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.”
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.”