PayPal makes amends with eBay as it pushes for more marketplaces

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PayPal has had an on-again, off-again relationship with eBay since the company split off as a unit of the e-commerce marketplace more than four years ago.

It's on again at the moment, even though PayPal is not reaping major benefits from it. Still, PayPal wants to be joined at the hip with its former parent company because it helps the PayPal brand and gives it momentum when seeking other marketplaces outside of the U.S.

"PayPal and eBay will be strategic partners for a long time to come," PayPal CEO Dan Schulman said Wednesday during the company's 2019 first quarter earnings call. "Our mutual customers, whether they are consumers or merchants, basically demand that we work together."

In September of last year, eBay revealed it was removing PayPal as a direct payment option, while adding Adyen for processing.

This month, eBay said it would include PayPal for its sellers in the eBay Managed Payments program. EBay also indicated it would expand PayPal's availability on eBay as the company monitors the effectiveness of its payments program.

It makes no sense for PayPal to not have a presence on an e-commerce marketplace checkout page, considering it has 277 millions users on its platform, Schulman noted.

"Consumers are 54% more likely to buy when a merchant accepts PayPal," he added. "EBay sellers know that, and they know people abandon if they don't take PayPal, so I think we are going to be close partners for an ongoing basis."

The operating agreement for PayPal to be on the eBay managed payments program runs through July of 2020.

"Right now, our eBay total payment volume is at 9.7%, and it is likely to be, by the end of our operating agreement, at about 5% to 6%," Schulman said.

That estimate takes into account any type of decline in the eBay marketplace. The 9.7% volume through eBay represented a 4% decline from the previous year's transaction volume for PayPal through the marketplace.

However, merchants who use PayPal to list in multiple markets see "a three-times lift in sales" and often pay less in total expenses than they would with commissions on eBay, Schulman added. "We are helping small businesses to list in multiple marketplaces with our one-touch activation," Schulman said.

PayPal has increasingly shown an interest in establishing a presence with other marketplaces. PayPal made a $750 million investment last month in MercadoLibre, considered the Latin American version of eBay. MercadoLibre has 200 million customers.

PayPal also is partnering with Instagram, a unit of Facebook, to handle payment processing with the image-sharing site's new checkout services.

"Our top 20 marketplaces, excluding eBay, drove $90 billion of total payment volume in the last 12 months, growing at 39%," he said. "You can see we are really integrated into these marketplaces."

None of PayPal's investments with any specific marketplaces stops it from investing in others, Schulman said, noting the company would be interested in expanding a strategic partnership with MercadoLibre or establishing similar relationships with others.

"We are an open platform and intend to work with everyone in driving consumers and businesses to have access to the digital economy," Schulman added.

With marketplace transaction volume mounting, PayPal is touting impressive numbers in active members and new actives for the quarter. The company reported 277 million active users on the PayPal platform, and 9.3 million new active accounts in the first quarter, an increase of 15% over the previous year.

The company is trending toward exceeding 300 million active users by the end of the year, and PayPal is now accepted at more than 22 million merchant locations.

"We are demonstrating sustainability on attracting new actives," said Bill Ready, chief operating officer at PayPal. "It is not about any one particular product experience or any one particular geography, it's that we revamped all of our product experiences …across many geographies."

In addition, the company looked to clear the air about the potential of its Venmo P2P service by sharing active user numbers, at more than 40 million, for the first time. PayPal has long viewed Venmo as critical to its business offerings, but has acknowledged it is not yet profitable.

Schulman said the company won't always share its Venmo customer numbers, but felt that doing so at this time demonstrates the unit's potential profitability.

Venmo processed $21 billion in total payment volume during the first quarter, representing 73% growth, while total P2P volume, which includes payments made through core PayPal services, grew 41%, to $42 billion.

Because Apple recently announced its Apple Card as an addition to the Apple Pay wallet, PayPal has fielded questions about the potential for a similar PayPal card, or something more compelling than the current Venmo prepaid card.

"We are certainly pleased with the [current] monetization of Venmo at this time, and we have multiple initiatives to monetize Venmo," Ready said.

As the number of Venmo users continues to grow, those users are seeking more features and products related to the P2P service, Ready added.

"There is nothing we have announced about cards beyond the debit card, and we are engaging with the banking ecosystem in a very broad way across PayPal and Venmo," Ready added. "And we are always looking for new ways to serve our users and for bank partners to deliver services to our users."

Overall, PayPal reported $4.13 billion in revenue, a 12% increase over last year's first quarter. Net income was $667 million, up from $511 million a year earlier. Total payment volume climbed to $161 billion.

The strong first quarter continues the momentum PayPal sought to establish last year in completing some of the larger acquisitions in the payments industry, including its purchases of mobile payments company iZettle and digital payout provider Hyperwallet.

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