‘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.”

How PayPal is moving into retail payments

PayPal finally has what it has wanted for almost a decade: to expand its user base beyond e-commerce.

A partnership with Google announced Tuesday allows Android users to add their PayPal accounts to their mobile wallets, giving them the ability to spend from their PayPal balances with the tap of a phone. PayPal is extending its reach while Google now has access to PayPal’s nearly 200 million active accounts.

“PayPal has been granted its first real opportunity to play a role in brick and mortar commerce,” Jordan McKee, an analyst at 451 research, wrote in a client briefing shared with Tearsheet. “The collaboration offers PayPal the prospect of extracting net-new payment volumes from a channel it has lacked exposure to, while potentially opening up Android Pay to millions of new users.”

The partnership means customers can pay with PayPal wherever they can pay with Android Pay – that includes major retailers like Walgreens and Dunkin’ Donuts.

The big problem remains how it will compete against Apple Pay, which is poised to maintain its dominance in the mobile payments market by hitting 86 million users this year, according to forecasts by research firm Juniper. By contrast, Android Pay ended 2016 with 12 million users.

But PayPal probably isn’t even trying to compete Apple’s mobile payments product, according to David True, a partner at PayGility Advisors. PayPal’s goal is to give its users as many payment options as it can and would probably strike similar deals with Apple Pay, Samsung Pay and other payments platforms if it could.

PayPal declined to comment on the potential for future mobile payments partnerships.

“We are focused on testing various [near field communication] experiences on mobile devices right now and we value the existing partnerships we have with a number of our global technology partners,” said Grace Nasri, PayPal’s communications manager for global product and partnerships.

PayPal and Google have an existing working relationship; PayPal’s Braintree platform enables Android Pay and PayPal has been a payment method for Google’s Play app and digital content store for nearly three years.

If anything, the agreement underscores the competition between Android Pay and Samsung Pay, given they compete directly with each other for users on the same operating system. Neither of them are truly interested in the payment part either, True said, but rather what it helps them achieve: sales of mobile phones and other connected devices (which has historically been Samsung’s modus operandi).

However, Android Pay through its recent partnerships has “wisely acknowledging that collaboration is the basis of broadening wallet value for users and stakeholders alike,” McKee said. Last week it announced partnerships with Bank of America, USAA, Bank of New Zealand, Discover, and mBank to integrate the Pay service into their apps – providing direct access to new users while giving more control to issuers over mobile wallet onboarding.

“At core, the issue in the U.S. is what is always has been: paying with plastic cards works well, pretty much every time, so there’s little reason to change that habit,” True said. “It is a long game, and the real mobile payment future is where one doesn’t need a physical point of sale.”

Apple Pay jumps into ecommerce

Not seeing much growth in mobile payment POS transactions, Apple Pay has opened up a new channel for its mobile wallet: ecommerce.

It’s part of a bigger strategy Apple’s been implementing since the middle of September. Already established at the POS, Apple is now working on tightening up its presence in browsers and mobile commerce. Apple Pay for websites was launched with the iOS 10 for iPhone and iPad release and into Safari with the recent OS Sierra update.

This allows iPhone, iPad and Mac users to quickly checkout at ecommerce websites by selecting Apple Pay, eliminating the need to create a new account or log in to a website, expediting the payment process. The new Mac Book Pro even has touch payment authorization and payments built into the Touch ID pad.

And today, Apple announced special holiday offers for Apple Pay users shopping online.

apple-pay_-_apple

Mobile and ecommerce is way ahead of mobile payments on the adoption curve. Getting users familiar with Apple Pay in existing ecommerce behavior can pave the way for future mobile commerce and POS adoption.

It seems that the road to mobile payments runs through getting people comfortable with using wallets in mobile commerce. Google has made a similar move with Payments Autofill in Chrome, so it seems the mobile wallet war is moving online. At the same time, because it lacks a web browser, Samsung may be left to clean up its exploding phones.

Let me Google the future of payments for you

The first time Pali Bhat was introduced to frictionless commerce was as a child growing up in India. He’d run to the corner store to buy some things for his parents. Google’s head of payments would choose what he wanted and just leave the store. The shop owner, who knew Pali’s family, would settle up the bill at the end of the month.

“Payments were truly invisible,” Bhat told a large crowd at the Money 20/20 conference.

Creating more of these frictionless experiences are part and parcel of Bhat’s role at the technology giant. His product strategy includes making Google payment technology ubiquitous, frictionless, and delightful. Android’s NFC tap and pay functionality, which doesn’t require opening an app, goes a long way towards removing the friction in a payment experience and Bhat revealed that the firm is taking that approach even further. Called Handsfree, Google has been running a pilot in Silicon Valley with McDonalds and Chick-fil-A where Android users don’t even need to take their phones out of their pockets to pay.

Bhat’s group runs the payments systems behind all Google products, like AdWords and YouTube, which both accept and disburse billions of dollars of payments to partners. With Android Pay and Google Wallet, he is also entrusted with mobile consumer payment solutions in store, in apps, on the web and P2P.

Google’s trying to remove friction around all types of payments, including in-app. That means making it easier for users of the apps to pay but also making it a lot easier for app developers to integrate Android Pay. Many top apps, like Instacart and Uber, have already done that and others are as well through integrations into Stripe and Braintree.

“Developers are seeing dramatic conversions when they integrate Android Pay — they just need 10 lines of code,” he said.

Google’s also taking aim at online forms to speed up online payments. Using the firm’s Payments Autofill in Chrome, users who have made purchases via Google can store their billing information in Chrome. This information can be used at a future purchase to automatically fill out a checkout form.

“Merchants don’t need to do anything. It’s so easy for users that merchants are seeing a 25 percent higher conversion for people who use,” Bhat admitted.

Tackling forms is just the beginning for Google. The firm has its eyes on an even bigger prize — eliminating forms as a major speed bump in payments. Google is collaborating with standards board W3C to enable users to completely bypass forms on their way to completing a transaction.

What’s new is old. If it’s successful in getting more users to take up Google payment products, the firm’s focus on frictionless commerce may bring payments back to Bhat’s corner store experience in India.

4 charts about mobile payment growth, or the lack thereof

As companies pour cash into developing and advertising their mobile payment products, the future of mobile payments is still up for grabs. Currently, there are three mobile wallets emerging as industry leaders: Samsung Pay, Apple Pay, and Android Pay. Although watching three technology giants battling it out for mobile payment supremacy may be intriguing, it’s important to keep everything in perspective and understand how far along we are in the mobile wallet lifecycle.

Here are four charts that tell the story of where mobile payments are today.

Mobile operating systems go hand-in-hand with market share, as Apple’s and Android’s mobile wallets can only grow to the limit of their respective users.

chartoftheday_4431_smartphone_operating_system_market_share_n

Android is far ahead of iOS in terms of market share, but it also has Samsung Pay competing on the same operating system. There are reports that Samsung is releasing an iOS app soon, and expect Apple to surely welcome them with open arms and make no attempts to restrict their app.

Now that OS market share has been broken down, we need to evaluate mobile payments transaction volumes from a few years ago and see if anything has changed since then.

globalcreditanddebitcardvolume

According to this chart, mobile payments comprised only three percent of the worldwide credit and debit card transaction volume in 2013, totaling $207 billion. $200 billion is nothing to roll your eyes at, but it’s nowhere near ecommerce ($691 billion) or retail transaction volume ($5.9 trillion) of the same year.

The obvious knock on this data is that it’s from 2013, and mobile payments have only grown in the past few years. However, when looking at consumer behavior, the opposite may be true.

1214friday

Black Friday is the biggest shopping day of the year, and unfortunately for Apple, Samsung, and Google, users chose to go with plastic and paper over mobile wallets. Only a small fraction of iPhone and Android users used their respective mobile payment wallets when shopping on Black Friday in 2015. Most interesting may be that both companies saw market shares that were lower than the three percent threshold shown in the 2013 study.

The issues regarding the growth of Apple, Samsung and Android Pay become more apparent when looking at how many users have ever used the mobile wallets featured on their phones.

apple-pay-vs-samsung-android-pay-2016-1

According to 2015 data from Trustev, only 20.7 percent of iPhone users and only 14 percent of Android/Samsung users have ever used Apple, Android, or Samsung Pay. Of the users who have used these mobile wallets, a vast majority only use them once a week.

All the data tells us something we already know: Although mobile payments are growing, customers still prefer to use their credit cards over mobile wallets. Until the day that consumers behavior changes, mobile wallets will still be the little brother to cash and plastic.

Photo credit: whiteafrican via VisualHunt.com / CC BY

WTF are mobile wallets?

What is a mobile wallet?

A mobile wallet holds all the information that would be in your ordinary wallet, except it’s stored on your mobile device. But unlike George Costanza, you won’t be plagued with back pain if you stuff your mobile wallet to brim. All sorts of stuff you’d normally put in your purse or wallet can be stored in mobile wallets, from credit card information to your library card. Unfortunately, they haven’t figured out the technology to include Tic Tacs yet, though maybe they’ll do it through the blockchain or at Money 2016?).

Where are mobile wallets used the most?

The most common way mobile wallets are used is for the facilitation of mobile payments. Users put their credit or debit cards into their digital wallets, and are able to pay or transfer funds via one click or NFC technology.

Who offers mobile wallets?

The most well-known mobile wallets are Apple’s Apple Pay and Google’s Android Pay. Merchants like Starbucks and Walmart also have popular digital wallets. Other solutions available include a mobile wallet combined with a physical credit card, giving users the convenience of consolidating credit cards without fully changing the habit of pay-by-swipe.

Secure wallets are also available, providing customers a digitally encrypted way to store all their sensitive information, like banking records and passport copies. Gift card consolidators merge gift cards into one place, ensuring these presents don’t end up in between couch cushions or at the bottom of a purse stuck together with old gum.

Why are mobile wallets important?

Digital wallets combine the two most important things any good millennial would never leave home without: a phone and a wallet. The ability to consolidate financial information and help people move away from schlepping around tons of credit, debit, and loyalty cards is an intriguing concept for merchants and customers alike. As consumer behavior changes, more merchants, banks, and third parties will try and lure customers to use their products.

Photo credit: festivusweb via VisualHunt / CC BY

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

  1. BDCs: An untapped tool for local investing? (Locavesting): In fact, business development corporations (BDCs) may be the only solution for a growing problem that is starting to hit communities across the country—the increasing number of baby boomer small business owners who are ready to retire. They’re flooding the market with businesses for sale, resulting in many just being shut down for lack of a buyer. But through a BDC, the community can essentially become the buyer and keep those businesses up and running, retaining the jobs they generate.
  2. The Economist plans to double circulation profits in 5 years (Digiday)
    The British magazine has an ambitious goal: to double circulation profits in the next five years. Here’s how the magazine plans to do it…
  3. Victory Park Capital taps Goldman exec for CIO role (FINalternatives)
    Behind many of the $100m+ investment rounds sits Victory Park Capital (VPC), a provider of lending facilities for many of today’s top online lending startups. Former Goldman Sachs managing director Upacala Mapatuna has joined Victory Park as chief investment officer.
  4. Citibank: Google should buy AIG and turn it into a fintech lab (BusinessInsider): So why exactly does Citi think Google should pair up with one of the largest insurers? Could be really interesting, actually.
  5. How Murano helps hedge funds identify better, close more investors (Tradestreaming)
    The world of third party marketing has enabled the hedge fund industry to massively ramp its AUM over the past 15 years. With >10k funds and 30k allocators, it’s time that someone emerge to be a better matchmaker. Check out what one company is doing to improve the outcomes in institutional fundraising.

Google hears the fintech music, invests in Symphony

fintech and google ventures

Without much fanfare and quietly, Google has become one of the most active early stage investors in fintech.

GOOGLE’S INTEREST IN FINTECH

Google’s interest in fintech has included multiple investments in collaborative finance platforms, making the search firm one of the most active investors in crowdfunding. But the firm’s interests span beyond the excitement of social investing — it’s also interested in putting its chips down on more core fintech bets, including trading, digital currency, ecommerce, and back office settlements.

 

google is one of the most active fintech investors

In fact, over the past 5 years, Google Ventures has been the most active fintech investor anywhere.

MOVING DEEPER INTO THE FINANCE INDUSTRY

Yesterday,  an industrial-grade communication tool developed and owned by a financial industry consortium, Symphony, announced that it had raised a new investment round totaling over $100 million.

Filling out the list of 21 finance and venture firms participating in the round was Google Ventures.

Symphony’s Wall Street backers are seeking to challenge communications and data firms including Bloomberg News parent Bloomberg LP and Thomson Reuters Corp.

Even Bloomberg News was cognizant of the fact that Symphony is competing head-head with the same messaging tools used on the Bloomberg terminal.

This investment adds to a warchest of another $66 million Symphony has raised previously. Roth Porat, CFO of Google’s parent company, Alphabet, was an early backer of Symphony in her role as CFO at Morgan Stanley. Re/Code had an early scoop last week that Google was in talks to back the communications technology company.

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Using Google to forecast a stock’s reaction to earnings reports – with Darren Roulstone

Smart investors are looking at various data sets to help give them an edge with their investing. Some of this information is financial in nature — much of it isn’t.

Professor Darren Roulstone has studied how investors are using Google to search out financial information and what search volume may say about future stock prices.

Continue reading “Using Google to forecast a stock’s reaction to earnings reports – with Darren Roulstone”

Using Google to forecast an earnings pop (or plunk)

Google’s my friend.

Not only do I rely upon it for email, video, and of course, search, but I’m using it to invest  better and smarter (the Tradestreaming way, right?).

Let me explain:

One of my first podcasts on Tradestreaming Radio was with finance professor, Joey Engelberg. In How to use Google search data to invest, I asked Engelberg about a paper he had recently published that showed how useful Google could be in forecasting stock prices.

Using Google Search Data to Invest by tradestreaming

Specifically, Engelberg noticed:

  1. Google search volume likely measures the attention of retail investors
  2. and does so in a more timely fashion that existing proxies of investor attention

And of course, stock prices tend to follow attention.

So, an increase in Google search frequency (SVI) predicts higher prices in the next two weeks and also contributes to a large first-day return (and long-run underperformance) of IPO stocks.

Awesome stuff and after we spoke, Joey kind of went underground (he did leave UNC and headed for UCSD), using his research to make coin at a hedge fund. I spent a whole chapter in Tradestreaming (my book) describing co-lateral research — stuff that’s inherently non-financial in nature (Google search, Amazon ratings, etc) to help us make better investing choices.

Now a new paper shines light on how Google search reflects investor information demand and what that means for earnings news.

Continue reading “Using Google to forecast an earnings pop (or plunk)”