is being courted by Providence, Rhode Island officials, who would love PayPal to choose the New England city as the location for its new operations center.

According to Commerce Secretary Stefan Pryor, his commerce team accompanied PayPal officials when they viewed "multiple properties across the state," including the iconic Superman building at 111 Westminster Street.

PayPal, earlier this year, abandoned a move that would have brought 400 new jobs to Charlotte, North Carolina, because of the state’s ruling on transgender people and their use of bathrooms that don't correspond to their gender at birth.


So, PayPal seems to have all the right ingredients and is following a bold but sustained methodology. It will be interesting to see whether a bigger and better cook, Visa or Mastercard perhaps, takes over and ultimately spoils the broth.



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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