{"id":13987,"date":"2021-02-11T20:18:36","date_gmt":"2021-02-12T01:18:36","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/paypal-reaches-record-growth-numbers-as-digital-first-world-becomes-a-reality\/"},"modified":"2021-02-11T20:18:36","modified_gmt":"2021-02-12T01:18:36","slug":"paypal-reaches-record-growth-numbers-as-digital-first-world-becomes-a-reality","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/paypal-reaches-record-growth-numbers-as-digital-first-world-becomes-a-reality\/","title":{"rendered":"Paypal reaches record growth numbers as \u2018digital first\u2019 world becomes a reality."},"content":{"rendered":"

Paypal\u2019s financial performance highlighted in the Q4 has been nothing short of extraordinary. Revenues for 2020 are up 22% to $21.5Bn \u2013 Paypal reached $6.12 Bn revenue for Q4 alone, the first time the company\u2019s history. Total payment volume for the year was up 31% reaching $936Bn for the year. In 2020 alone the company added 72.7 million new accounts up a staggering 95% from 2018 with total account numbers reaching 377 million active users.[1]<\/a><\/p>\n

The company strategy has been key to the success of the business. They have pursued an active inorganic strategy with over 10 acquisitions over the last 8 years but the company has seen positive effects from recent organic efforts including the creation of \u2018Buy Now Pay Later\u2019 feature as well as now supporting the buying and selling of cryptocurrencies on their platform. The largest driver for business success however has been not due to a strategic decision but rather an external shock \u2013 COVID 19. The coronavirus pandemic has seen many businesses succumb to failure but it has had a positive impact on companies such as PayPal.<\/p>\n

The pandemic has accelerated the move to digital technologies \u2013 especially digital payments. The current CEO of Paypal stated in an earnings call for Q4 results that \u201cDigital-first world is no longer out future but it\u2019s the current reality\u201d. Digital payments are defined as payments made through a browser, app or a checking out using an app or a QR code or a P2P payment. A McKinsey article states that in the United States digital payments penetration is up to 78% in 2020 (was 72% in 2016)\u00a0 and there has been a strong increase in consumers who use two or more digital payment methods \u2013 increasing from 45% in 2019 to 58% in 2020[2]<\/a>. The benefit of digital payments has not been fully realised due to consumers not fully trusting digital payments and security being a significant barrier to new adoption. A 6% increase in penetration over 5 years indicates that consumers who are currently not using any form on digital payments are tougher to convert and that the largest driver of digital payment volumes has rather been the \u2018repeat users\u2019 who are using digital payments for more types of payments.<\/p>\n

The coronavirus pandemic seems to have shifted more consumers to using digital payments but with revenue and volume growth rates of 20% and 30% respectively for Paypal, it seems that the company has been able to capture more than its fair share of the digital payments market. The key to Paypal\u2019s success is not only that they found themselves in the digital payments business but that they also had the trust factor from consumers and merchants. The size of users with Paypal accounts reaching 377 million active users and the fact the company has been around for over 20 years shows that the company has finally reached a maturation stage. Consumers are trusting Paypal to the same level as they would trust their own banks or the payment network providers like Visa and Mastercard. Payment volume for Paypal rose 31% to $936Bn in 2020 which means that it is processing payment close to VISA and Mastercard levels.<\/p>\n

Paypal\u2019s current businesses performance was also driven by the Venmo which had strong growth numbers. The company has also said that it will be creating a Venmo credit card which will then capture more of the Card network revenues. The launch of the \u2018Buy Now and Pay Later\u2019 product is said to the company’s most successful product entry in the company\u2019s history. This feature allows for merchant\u2019s to give consumers the option to pay with 4 equal instalments that would be overseen by Paypal. This will only be available on selected merchant\u2019s websites and apps. Just after one-quarter of the product being launched it already had over 3 million customers use it (40% repeat) and it reached over $850 in total payment volumes.<\/p>\n

Going forward, even after the pandemic ends, I believe that Paypal will continue on its strong growth trajectory due to its current ecosystem continuing to strengthen and network economies of using the site also becoming stronger over time. The overall driver here is that Paypal is already a very international company that is currently operating all over the world and accepting over 25 currencies. Paypal also just launched in China and will be one of the first foreign-controlled operators in the country.<\/p>\n

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[1]<\/a> https:\/\/www.marketwatch.com\/story\/paypal-profit-triples-as-pandemic-drives-continued-surge-in-online-payments-11612387131<\/p>\n

[2]<\/a> https:\/\/www.mckinsey.com\/industries\/financial-services\/our-insights\/banking-matters\/us-digital-payments-achieving-the-next-phase-of-consumer-engagement<\/p>\n","protected":false},"excerpt":{"rendered":"

Paypal\u2019s financial performance highlighted in the Q4 has been nothing short of extraordinary. 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