{"id":10816,"date":"2020-02-11T17:01:04","date_gmt":"2020-02-11T22:01:04","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/paypal-growing-through-partnerships\/"},"modified":"2020-02-11T17:04:23","modified_gmt":"2020-02-11T22:04:23","slug":"paypal-growing-through-partnerships","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/paypal-growing-through-partnerships\/","title":{"rendered":"Paypal: Growing Through Partnerships"},"content":{"rendered":"

Paypal has revolutionized the payments industry by offering customers an alternative to conducting transactions through cash or plastic credit cards. It has enabled customers and merchants to transact digitally by way of connecting directly to customer\u2019s bank accounts, to customer\u2019s credit cards or through mobile wallets. As ecommerce gains in traction, Paypal has rode this wave. By the end of this year, digital transactions are expected to comprise 15% of total global spend, up 6% from three years ago.<\/p>\n

Paypal started as a secure and convenient way for customers to facilitate online checkout (a gateway for the web), primarily through eBay. Today, some of the key services Paypal offers include a \u201cone-touch\u201d easy checkout for customers, allowing business to receive money through Paypal, an ability to transfer money globally, and receiving rewards on a Paypal debit card. Its main source of revenue comes from transaction fees that is charged to customers for each transfer of payment. Its ease of use has also has provided benefits to online merchants by increasing the conversion rate at which customers move from browsing to purchasing. According to Bloomberg, Paypal now has around 250 million users worldwide and processes around 30% of ecommerce transactions outside of China. This strong growth is driven by the company\u2019s strong network effects \u2013 as more customers join the network, the more incentive it is for merchants to sign up, thus attracting even more users.<\/p>\n

To remain relevant in the payments space, Paypal has engaged in multiple partnerships and acquisitions to fight off competition from newer and bigger players entering the market. These engagements include partnerships with Mastercard \/ Visa, high growth digital companies, such as Uber and Instagram, as well as acquisitions of Venmo and GoPay in China.<\/p>\n

Paypal\u2019s investment in Uber gives it access to the ride-share company\u2019s explosive growth and large number of global customers. This is an attempt to become the platform\u2019s preferred payment option and offer customers an easy way to conduct payments. This is especially significant given that it is a way for Paypal to remain competitive, especially with the advent of other payment solutions, i.e. Amazon Pay on Amazon\u2019s platform. Paypal has followed the same strategy in its partnerships with Facebook and Instagram, where they are facilitating payments on these large platforms to gain access to an enormous number of users and remain customer-centric.<\/p>\n

Paypal\u2019s acquisition of Venmo launched it into the space of peer-to-peer payments, whereby friends, for example, can easily send small amounts of money to one or another. Venmo, in itself allows Paypal to tap into the application\u2019s 40 million active users and utilize the partnerships developed with other applications, such as Uber and Grubhub. Moreover, this provides Paypal with an additional source of revenue.<\/p>\n

Paypal\u2019s partnership with card network incumbents, such as Visa and Mastercard allowed customers to more easily link their credit cards to their Paypal account. This provided an interesting strategic move. Instead of seeing these large players as competitors (where they now owe a portion of their fees to Visa \/ Mastercard), Paypal understood the value the card networks could bring in driving transactions on the web, as well as giving them an access point into brick-and-mortar stores.<\/p>\n

Paypal\u2019s partnership strategy has also allowed it to enter into large foreign markets. At the end of 2019, it completed an acquisition of a 70% stake in GoPay, an online payment services in China. This provides Paypal with access into a market which is expected to grow over 20% year-on-year until 2023 driven particularly by the growth in ecommerce. Although they will be able to share in some of the potential growth of the market. It will be seen if they can compete successfully with local players, Alibaba and WeChat who already dominate the market.<\/p>\n

Paypal has also entered into partnerships with a multitude of other companies across the payments and ecommerce space, including banks, cyber security firms, social media platform and other card network companies (refer to figure one<\/em>).<\/p>\n

Figure One: Sample of Paypal\u2019s Partnerships<\/strong><\/p>\n

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Source: Paypal Website.<\/p>\n

Overall, Paypal has seen explosive growth since its inception, led by its value creating business model which provided a reliable, quick, and secure way for customers and merchants to benefit and transact online. This was further accentuated by its first mover advantage in the space and the network effect it created. To sustain its growth, it has partnered with various companies to capture value, grow its user base and remain relevant in light of new entrants in the last few years.<\/strong><\/p>\n

Word Count: 751<\/em><\/p>\n

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Sources:<\/u><\/p>\n

Bennett, Drake, and Julie Verhage. \u201cPayPal Quietly Took Over the Checkout Button.\u201d Bloomberg.com. Bloomberg. Accessed February 11, 2020. https:\/\/www.bloomberg.com\/news\/features\/2019-01-08\/paypal-escaped-obscurity-by-embracing-credit-card-competitors<\/a>.<\/p>\n

Cardenal, Andres. \u201cPayPal Has a Winning Strategy.\u201d The Motley Fool. The Motley Fool, October 31, 2016. https:\/\/www.fool.com\/investing\/2016\/10\/31\/paypal-has-a-winning-strategy.aspx<\/a>.<\/p>\n

Markman, Jon. \u201cHow PayPal Muscled To The Top Of The Digital Money Stack.\u201d Forbes. Forbes Magazine, February 26, 2019. https:\/\/www.forbes.com\/sites\/jonmarkman\/2019\/02\/24\/how-paypal-muscled-to-the-top-of-the-digital-money-stack\/#a51dd5267796<\/a>.<\/p>\n

Rooney, Kate. \u201cPayPal’s Latest Mega-Investment in Uber Signals Growing Global Ambitions.\u201d CNBC. CNBC, April 26, 2019. https:\/\/www.cnbc.com\/2019\/04\/26\/paypals-mega-deal-with-uber-signals-growing-global-ambitions.html<\/a>.<\/p>\n

Perez, Sarah. \u201cPayPal Completes GoPay Acquisition, Allowing the Payments Platform to Enter China.\u201d TechCrunch. TechCrunch, December 19, 2019. https:\/\/techcrunch.com\/2019\/12\/19\/paypal-completes-gopay-acquisition-allowing-the-payments-platform-to-enter-china\/<\/a>.<\/p>\n

Rosenbaum, Eric. \u201cVenmo Has Digital User Base Putting Heat on Square and Banks, but No Plan to Profit from It.\u201d CNBC. CNBC, April 25, 2019. https:\/\/www.cnbc.com\/2019\/04\/25\/venmo-discloses-huge-digital-user-base-but-no-plan-to-profit-from-it.html<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

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