The Green Sheet Online Edition
August 10, 2015 • Issue 15:08:01
PayPal gets wings, makes mobile play
Upon spinning off from parent company eBay Inc., PayPal Inc. signaled it wants to become dominant in the mobile payments space. "Mobile technology is transforming payments, making it easier, safer and more affordable for people to move and manage their money than ever before," said PayPal President and Chief Executive Officer Dan Schulman in a July 2015, statement. "As an independent company, we see tremendous opportunity for PayPal to expand our role as a champion for consumers and partner to merchants, and to help shape the industry as money becomes digital at an increasingly rapid pace."
PayPal, which re-listed on the NASDAQ exchange on July 20, was founded in 1999 to facilitate online payments. The company was listed on NASDAQ until October 2002, when it was acquired by the online auction giant eBay, for $1.5 billion. eBay has since helped to fund much of PayPal's expansion. PayPal became involved directly in merchant services in 2004 with the launch of the iTunes Store; eight years later, in May 2012, it began supporting in-store payments with PayPal Here. In 2006, PayPal introduced its support for mobile payments using SMS technology. Soon after, it received a banking license from Luxembourg.
More recently, eBay purchased four companies with mobile payment capabilities to bolster PayPal in preparation for its spinoff. These are: Venmo, a licensed money transmitter; Braintree, an online merchant acquiring firm that previously owned Venmo; digital remittance company Xoom Corp.; and Paydiant Inc., a cloud-based mobile wallet platform.
Immediately following its return to NASDAQ trading, PayPal heralded a deal with TransferTo, which specializes in mobile prepaid top-ups. The arrangement allows Canadians to pay for mobile airtime using their PayPal accounts. In a post on the online investment research platform Seeking Alpha, LN Investors stated PayPal was ready to expand in the mobile payments space. Describing the recent acquisitions, LN wrote, "With this kind of firepower, I'd say the competition had better watch out for an unleashed PayPal."
Visa Inc. CEO Charlie Scharf said in a call with analysts that he isn't concerned about PayPal posing a competitive threat. "[W]e actually don't spend a lot of time thinking about what PayPal is doing," he said. Scharf also said PayPal relies on Visa processing rails for a large number of the payments it handles.
Strong balance sheet, analysts impressed
PayPal begins anew as a public company with a strong balance sheet – "more than $6.5 billion in cash, and no debt," Patrick Dupuis, PayPal's Chief Financial Officer noted in a statement. "Globally, PayPal processed more than $250 billion worth of payments in the last 12 months and more than 4 billion transactions for customers in 203 markets last year," he said. Included in those 4 billion transactions were $46 billion in mobile payments, Dupuis said. In all, PayPal generated $8 billion in revenues for eBay last year.
Analysts are generally positive about the prospects for an independent PayPal, which closed on its first day of trading, July 20, at $41.30. "The company has a big head start over its [mobile] wallet competitors in terms of trust and online acceptance, which should allow it to benefit from the rapid growth of digital payments over the near term," analysts at Morningstar Equity Research wrote in a report released on July 20. The report noted ample opportunities for global growth.
Jim Sinegal, a Morningstar analyst and primary author of the report, said the spinoff positions PayPal well to woo merchants looking for new acquiring partners. "So many merchants compete with eBay (Amazon, too) there's been a reluctance to use these firms for payment services," he said. Sinegal added that Paydiant already runs several payment-driven payment platforms, most notably CurrentC, the mobile platform backed by leading merchants through the Merchant Customer Exchange.
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