PayPal Launches Free Instant Payment Feature

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.

Read more at…

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:

  1. 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.

  2. 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:… 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.

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Matt, thanks so much. Can you quantify this at all?

Square’s Instant Deposit is a major driver of its high-margin, fast-growing subscription and services-based revenue segment.

Thanks again,

Can you quantify this at all?

Bear, I believe these Instant Pay features would mostly appeal to
very small businesses that are operating on a bit of a shoestring.

Most card processors credit your bank account within 24 hours.
I’ve been with Elevon, now owned by US Bank, for about 15 years.
We run the settlement around 6PM and the funds are usually there
by 6AM the next morning, except for weekends.

I for one would never pay 1% for this Instant Payment Feature.
The average 2% they glean through out the year adds up to a very tidy sum every year.
I could hire another employee with that sum.


Can you quantify this at all?

A little. What I can say is that going back 5-6 quarters, every single shareholder letter has listed Caviar, Instant Deposit, and Square Capital as the primary contributors to the subscription and services-based revenue growth. I think this quarter they also listed the Cash App debit card too.

This quarter management said Instant Deposit payment volume was $4B, but Instant Deposit is never broken down beyond that. I am pretty sure that is the most color management has ever given on Instant Deposit. Remember, that figure includes Cash App users and merchants. Merchants are charged 1%, I am not sure how much Cash App users are charged for the Instant Deposit feature.

I hope that helps, Bear.

Long SQ
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Helps a lot. So if Instant Deposit was $4b this quarter, 1% (probably close enough since the large majority $-wise would probably be merchants) is $40 million, and the software & subscription category was about $134 million. So it’s a substantial part of it, but probably not the majority. I agree that it bears watching. Thanks again, Matt!