PYPL - PayPal

[plato1976]

Is any one concerned with all the competition coming from those new payment services from Apple, Amazon, etc. etc.?

 

Square Seeks More Than $300 Million in Initial Stock Sale

 

http://www.bloomberg.com/news/articles/2015-11-06/square-seeks-more-than-300-million-in-initial-stock-sale

[Guest Schwab711]

I've been looking at companies with float lately and PYPL is interesting. They have ~$15b in float, which earned ~$45m in 2016 (~0.3% yield). Current 1M UST is 0.5% and fed funds is 0.67%. There is speculation around another rate hike in March which would lift the range to 0.75% to 1.00%. If PYPL's average effective yield on float is 0.75% in 2017 and the average float balance is ~$16b then interest income is $120m, an increase of $75m or >5% y/y NI growth.

 

If we are in a secular rising rate environment then PYPL will probably see single-digit earnings growth without any volume/pricing growth in the underlying business!

[kab60]

Interesting. So around a 5% FCF yield atm, pricing/volume growth without much capex plus interest rate upside?

[mwtorock]

So it takes a 'Third Point' to bump this one out of consolidation?

 

*********************************************************************

New Position: PayPal

During the Second Quarter, we initiated a long position in PayPal, a $100 billion market cap online payments company that processes ~20-30% of all ecommerce transaction volume globally (ex-China), led by the excellent CEO Dan Schulman. With 237 million active accounts and 19 million merchants using the iconic PayPal checkout button online, PayPal enjoys a dominant competitive position with a 10x scale advantage relative to peers. Consumers love PayPal because it enables hassle-free, one-touch checkout across millions of online merchants; merchants love PayPal because it drives higher sales, with a checkout conversion rate of 89% – almost 2x that of credit/debit cards. We see parallels between PayPal and other best-in-class internet platforms like Netflix and Amazon: high and rising market share, untapped pricing power, and significant margin expansion potential. PayPal is in the process of evolving from a pure-play “checkout button” to a broader commerce solutions platform, expanding into adjacent verticals (e.g. in-store payments, B2B) organically and through M&A. We forecast above-consensus EPS growth driving shares to $125 within 18 months, for ~50% upside.

In the near term, we see three large incremental revenue opportunities for PayPal: (1) Venmo monetization, (2) dynamic pricing, and (3) offline payments. PayPal is just starting to monetize Venmo, a P2P (Peer to Peer) platform that has grown 25x in four years, and now accounts for ~10% of PayPal’s transaction volume. PayPal launched a “Pay with Venmo” button in early 2018 for commercial transactions, as well as a new Venmo-branded debit card that consumers can use to fund commercial transactions both online and offline. We think Venmo can contribute $1 billion in incremental annual revenue for PayPal within three years. Second, PayPal is just scratching the surface on pricing power: the company recently shifted away from a “one-size-fits-all” approach in merchant contracts to a dynamic pricing model that reflects the value-add of a growing suite of products. Finally, in May 2018, PayPal announced the $2 billion acquisition of iZettle, a fast-growing provider of mobile POS systems for offline merchants in Europe and LatAm. We expect iZettle’s growth to accelerate as PayPal cross-sells iZettle into its existing network of 19 million merchants. This deal takes PayPal from the world of online commerce ($3 trillion in global addressable spend) to that of offline commerce ($21 trillion in global addressable spend). We believe PayPal has multiple top-line drivers in the years ahead, with core online volume growing in the mid-20% range, latent untapped pricing power with merchants, Venmo on the cusp of monetization, and the potential to gain scale in the vast offline payments market.

[Jurgis]

I think I bought a bit when PYPL was spun off and I still have that position.

 

That said, I don't really know why this is attractive. OK, I am not Venmo user, so perhaps I don't get that. Regarding PayPal, I have used it about once per year in the last 2-3 years. What is the use case for this? Who is using it? Is it all consumers purchasing from small online businesses and international? Isn't that a bad space to be, since any businesses that grow start taking credit cards? Are there any users who prefer to use PayPal vs using a credit card directly? (Maybe international, IDK).

 

I see some posters above think that PayPal bring a lot to the table from business owner perspective I guess. But really wouldn't you switch to accepting CCs if you grew to any reasonable size? Would your customers keep using PayPal if they had a choice of PayPal vs CCs?

[glorysk87]

I think I bought a bit when PYPL was spun off and I still have that position.

 

That said, I don't really know why this is attractive. OK, I am not Venmo user, so perhaps I don't get that. Regarding PayPal, I have used it about once per year in the last 2-3 years. What is the use case for this? Who is using it? Is it all consumers purchasing from small online businesses and international? Isn't that a bad space to be, since any businesses that grow start taking credit cards? Are there any users who prefer to use PayPal vs using a credit card directly? (Maybe international, IDK).

 

I see some posters above think that PayPal bring a lot to the table from business owner perspective I guess. But really wouldn't you switch to accepting CCs if you grew to any reasonable size? Would your customers keep using PayPal if they had a choice of PayPal vs CCs?

 

Pretty profound misunderstanding of what PayPal does.

 

To your point about accepting CC's - yes, they would switch to accepting CC's. That's a large part of the value proposition of PYPL.  If you have an online store, you can use Braintree to set up a merchant account and payment gateway, allowing you to accept CC transactions. If you have a bricks & mortar store, you will be able to use iZettle to accept CC's and other forms of payment. If you have an app-based store, you can use Paydiant to enable those capabilities. Same for Venmo and P2P. The list goes on.

 

To boil it down - PYPL is positioning as the service provider that will allow any company to accept any payment in any form at any time. And they're positioning themselves to capture value every time a transaction occurs anywhere along that chain.

[Jurgis]

I think I bought a bit when PYPL was spun off and I still have that position.

 

That said, I don't really know why this is attractive. OK, I am not Venmo user, so perhaps I don't get that. Regarding PayPal, I have used it about once per year in the last 2-3 years. What is the use case for this? Who is using it? Is it all consumers purchasing from small online businesses and international? Isn't that a bad space to be, since any businesses that grow start taking credit cards? Are there any users who prefer to use PayPal vs using a credit card directly? (Maybe international, IDK).

 

I see some posters above think that PayPal bring a lot to the table from business owner perspective I guess. But really wouldn't you switch to accepting CCs if you grew to any reasonable size? Would your customers keep using PayPal if they had a choice of PayPal vs CCs?

 

Pretty profound misunderstanding of what PayPal does.

 

To your point about accepting CC's - yes, they would switch to accepting CC's. That's a large part of the value proposition of PYPL.  If you have an online store, you can use Braintree to set up a merchant account and payment gateway, allowing you to accept CC transactions. If you have a bricks & mortar store, you will be able to use iZettle to accept CC's and other forms of payment. If you have an app-based store, you can use Paydiant to enable those capabilities. Same for Venmo and P2P. The list goes on.

 

To boil it down - PYPL is positioning as the service provider that will allow any company to accept any payment in any form at any time. And they're positioning themselves to capture value every time a transaction occurs anywhere along that chain.

 

So you are saying that merchants have no choice but go through PayPal and pay them extra if they want to accept CCs? At which size can a merchant say "screw you" to PayPal and install infra that does not cost them PayPal fees while accepting CCs?

[glorysk87]

I think I bought a bit when PYPL was spun off and I still have that position.

 

That said, I don't really know why this is attractive. OK, I am not Venmo user, so perhaps I don't get that. Regarding PayPal, I have used it about once per year in the last 2-3 years. What is the use case for this? Who is using it? Is it all consumers purchasing from small online businesses and international? Isn't that a bad space to be, since any businesses that grow start taking credit cards? Are there any users who prefer to use PayPal vs using a credit card directly? (Maybe international, IDK).

 

I see some posters above think that PayPal bring a lot to the table from business owner perspective I guess. But really wouldn't you switch to accepting CCs if you grew to any reasonable size? Would your customers keep using PayPal if they had a choice of PayPal vs CCs?

 

Pretty profound misunderstanding of what PayPal does.

 

To your point about accepting CC's - yes, they would switch to accepting CC's. That's a large part of the value proposition of PYPL.  If you have an online store, you can use Braintree to set up a merchant account and payment gateway, allowing you to accept CC transactions. If you have a bricks & mortar store, you will be able to use iZettle to accept CC's and other forms of payment. If you have an app-based store, you can use Paydiant to enable those capabilities. Same for Venmo and P2P. The list goes on.

 

To boil it down - PYPL is positioning as the service provider that will allow any company to accept any payment in any form at any time. And they're positioning themselves to capture value every time a transaction occurs anywhere along that chain.

 

So you are saying that merchants have no choice but go through PayPal and pay them extra if they want to accept CCs? At which size can a merchant say "screw you" to PayPal and install infra that does not cost them PayPal fees while accepting CCs?

 

What? No I didn't say they have no choice. I was responding to your original post in which you were asserting that PayPal and CC's were mutually exclusive and the fact that you seemed to not know that PayPal offers a service and makes money by enabling businesses to accept CC's.

 

As for your most recent response - there are a few alternatives that a business can use to allow them to accept CC payments. I'm not sure what you mean by saying "install infra that does not cost them PayPal fees while accepting CCs" - any service that a business uses to accept CC payments will cost them money in the form of transaction fees. Maybe you could clarify what you mean by this?

[Jurgis]

I think I bought a bit when PYPL was spun off and I still have that position.

 

That said, I don't really know why this is attractive. OK, I am not Venmo user, so perhaps I don't get that. Regarding PayPal, I have used it about once per year in the last 2-3 years. What is the use case for this? Who is using it? Is it all consumers purchasing from small online businesses and international? Isn't that a bad space to be, since any businesses that grow start taking credit cards? Are there any users who prefer to use PayPal vs using a credit card directly? (Maybe international, IDK).

 

I see some posters above think that PayPal bring a lot to the table from business owner perspective I guess. But really wouldn't you switch to accepting CCs if you grew to any reasonable size? Would your customers keep using PayPal if they had a choice of PayPal vs CCs?

 

Pretty profound misunderstanding of what PayPal does.

 

To your point about accepting CC's - yes, they would switch to accepting CC's. That's a large part of the value proposition of PYPL.  If you have an online store, you can use Braintree to set up a merchant account and payment gateway, allowing you to accept CC transactions. If you have a bricks & mortar store, you will be able to use iZettle to accept CC's and other forms of payment. If you have an app-based store, you can use Paydiant to enable those capabilities. Same for Venmo and P2P. The list goes on.

 

To boil it down - PYPL is positioning as the service provider that will allow any company to accept any payment in any form at any time. And they're positioning themselves to capture value every time a transaction occurs anywhere along that chain.

 

So you are saying that merchants have no choice but go through PayPal and pay them extra if they want to accept CCs? At which size can a merchant say "screw you" to PayPal and install infra that does not cost them PayPal fees while accepting CCs?

 

What? No I didn't say they have no choice. I was responding to your original post in which you were asserting that PayPal and CC's were mutually exclusive and the fact that you seemed to not know that PayPal offers a service and makes money by enabling businesses to accept CC's.

 

As for your most recent response - there are a few alternatives that a business can use to allow them to accept CC payments. I'm not sure what you mean by saying "install infra that does not cost them PayPal fees while accepting CCs" - any service that a business uses to accept CC payments will cost them money in the form of transaction fees. Maybe you could clarify what you mean by this?

 

I think you misunderstood my original message. Yeah, I know that merchants can accept CCs through PayPal, i.e. customers pay with CC that goes through PayPal. I used shorthand "accept CCs" and meant "accept CCs not using PayPal". I see how that was not very readable.

 

Regarding second message, maybe that was not clear either. From what I've seen PayPal charges pretty high fees for accepting CCs through them.

I was asking at which point in time it's worthwhile to go for other CC processing solutions. With a quick search, I see tons of solutions being advertised. Some provide free hardware + software (infra). Some of them at the level of 0.15% fees. (I don't want to post promotional links here, since I have no clue how good and reliable these are). Some don't disclose fees, so I can't say offhand what the fees are. I'd guess if merchant is big enough, they can setup their own infra too (some websites claim as much). Though likely even big cos mostly outsource if they can get free HW/SW and 0.15% or lower fees.

 

Although perhaps PayPal also offers way lower fees for bigger merchants.

 

And clearly there are other questions of the support where PayPal can come out on top (or not):

- Fraud prevention

- Cash deposit time

- Cash holdout for fraud/returns/etc.

- Analytics/etc.

 

Anyway, if I understand correctly, you say that PayPal provides good service for merchants, but that the PayPal-pay (not CC through PayPal, but the PayPal-account) ability is not that important for customers. And Venmo is separate topic. Yes?

 

Edit: this is presumably the latest PayPal merchant fees: https://www.paypal.com/us/webapps/mpp/merchant-fees?&51376578128&PID1=sHCsdwMbB%7Cdc&PID2=HCsdwMbB&act=%5BAccount%5D&adgroup=TM-SMB+-+PayPal+-+Fee+(e)&adposition=1t1&adtype=%7Badtype%7D&campaign=TM-SMB+-+PayPal+Fee&ch=SEM&creative=51376578128&ct=SMB&devicemodel=&e&eu84e2fpi0&gclid=CJTOr9WAqMICFZKBaQod50MAbw&geo_country=US&geo_region=NA&kw=paypal+fees&matchtype=e&mpch=ads&mplx=27722-205546-2056-1&mv=google&network=g&obj=Acquisition&paypal+fees&spid=870902502189460310&target=&tt=TM

2.7% seems quite high and only worthwhile if there are no other choices. That's why I assumed any merchant would migrate away from PayPal asap. Am I wrong?

 

Edit2: It's possible that PayPal 2.7% is a complete fee (i.e. merchant gets price minus 2.7% and that's that), while other services quote 0.15% fee that they charge but there's other fees, so merchant gets price minus 0.15% minus ??%. This is something that I don't know. :)

[DTEJD1997]

Hey all:

 

I use PayPal every day, multiple times a day for both sending & receiving payments.

 

I have noticed some changes going on in Paypal recently.

 

In the past, PayPal has been a very well run, very professional organization.  They still are...but I think they are getting "rough around the edges".

 

They are no longer going to be the exclusive payment processor with Ebay in the near future.  That is going to put a dent in their operations.

 

In the past, whenever I had a fraudulent charge, PayPal would USUALLY take care of it promptly if everything were in order.  Lately, PayPal has been stretching out the resolution of these things, and holding onto the money for much longer periods of time.

 

I think that once they lost the Ebay business, they are no longer going above & beyond to service those accounts well.  Now, they appear to be doing the contractual minimum.

 

Another point to make is that PayPal charges approximately a 2.8% fee for processing domestic payments.  Sometimes a bit more if it is a small or unusual transaction.  There is also an added 1% fee for foreign payments.

 

To my knowledge, NO payment processor is only taking .15% of the transaction total...not even close.  PayPal is not the lowest cost, but they are competitive.

[Jurgis]

http://www.leadersmerchantservices.com/sq/index.php?st=top10bestccp&vendorSubId=AFF_pM2Aeokxgj

 

I don't know who these guys are and if they are legit and whether their ads are bait and switch. So caveat emptor. Just showing I did not invent the pricing.  8)

[mwtorock]

:) happy that i re initiated some wonderful discussions.

 

So on the point of ebay, i actually think it is not a negative situation because pypl will be able to do a lot that is not allowed right now due to the contract with ebay. At least i dont think it would have a large impact on paypal's revenue or profit by 2020 to lose ebay.

 

on the point of competition with cc processors, i think paypal users/user experience may be the competitive edge. Think about buying something on the internet using cc - you need to input your name, address, card number, etc. Even if user saves the card info, he or she still needs to put the same for different sites and update all over again when uses a new card. With paypal, it is one button. Ok maybe a couple buttons.

 

The weakness of paypal network is physical stores, and that is what the management is after,  izettle. venmo pay, etc.

 

The valuation is pretty high, but it is a good business - network of payment processing.

[Broeb22]

 

I thought this piece did a good job of quantifying the eBay lost business impact, even if their overall conclusions seemed extreme.

 

In short, eBay is more material than you think due to their much higher than average take rate which contributes above average profitability.

 

https://seekingalpha.com/article/4016612-paypal-ebay-subprime-lender-ticking-time-bomb-70-percent-downside-surprising-risks

[Jurgis]

on the point of competition with cc processors, i think paypal users/user experience may be the competitive edge. Think about buying something on the internet using cc - you need to input your name, address, card number, etc. Even if user saves the card info, he or she still needs to put the same for different sites and update all over again when uses a new card. With paypal, it is one button. Ok maybe a couple buttons.

 

I've heard this argument before and personally I don't buy it. Yes, if I go to superrandom site that I use only once and I have a choice of PP or CC, I use PP. But if it's a site where I buy more than once, I choose CC. PP for me is a hassle because I have to do extra login, something may go wrong, etc. rather than CC being a hassle.

But then maybe I'm not the common case...  ::)

 

Anyway, I believe glorysk87 argues that the PP competitive edge is with merchants. At least that's how I understood.

 

I think interesting questions are - and I'm sorry, but I probably won't have time/interest/etc. to dig out these:

 

- What are PP terms with eBay? Why is eBay leaving? Do these reasons apply to other merchants? If big merchants like eBay get low fees from PP, what these fees are? I doubt they pay 2.7% like random PP one-person-merchant account. OTOH, I did not find offhand what the big merchant fees are. Maybe they don't disclose.

I think it also would be interesting to learn more about CC processing competition. Not just nonames, but companies like BAC, etc.

 

Anyway, I think overall I'll admit that I don't know enough to have strong conviction where PP goes from here. They definitely have some brand name, some moat, some good areas. But I'm not confident enough to value these or calc growth/profitability for long term.

 

Good luck

[Spekulatius]

I prefer to use my CC for online payment rather than PP, due to cash back, extra warranties and other perks.

I have used PP only twice during the 7 years I have an account and honestly don’t see a point from a user perspective.

 

I feel like a large player will shake up the payment market by completely circumventing the existing payment networks offering a cheaper solution, but I have been thinking this for years. Large companies like FB, GOOG or Apple with their huge user base should be able to do this, but I am guessing the relatively small benefit for the user isn’t  worth it.

The innovation probably starts in 2nd or 3rd world countries out of necessity where people don’t have CC and maybe never win one. Maybe wechat goes worldwide and competes with Visa, MC etc.

[Sportgamma]

Here's how he might be wrong:

- Merchants don't love PayPal as merchants are extremely conscious on pricing.

- PayPal does not have untapped pricing potential as the payment gateway space is moving to a omni-payments environment. Online merchants, in particular, will want to offer flexible payment options, where PayPal will be but one of multiple options.

- The competition in fintech - online payment gateways/processing in particular - is really fierce currently.

- The cost reduction arguments that he makes are applicable to all players in the sphere, i.e. all players in the market are working on automation of customer service to lower costs. Any cost saving are likely to be competed away.

- The changing relationship with eBay might well present opportunities, but what about the threats? How is this not a net negative event? Beats me...

 

It may well be that the shares are trading at 18x2020 eps, but I just find the reasoning for this so weak.

[DTEJD1997]

http://www.leadersmerchantservices.com/sq/index.php?st=top10bestccp&vendorSubId=AFF_pM2Aeokxgj

 

I don't know who these guys are and if they are legit and whether their ads are bait and switch. So caveat emptor. Just showing I did not invent the pricing.  8)

 

I didn't think that you were making things up out of the blue...but there is just simply NO WAY that a small merchant is paying .15% fee for credit card acceptance.

 

Upon some research....it looks like most small merchants will pay a monthly interchange fee of something like $25 or so.  Then, if they are taking payments with a person presenting a card in front of them (card present), then there is a $.10 fee along with about a 1.6% fee of the transaction total.

 

If you are taking cards over the phone OR through the interwebs...then the fee escalates to something like 2.25% to 2.5%

 

https://www.cardfellow.com/blog/average-fees-for-credit-card-processing/

 

The above website jibes with what I've seen & heard.

 

HOWEVER, I've heard that if you do a lot of volume in high $$$ transactions, you can get your rate down by paying a monthly flat fee of something like $150 and then a very small % of each transaction.

 

I don't know how fraud/chargebacks are handled with the low rate processors. 

 

PayPal used to be excellent on fraud cases.  As long as you did everything right AND shipped to the correct address, you would be reimbursed by PayPal.  This seller protection is included in their percentage fee.

 

I would imagine that in the sub 1% fee processors, there is probably little to no seller protection against fraud/chargebacks. 

 

If you get little or no fraud, and do tremendous volume, it would make sense to go with the low rate processors.  If you have to deal with fraud, then you probably want to go with PayPal or other relatively high rate processor.

[Jurgis]

https://www.theguardian.com/world/2018/jul/17/venmo-payments-app-default-privacy-settings-public-information

[DooDiligence]

No position and not thinking about starting one, but thought this was interesting.

 

"PayPal becomes first foreign firm in China with full ownership of payments business"

 

www.reuters.com/article/us-china-paypal-stake-idUSKBN29J0IC?utm_source=reddit.com

 

---

 

edit:

 

In other news, eBay is taking payment in house. Not kicking PayPal to the curb entirely, just forcing sellers to hand over bank info & will be providing end to end payment services with microscopic savings for payment processing. They also tout quick, direct to bank account payments for sellers.

 

www.ebay.com/help/selling/getting-paid/introducing-managed-payments-ebay?id=4795

[mwtorock]

That ship has sailed DD ;)