3 Major Takeaways From PayPal’s Earnings

paypalFrom new apps to surprising partnerships, PayPal has had another buzzing quarter.

The payments giant ended the year with 197 million active customer accounts, adding 5.4 million new accounts last quarter. The holiday shopping season — the largest ever — helped drive a 25% quarterly increase in payments volume, resulting in $99.3 billion in the fourth quarter.

Venmo continued to expand, and One Touch – PayPal’s web payments service that allows customers to check out from a merchant’s website without having to enter a user ID and password – enjoyed wide adoption, as well.

So let’s take it one step at a time.

1. PayPal (Still) Dominates Payments, But With a New Strategy

“Payments are rapidly digitizing,” PayPal’s Chief Executive Dan Schulman said during the earnings call on Thursday.

Mobile accounted for a third of the company’s overall payment volume during the quarter, and “is becoming an increasingly important competitive differentiator for PayPal,” he said.

But if, previously, PayPal competed in the payments market (mostly) solo, last quarter — and the whole year — illustrated PayPal’s willingness to partner with traditional FIs, most notably Visa, Mastercard, Citi, FIS, and Discover.

Those deals, according to Schulman, highlight PayPal’s “commitment to putting our customers front and center.” The company will continue to pursue more “landmark partnerships and alliances,” he added.

2. Venmo Will Make Money This Year

Venmo processed $5.6 billion in payments last quarter, up 126% year over year. For the full year, Venmo processed $17.6 billion, up 135% from the full year 2015.

So the Venmo adoption is soaring, what of it? PayPal plans to fully roll out Pay with VenmoVenmo’s in-app payment feature – this year, and expects to see the service monetize soon after.

“If you give somebody the choice to pay, they become more engaged, [and] the average price that they pay or the basket size that they have, goes up, these [things] are not surprising,” Schulman said. “The big impact on that [with Pay with Venmo] will happen in 2018 and 2019. So when we talk about feeling well-positioned, or profitable growth in 2017 and beyond, it’s because what we’re seeing right now has us pretty encouraged.”

3. One Touch’s Successful Adoption May Take It Abroad

PayPal launched its One Touch service in mid-2015. In 2016, the system was already adopted by 5 million merchants, offering One Touch to more than 40 million consumers (of PayPal’s total 200 million users).

Schulman went on to cite One Touch’s mobile conversion rate — 87%, compared with an industry average of 44% — as one of the reasons the company sees the possibility of international expansion for the offering.

“One Touch is a clear advantage that we have now in mobile, and the scale we have, the increased engagement we are seeing,” Schulman said. “We are beginning to see new market opportunities, internationally, and we have a platform now that we can extend to many more markets.”

To learn more about mobile payments, join us in San Jose on March 6-7 for Bank Innovation 2017, where the best conversations in fintech take place. Register here.

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