‘Driving force’: Inside PayPal’s partnership strategy

PayPal seems to be going full Alipay, scooping up partners to create what looks like a comprehensive ecosystem of financial services.

Last week, the payments processing giant announced customers could use their PayPal accounts as a form of payment in the App Store, Apple Music, iTunes and iBooks. Customers can’t add PayPal to their Apple wallets, but they may be able to one day — that partnership would benefit both companies and PayPal probably doesn’t want to compete with cards because they need them to fund customer accounts. The payments processing giant did partner with Google though, in April, allowing Android Pay users to add their PayPal accounts as a payment form.

In October, PayPal also partnered with Facebook to allow users to send buy things through Facebook Messenger; and earlier this year it was reportedly in talks with Amazon about a payments partnership. And these are just the biggest companies. PayPal has forged several partnerships and acquisitions that allow it to extend its reach to small businesses and the underbanked as well as its core customer base of consumers and merchants.

“We had a lot [of partnerships] in the second half of 2016,” said Joe Gallo, a senior communications manager at PayPal. “In 2017, we’ve seen Google and Apple and I think that’ll continue. This is a driving force for us… we plan to continue to assign deals at that pace.”

PayPal has 16 million merchant accounts and 203 million consumer accounts. This year alone, PayPal has announced that customers will soon be able to buy things at physical shops with their PayPal balances through Android Pay, that it will extend a pay-with-Venmo option to PayPal accepting merchants by the end of the year and closed a huge deal with TIO that will bring 10,000 billers into the PayPal network. Its latest offering is a partnership with e-commerce platform WooCommerce and accounting software company Xero.

“PayPal’s strategy has been to partner, partner, partner promiscuously — and in this space, that’s the right thing to do,” said Brendan Miller, a senior analyst at Forrester. “They’re less concerned about their competition and are more about enabling great experiences for the entire ecosystem, and they know it’s going to bring them business when it comes to enabling PayPal at all these different touch points.”

Customer choice 
The key to customers’ hearts (and business) is choice. The industry is beginning to better understand the idea that there won’t necessarily be a winner in digital payments or that each new product doesn’t need to be a Venmo-killer to provide value and do well. Like credit and debit cards, customers will use multiple services when and where they best suit them.

“Consumers are using a lot of different methods so we want to offer them choice,” Gallo said. “We don’t want to say you have to use tap-and-pay because that becomes a barrier to entry. By offering to a series of others and partnering with credit card companies and issuers, we’re able to provide to Citi or Chase or Wells Fargo cardholders and have that breadth of portfolio that we can integrate.”

While most companies focus on either the consumer or the merchant side, PayPal’s customer spectrum includes them both. Apple Pay, for example, is very much a consumer proposition, meant to bring convenience to the Apple device owner. Until now, Apple has only supported credit or debit cards as a payment form. By implementing alternatives like PayPal would give Apple customers even more choice and freedom to pay how they like.

Until then, Apple will remain a significant merchant customer to PayPal.

“If a consumer can’t use a PayPal account in Android Pay and that’s their choice of in store payment, that’s a missed opportunity for us,” Gallo said of the Google agreement.

Building products with empathy
For a long time PayPal took a combative stance toward Visa and MasterCard, said Zilvinas Bareisis, a senior analyst at Celent. It tried to use bank accounts as funding sources as the card networks threatened to apply special charges and fees to services like PayPal.

“Six to nine months ago they buried the hatchet and said, let’s start working together,” Bareisis said.

Now PayPal is of the mindset that it needs to be ubiquitous, wherever the customer is. That’s very close to banks’ mantra these days. Also like banks, it’s also playing to the reality that money is an emotional topic for many people and when they need their financial institution, PayPal will give them the support they need.

“[Choice] is part of the strategy, but it’s also about helping consumers better manage their money over the long term and how that drive emotional loyalty,” Miller said. “If they can help consumers better spend, save and manage their money, which is emotional…Everyone is realizing now it’s not just the banks that’ll do that, try to drive that emotional connection with the consumer.”

Hi 5! The five fintech stories we’re following this week

top 5 weekly fintech stories

Time to get slowly, cautiously, enthusiastic about blockchain

Tradestreaming would be the first to acknowledge that a lot of blockchain news is more buzz than substance. Heck, we even have a monthly Blockchain Hype Meter to show just that. However, we’d also be just as soon to admit that not all blockchain developments can be written off as speculative fiction. On this week’s episode of the Tradestreaming Podcast, we explore why financial professionals should start paying attention to the blockchain.

Oh, and also why making transactions completely anonymous isn’t going to go mainstream.

Robos continue to gain footing in finance

Robos are beginning to take on more prominent roles in banking. Though CEO slots are safe (for now), as far as customer service goes, banking chatbots are the up and coming thing. Bank of America’s solid — though overly simplified — understanding of what makes banking customers tick in the current market has them focused on chatbots and roboadvisors alongside digital payments.

Meanwhile, the Department of Labor has taken a large step forward in helping to define technology’s role in asset management. This week, the DoL published a Q&A about its new fiduciary rule, and it’s beginning to make more sense.

Women in fintech support one another

It’s either a monumental or severely disappointing week for women worldwide, depending on the outcome of the 2016 presidential elections. While they may not have the nuclear codes, powerful women are using a combination of traditional and techie means to in an attempt to bankroll other women, seeding them with capital and support mechanisms to help them be successful.

Some of these initiatives are being made possible by the 2012 JOBS Act. To be honest, though, the crowdfunding revolution the ruling was supposed inspire hasn’t really taken off. Of course, women are also shaping fintech by simply working in the field. Tradestreaming got an inside view into a workday in the life of Crystal Eastman, head of marketing at online SMB supply chain financing firm, Behalf.

Closer than ever: ecommerce and finance

Ecommerce and finance have always been tight, and innovation in fintech has helped blur the lines between these two sectors even further. One example of this is a new collaboration between Provenir and Klarna, which has lowered cart abandonment rates by pre-approving consumer financing before a user even inputs all his or her deets. In other words, the transaction has been separated from the payment.

Another prime example of ecommerce/finance crossovers is Payoneer, which powers international mass payouts on marketplaces like Airbnb and Amazon. The startup is trying to fix the the terrible, horrible, no good, very bad sending and receiving of international payments for stuff.

Just one week left until Tradestreaming Money 2016!

Tradestreaming Money 2016 is the event to end all financial service events (well, until our next one). It’s turning into the premier top-tier digital financial services event of the year, with top digital execs from Citi, Fidelity, NYLife, CSFB, Vanguard, US Bank, MIT, BBVA, Cornerstone Advisors, Two Sigma, and QED Investors.

How Amazon is becoming a major player in finance

amazon becoming a financial giant

It was never about the books.

Jeff Bezos may have launched Amazon as an Internet book seller, but he quickly turned the company into an overall ecommerce powerhouse. There’s little that Amazon isn’t in to these days – of course, they still sell books, but its tech unit, Amazon Web Services (AWS), is one of the leading cloud technology providers around, powering both large and small clients all over the world.

Amazon’s payments division is also ramping very quickly. In 2013, after a couple of starts and stops, the company relaunched  Amazon Payments, giving Amazon customers the ability to pay for products and services on other sites using their Amazon accounts. In a way, early Amazon Payments acted a substitute for PayPal or a credit card when account holders went shopping online. Amazon said this January that its transaction volume had grown 150 percent year over year in its payment division but hasn’t given out a full reckoning of its activities in the payments space.

Integrating Amazon Payments in the ecommerce ecosystem

Like PayPal, Amazon is running the third party integration playbook as the next leg in its growth. Earlier this week at a European finance conference, the company announced it would enable merchants to integrate Amazon’s payment tools into their own websites.  By giving Amazon customers the ability to log in, authenticate, and pay with their Amazon accounts, an ecommerce site can offer the same ease and use Amazon is renowned for.

This gives Amazon a much broader footprint in payments, as merchants are certainly interested in reaching the nearly 300 million registered users Amazon already has. These customers wouldn’t need to re-register or input payment information on merchant partner websites. They could just checkout with their existing Amazon accounts and payment information on file. In turn, this would speed the conversion cycle and boost revenues for ecommerce sites that integrate Amazon Payments.

Growing out Amazon Payments beginning with leadership

To spearhead Amazon’s aggressive push into payments, the ecommerce firm hired PayPal’s Patrick Gauthier last year. Gauthier has played a key role throughout his career in building and expanding new payment technologies, most recently at PayPal where he grew their prepaid business seven-fold in just 18 months as the firm’s head of product strategy in retail services. Prior to PayPal, Gauthier spent 10 years at Visa spearheading next generation payment products and services.

Gauthier now leads the expansion of Amazon Payments with merchant integrations. Regarding the program, he told Bloomberg, “Why would we make it easy for customers to buy elsewhere? Because we know it solves a problem in their life…It deepens our relationship with customers.”

Amazon’s payments distribution strategy also has its payment functionality showing up in unexpected places. The firm’s new voice-controlled virtual assistant device, Echo, recently integrated with Capital One to allow users to synch their Amazon devices to track and pay Capital One credit card bills. Amazon also developed and now markets Dash buttons which are small, one-button household wifi devices that when pushed, automatically order a single product from the Amazon website.

Payments + lending

Amazon has also been active in the online lending space. This program, which began as invite-only in 2012, provides capital to merchants who sell on Amazon. Loan sizes run from $1000 to $600,000, with payback periods ranging from 90-180 days and interest rates fluctuating between 6-14%. Amazon has leant hundreds of millions of dollars as part of its lending program and in the summer of 2015, announced it had expanded its lending to select European markets.

Amazon’s activities in the online lending and payments space have shown that that the ecommerce giant is serious about being a major player in finance. With strong roots in ecommerce, it makes sense that payments would be a smart initial foothold for the retail giant. But who knows, Amazon may move deeper into finance. Will we see the Bank of Amazon in the near future?

 

 

Invest In Small Businesses With An Ecommerce Twist — Kickfurther’s Sean De Clercq

kickfurther interview with Sean DeClerq

Many people have grown tired of passive investing. Sure, the data show that the more remove the human elements — our evolutionary biases — the better we perform in the stock market.

But many investors are getting more and more excited about participating more with their investments (I believe that’s what’s behind much of the excitement behind angel investing).

Enter Kickfurther. Part investment platform, part crowdfunding platform, and part ecommerce site, this new company enables people to finance small businesses and earn an equity-like return. I’m Zack Miller, your host on Tradestreaming Radio, and I’m joined by Sean De Clercq, Kickfurther’s founder and CEO to discuss how investors are rolling-up their sleeves and helping the next generation of small businesses grow.

Listen to the FULL episode

About Sean

Kickfurther's Sean De Clercq Sean is the founder and CEO of Kickfuther.

Resources mentioned in the podcast

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Photo credit: JeepersMedia / Visual hunt / CC BY

Why I wouldn’t want to be a bank in this market

Album_no_respectAs the late Rodney Dangerfield put it so eloquently, banks don’t get no respect in today’s market.

It’s not that they haven’t tried. Post the 2007-2008 credit crisis, many of them have cleaned up their acts.

But, it’s not just the fact that banks are now forces to lay in their own financial beds that has made bankers lives so tough of late.

Banks face (new) tough competition

It’s also about competition. Banks are being assailed on all fronts in a way they’ve never been threatened and I think the writing is one the wall: the core functions of banking are being challenged by a whole new generation of startup financial service providers that may eventually displace them. We’re in the early stages of sprinting a marathon to build the most influential finance companies.

Today’s consumer lending: from the consumer to the consumer

One of retail banking’s bread and butter business lines is a basic form of lending arbitrage. They take deposits from customers (paying out a low interest rate) and then lend it out to other customers (at a higher interest rate).

But many individuals are borrowing outside traditional banking channels. Lending Club, the largest peer to peer lender, just surpassed $4 billion in small personal loans it’s underwritten on its platform. Borrowers on peer to peer lending platforms either couldn’t qualify for loans, got worse rates with banks or just would rather avoid the banking sector all together. Banks see the writing on the wall — Union Bank just announced it would team up with Lending Club to deploy its own capital into loans on Lending Club’s website. You can hear how far the company has come since my 2012 interview with Lending Club founder and CEO.

Business loans: the next domino to fall

Lending Club made it very clear as it gears up for its own multi-billion dollar IPO (expected this year) that it’s interested in getting into business loans. It’s here, in the commercial loan business, that banks are facing their fiercest rivals right now.

  • Long term loans: Newly-minted companies like Funding Circle has already lent out hundreds of millions of dollars to business looking to borrow money for years at a time. The demand for these types of loans from non-banking sources is huge.
  • Short term loans: Businesses looking for shorter term loans and access to working capital are turning more and more to companies like OnDeck. Armed with new credit models, these firms can frequently be more quick and nimble, approving loans in minutes (versus days and weeks at traditional lenders).
  • Specialty loans: Perhaps the most interesting entrants into the online lending market are the specialty ecommerce and payment platforms. Amazon is hiring boatloads of people to staff up its new lending division. Paypal is doing the same with its new Working Capital loans for small businesses that use the payment platform. These companies are perfectly situated in their customers’ business to a) determine creditworthiness and b) to provide them with a loan. And student loans? Forget about it — there are startups like Pave (hear my recent interview with Pave’s co-founder) trying to create more efficient (and cheaper) ways to finance higher education.

Look for more innovative online lending models to proliferate in the next few years like the kind that Zazma employs. A startup that’s received investments from top venture capital firms, Zazma provides trade financing to small businesses. Need to stock up on some inventory before the holiday season? Zazma will pay your supplier for the goods and work with you on payback — all almost instantly online. Low friction like credit cards and quick access to working capital.

Today’s “no respect” for the banking sector is so much more than just the product of the recent credit crisis. Smart, well-funded startups are beginning to chip away at banks’ core value to the economy and consumers (both retail and business) seem to happier with their new-found options.

What do you think about the changes in the lending market? Let’s discuss in the comments below.

Groupon-like buying opens up new investable markets

This is a far-fetched idea but run with it a bit.  We’re already seeing the creation of secondary markets in groupon deals.  These are eBay-like exchanges like Lifesta where customers who bought a coupon can sell it to someone else looking for access to that particular deal.

Taking this further, what would happen to these secondary market if they matured?  They could potentially morph into real-time exchanges, like the stock market, where customers call transact with one another but more interestingly, vendors (supply-side) can essentially bid on where a particular customer will dine on a particular night (demand).  Supply and demand meet and prices determined in real-time.  It could allow small businesses to manage their yield, selling excess inventory at a discount to recoup costs.

Anyway, the idea wasn’t mine but it got me thinking about it.  Matthew Ingram on GigaOM discussed this in a post on the future of local social buying:

Right now, Groupon-style group buying is more or less just coupons that get sent to you via email to entice you to sign up. What if you could look at a real-time, auction-style exchange of local offers from merchants or retailers or restaurants in your vicinity — maybe even on your mobile device — and pick the offer you wanted for dinner that evening? You can’t do that now, but that’s one vision of where the local group-buying phenomenon is headed in the future, according to Don Rainey, a partner with Grotech Ventures and an investor in LivingSocial, the number two player in the U.S. group-buying market next to Groupon.

Rainey said he sees a day when merchants and potential customers interact through a kind of real-time exchange — like a stock exchange, with buyers and sellers, but for local offers on meals or other goods. “I can see local retailers and consumers bidding in a real-time system for where that consumer is going to go for dinner,” says Rainey. If a merchant is having a slow night, they can put an offer into the system and users can choose between that and multiple other offers, based on location and the time they want to go out. As someone who is constantly looking for new options for places to eat in my local area, this sounds like a winner to me.

Local deals become an investable asset of sorts.  Investors could speculate on in-demand seats at swanky restaurants finding liquidity in these platforms (whether they profit or not).  Fixed supply (like art) and fluctuating demand could influence big rises and falls in the prices of these assets.

Like I said, far-fetched but interesting to think about.

Source: LivingSocial and the Future of Local Group Buying (GigaOM)