PayPal (Re)Emerges as a Payments Giant
By
Gilles Ubaghs
PayPal is currently re-positioning itself as a broader commerce platform. The forthcoming strategy will be critical to its long term survival in an increasingly competitive space. Notably, PayPal is the only survivor of the many payment options that eBay initially used. PayPal has since its acquisition grown to become arguably the most trusted specialist among online payment providers. Moreover, the company has become a truly global consumer and merchant facing brand. In a recent survey by Ovum, 75% of global retailers reported they’d consider working with PayPal in the future.
PayPal and eBay were both critical to each other’s global growth. For eBay, PayPal provided a clear and trusted escrow service to enable consumers to transact with each other. Simultaneously, for PayPal, the need for such services on eBay gave it a considerable driver in gaining that initial consumer incentive to sign up for the service, a stumbling block that even newer platforms like Apple Pay and Android Pay continue to struggle with. Treading a path that Uber later followed, PayPal’s expansion into global markets was in many instances faster than what the local regulatory environment could deal with, a challenge that eBay’s substantial resources was able to help deal manage.
PayPal is now following an explicit strategy of expanding its broader payment capabilities beyond its core wallet service. Much of it driven through highly strategic acquisitions across the payments space. PayPal’s new found freedom with eBay comes with the additional benefit of a substantial cash war chest at hand of an estimated US$5bn, minimal debt, and high levels of interest from investors giving it further scope for acquisition. PayPal is expected to replace eBay outright in the S&P100 following the demerger and appetite will be high for further development. PayPal as an organization is now bigger than its core wallet platform and will continue to develop these new services as it diversifies its portfolio of capabilities.
This diversification of services includes its expansion into consumer credit with PayPal Credit, mPOS with PayPal Here, and its numerous highly strategic acquisitions. These acquisitions, including online payments provider Braintree, wallet provider Paydiant and international mobile remittance platform Xoom, significantly expand PayPal’s capabilities in both the merchant and consumer spaces, with broader full stack capabilities.
Combined, these expanded capabilities will help PayPal to better weather any turbulence in its core wallet platform market. One critical component in its moves to diversify however, is the fact that PayPal is not tied into any specific hardware platform or technology. This could prove problematic in some areas, most notably in NFC (near field communication) deployment for proximity payments via its own wallet. This hardware agnosticism means that PayPal as a platform, including through its numerous acquisitions, has further scope to develop its products and services to potentially reach a broader audience than its competitors can achieve.
Unshackled from eBay and without the demands of supporting a specific mobile ecosystem, PayPal has the freedom to innovate in a broad variety of areas. This is readily apparent in PayPal’s approach to merchants in terms of payment acceptance. Through both its Braintree and PayPal Here initiatives, PayPal is open to accepting other payment tools, including potential rivals such as Apple Pay. This places PayPal in a unique position of potentially benefiting from its own rivals’ success. This will pose a challenge for PayPal, as it will essentially have many potential conflicting aspects to its business to juggle simultaneously, but does reduce the risk of being over reliant on PayPal’s core wallet platform. The evolution of PayPal is far from over and it’s that very adaptability that will help secure its future in the long term.
Gilles Ubaghs is a Senior Analyst of Financial Services Technology at Ovum
