Bear with me, this does relate to Square…
PayPal is launching “Funds Now”, a feature that will give merchants in “good standing” instant access to their funds. While other payment processing companies offer a similar feature, PayPal will be offering it for free. That’s a big deal. For instance, Square’s Instant Deposit is a major driver of its high-margin, fast-growing subscription and services-based revenue segment. This sort of feature offered free, commoditizes that type of service, potentially compressing SQ’s profit margins.
In a crowded market for online payments, PayPal Holdings Inc. PYPL, -0.16% thinks that giving sellers faster access to their funds will help the company’s offerings stand out.
The company on Tuesday announced Funds Now, a free program that will give sellers in good standing instant access to funds earned from their sales. More than a million sellers have already been given access to the feature for free, the company said.
You can read more about the program straight from the horse’s mouth here:
What is Funds Now?
Funds Now is a program recently launched by PayPal for select sellers. It gives you access to the money from your completed sales in your PayPal account faster than ever (within seconds). With Funds Now, you’ll experience significantly fewer delays in getting access to your money, even if there are ongoing disputes being resolved. It’s our commitment to helping you get your money faster and helping make sure that nothing gets in your way when you get paid.
Is there an extra fee for Funds Now?
There’s no extra fee for Funds Now. You’ll still pay the standard PayPal transaction fees, but there’s no additional charge for getting the money from your completed sales faster. In some cases, we might need you to confirm your phone number or other information related to your identity. This information is needed to help keep your account secure.
I already have fast access to the money from my sales. What’s different about this?
It’s great to hear that you experience fast access to your money when you get paid! What Funds Now promises is that, in the future, money won’t be held even during disputes. In rare cases, delays may still occur to help protect your account, e.g., if we suspect you’ve received a payment from a fraudulent buyer. If this happens, we’ll let you know right away and help you resolve any issues.
A few first thoughts, and I’m mostly just shooting from the hip here. We’ll ultimately have to wait and see how this plays out:
I wonder if this is signalling that the payment processing industry competition is going to start cutting into these companies’ margins. For instance, Square offers Instant Deposit but charges a 1% fee to merchants for the service. Instant Deposit is consistently called out by Square as a major contributor towards the explosive growth its subscription and services-based revenue segment sees. If these types of services become commoditized, where merchants basically expect to have access to them for free, margins might compress for all players.
It might also signal the superior ability of a company like PayPal, over smaller companies perhaps. PayPal said it could do this because of its fraud detection capabilities. It recently made a few acquisitions in this department, namely Hyperwallet, which specializes in making fast payments to contractors, and Simility, a risk management platform that integrates with sellers account dashboards: https://www.fool.com/investing/2018/07/15/paypals-big-spendi… With superior capabilities, stemming at least partly from its larger war chest, it might be able to offer better services cheaper than the smaller players in the industry.
Again, not sure of any of the above, just thinking out loud. As a PayPal shareholder, this looks like a boss move. I’m hopeful that features and services like this will help it gain quick market share in offering payment processing services to merchants. As a Square and Global Payments shareholder, it makes me more cautious, especially as it relates to Square. Square’s subscription and services-based revenue growth needs to be watched closely. The segment’s margins also needs to be closely monitored, which can be tracked from Square’s take rate.
Long GPN, PYPL, SQ
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