PayPal's 2016 Q2 Conference Call Highlights

I’d like to point out that it’s been one year since PayPal became a publicly traded company for the second time. In many ways, our listing last year was a full circle moment for PayPal. It allowed us to return to the core mission of our founders, the mission they were pursuing when they took PayPal public in 2002. Even with the Internet in its infancy, they saw the opportunity for technology to democratize money.

Today our purpose is the same, but our opportunity is much greater, with the digitization of money accelerating and the adoption of mobile devices continuing its rapid pace globally. PayPal’s total addressable market has grown to include all of digital commerce and digital money, a $100 trillion opportunity. Today’s announcement with Visa brings us closer to capitalizing on that opportunity.

The mission of PayPal is clear. We’re striving to become an everyday essential financial service for underserved customers. And for our merchants, we want to provide a full service solution and platform that enables digital commerce. We were making tangible and consistent progress towards achieving these twin goals, while consistently delivering strong financial performance.

  • PayPal President and CEO Dan Schulman

Whew, lots of things to cover but let’s get to the big news first…

The Visa and PayPal Partnership: PayPal and Visa announced yesterday they would be entering a partnership that would accomplish several goals for both companies.

For PayPal: 1) Gains access to Visa’s tokenization services for in-store purchases wherever Visa contactless payments are accepted; 2) Greater long-term Visa fee certainty; 3) Economic incentives for increased Visa volume.

For Visa: 1) Access to purchase data made on PayPal’s platform with Visa; 2) PayPal will no longer charge Visa customers to move money to and from their PayPal accounts using their Visa accounts, putting Visa on the same footing as ACH transfers to and from PayPal accounts.

In his opening remarks, CEO Schulman had this to say about the deal:

This deal has the potential to be transformative for PayPal, Visa and the industry. We believe it provides us the flexibility and the capabilities to execute against our customer champion vision, to partner with issuers and others who share our vision, and to accelerate PayPal’s instore access in new and profitable ways. We also believe it provides more options for growth and the ability to partner with others to mutually cross-sell our various current and projected services to consumers and merchants around the world.

All of these will take some time to come to fruition, but this agreement opens up a new chapter for PayPal.

Schulman also said PayPal would be open to working similar deals with other payment entities, so don’t be surprised if you see deals made with companies like MasterCard and American Express in the near future.

My initial thoughts on the deal? I think this ensures PayPal’s spot in the payments ecosystem and is a huge gateway for them to enter the POS transaction space at brick-and-mortar retailers. The space between digital and POS payments is already blurred, with coffee lovers ordering and paying for their coffee from an app on their phone and then picking it up in a nearby coffee house.

This space will only continue to blur as time marches on. Think of developments like consumers ordering and paying for their groceries online and then quickly picking up their order on the grocery store’s curb on their way home from work. This optionality for consumers is only going to increase in the future. For a payments company to survive in this environment, they need to have a presence in both digital and physical transactions. This partnership (and the others likely to follow) ensures PayPal has a solid footing in both spaces.

Yes, short term it might hurt margins. Transferring money via Visa is more expensive than using ACH, but giving users that option is a customer-friendly move that might drive their payment transactions per account higher too. Schulman emphasized how this empowers their account holders with more choices and options on a question taken from an analyst during the Q&A session, saying:

You know, choice is something that everybody has been talking about. What issuers want, what we want, is the ability for a consumer to make a choice, to have options as to what payment tender type they want to pay with. What that basically means is that, you know, a consumer could pay with their credit, with ACAs, with debit, with cash, with P2P, with PayPal credit, any of those, but it’s the option of the consumer to make that choice.

Long term, I’m pretty sure I like it even if their margins are hurt short term.

Again, that is just my initial personal opinion on the matter and would love to hear from others what they think.

Here are the other highlights from the call:

• One Touch is now the most rapidly adopted PayPal product in history. 25 million PayPal users have opted into the feature, 2 million merchants offer it, and it’s conversion rate stands at a blistering 87%.

• Venmo dominates the P2P payments space. More than $4 billion was processed on the platform, a 141% YOY increase and a 25% QOQ increase!. The Pay with Venmo initiative was mentioned in passing, only given a “steady progress” is being made update. I wish we had heard more on this but almost all of the talk and the questions surrounded the Visa partnership.

• Xoom more than doubled net new account this quarter compared to last year, more than 70% of Xoom transactions were performed on mobile device, can now be used to send people money in 53 different countries. No other updates were given, so I assume they still expect Xoom to begin adding to profits in 2017.

• More than $24 billion was processed via mobile, a 56% increase YOY. Mobile payments now represent 28% of PayPal total payment volume.

• Pinterest partnership – Braintree powers 80% of Pinterest launch merchants and I thought this was pretty neat:

Building on this infrastructure, we are now powering Pinterest’s new shopping bag functionality that lets shoppers pick items from across the web, collect them in a shopping cart, and make a single purchase. This brings over 10 million unique products to pinners for even richer and more convenient in-context shopping experience.

• PayPal’s merchant services division brought in $71.3 billion in the quarter, a 36% YOY increase. Merchant service customers include IKEA, Carnival Cruise brands, Russia’s Vkontakte (Europe’s largest social network), Talbot’s, Cathay Pacific, and Evenbrite.

That’s about all I got. Again, in my eyes, it was another solid quarter for PayPal and the Visa deal was a good long-term deal for both parties. Questions? Comments? Thoughts?

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Eh - is that the same Paypal that dropped 6% today?

Hi Matt, I thought I posted this to the board but I seem to have lost it somehow, so I’ll try again.

I see the deal with Visa very differently than how you see it: A couple of weeks ago the Visa CEO was very publicly threatening PayPal, saying that if PayPal didn’t start playing ball they’d attack PayPal in every way they could and “in ways they haven’t even dreamed of!” It seems to me that PayPal caved into the threats, surrendered, and gave away a lot of their future, in exchange for some meaningless recognitions. But that’s just how I see it.



VISA is the “senior” payment toll taker which makes it the safest bet in the business.


Denny Schlesinger


Eh - is that the same Paypal that dropped 6% today?

Ouch Ant! It was a rough enough day yesterday as it was. It all comes down to what you think of the Visa deal. Analysts clearly didn’t like it. The numbers were all good though.

It seems to me that PayPal caved into the threats, surrendered, and gave away a lot of their future, in exchange for some meaningless recognitions. But that’s just how I see it.

Saul, you’re definitely not the only one who has seen it that way. Just today an article in Barron’s stated:

PayPal’s latest efforts focus on peer-to-peer payments via smartphones. Its Venmo app has become a popular way for millennials to split dinner, grocery, and rent bills. Venmo volume surged 141% in the second quarter to $3.9 billion, PayPal said last week. All told, the company handled $86 billion in payment volume in the quarter, a 29% jump from the prior year.

But even as PayPal has succeeded online, its brick-and-mortar reach has remained limited. That’s likely to change thanks to an agreement with Visa announced last week. Under the partnership, Visa will accept PayPal at its U.S. merchants that already take mobile payments—a growing portion of Visa’s nine million merchant locations.

In broadening its retail reach, however, PayPal might have given up on even bigger dreams. As part of the deal, PayPal agreed not to encourage its customers to use bank accounts as a form of payment. Once upon a time that disintermediation risk filled Visa and MasterCard investors with worry. If PayPal could reach directly into bank accounts, Visa and MasterCard risked becoming obsolete.

That risk has now abated.

Read the whole thing at…

What I don’t get is the bit about PayPal mortgaging away their future. I just don’t see it. Let’s look closely at the two things PayPal gave up:

  1. Purchasing data - PayPal will now be sharing this coveted data with Visa and its card-issuing banks but, importantly, PayPal will still have access tot his data. They’re only sharing it now.

  2. Allowing PayPal account users to freely move money using their Visa accounts, not just using ACH payments from their bank accounts. This will clearly take a dent out of PayPal’s margins, that cannot be disputed. But there are a million other aspects that should be looked at first.

Contrary to what the Barron’s article states, ACH payments being used on PayPal were never going to disrupt the credit card industry. ACH payments have been around for decades, they’ve always been free to consumers and yet they never posed a risk to credit card companies. Why? Primarily because they are slow and far less secure than credit card payments.

ACH stands for Automatic Clearing House and is basically an electronic check written from your bank account. It is probably how most of us transfer money between your brokerage and bank accounts. For stuff like that, it is extremely economical since its free. However for consumer payments to merchants it has never been as practical or safe.

If people thought PayPal was going to disintermediate credit cards because of ACH payments, than they were not thinking about it correctly.

A week or so ago, when I addressed the Visa CEO’s comments while writing about PayPal’s competition, I concluded:

Empty threat and a sign that PayPal is striking a real nerve or does this signify a fundamental shift in PayPal’s essential relationship with credit card companies? Obviously each individual investor will have to decide for themselves, but I think it is more of a negotiating tactic than anything else. For now, both PayPal and the credit card companies need each other. Until that changes, they will remain “frenemies”.

I made that statement because the two entities do need each other. PayPal was never its own payments network like Visa or MasterCard, hence it will always need to piggy back the payments it processes on someone else’s network whether it’s a credit card’s (e.g. Visa) or a bank’s (e.g. ACH) network. Because of this I always believed there was a much greater chance that MA or V would disintermediate PayPal than the other way around. (BTW, this partnership abates that risk to PayPal).

All this to say, that the partnership places Visa transfers on equal footing with ACH payments on PayPal’s platform. Both will be free for PayPal account holders now. Again, that will hurt PayPal’s margins but I believe – as does PayPal’s executive team – that it will really drive growth in the number of transactions per account.

Speaking personally, I will probably be using PayPal more because now I can use my credit card through without accruing extra charges and still rack up credit card reward points. As I stated earlier, transactions over Visa’s network are also far more secure, something as a fraud detective I am probably extra sensitive to.* These two things alone have consciously held me back from using PayPal much more that I might otherwise have in the past. Given time, I believe this change will really drive PayPal’s growth.

Of course, the partnership also gives PayPal a major footing in the POS transaction space at traditional brick-and-mortar retailers which, as I stated above, I really like.

I’m just an average investor with a mediocre track record. I honestly might be missing something. This is just how I see the deal however. I can’t help but think the deal was a win for each of the companies involved.

  • If you want me to go into more detail as to how a Visa credit card transaction is more secure than an ACH or debit transaction, please just ask.

MasterCard (MA), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at


It seems to me that PayPal caved into the threats, surrendered, and gave away a lot of their future, in exchange for some meaningless recognitions. But that’s just how I see it.

Matt, as I see it, they’ve gone from being a company that could take over the world with Venmo, etc, they are now bound and tied by Visa. They have to get Visa’s permission before they can make any decision or do anything. They are almost a subsidiary of Visa, almost taken over by Visa. Sorry, but that’s how I see it. (You may not like the word I used “subsidiary,” but I don’t insist on that, just the idea of what’s happened to them). In five years people won’t remember who they were.