Data Snack: PayPal continues to report slow user growth, focusing on monetization

PayPal reported its third-quarter results last week, beating market expectations on both top and bottom lines. However, much of the focus went towards its stagnant user growth figures, which left the market pondering over the digital payments company's strategy through the market downturn.

The reported numbers show just a 3.8% year-on-year rise in the number of active user accounts, from 416 million in Q3 2021 to 432 million accounts at the end of September 2022. 

PayPal has 35 million active merchant accounts and nearly 400 million active consumer accounts, said the company's CEO Daniel Schulman on the Q3 conference call. He noted that this should create a "substantial competitive advantage in a business that is driven by network effects."

The executive pointed out that they expect to grow at or above the rate of e-commerce growth, which stood at 2% for the third quarter of this year, according to Bank of America's credit and debit card volume data.

The pandemic was a fruitful time for PayPal – the company gained 121 million new active accounts over the course of 2020 and 2021, as everyone turned to digital payments during a time when physical accessibility was restrained. 

This time last year, PayPal was still focused on growing its user base, reporting a 15.2% yearly increase in its users.

Now, given the current macro environment, growth is no longer a priority, making way for different strategies focusing on engagement, retention, and monetization of the existing customer base.

This strategy seems to be working, considering that transactions per active account are up 13%, a record for the company, exceeding pre-pandemic levels. 

Despite the current slowdown, PayPal's user base expansion is still significant – active user accounts rose by 70% over the past four years, from 254 million in Q3 2018 to 432 million in Q3 2022.

Venmo – PayPal's mobile payment service – has almost 90 million active accounts, including 57 million monthly active accounts, according to Schulman. Total payment volume on Venmo grew 6%, while commerce volumes grew 150% in Q3.