Of all the companies in the payments landscape, few have changed as much as PayPal has in the past year. And heading into the new year, the newly independent alternative payments company is showing no signs of slowing down.
More notably, PayPal's transformation as a company mirrors the transformation of payments technology overall. Until recent years, payments were always the final step in any interaction; today, however, consumers and merchants are thinking about their payment options much earlier in the process of buying an item or building a business.
PayPal learned that its longtime strategy — providing payment processing that plugs into an existing website or auction listing — was aging poorly. Developers such as Uber were baking payment acceptance into the very foundation of their apps. PayPal's 2013 purchase of Braintree (which already counted Uber as a client) and its 2015 purchase of Paydiant gave it the means to reach customers much earlier in the development cycle.
PayPal has chosen to continue along this path, letting its acquisitions shape its older products rather than try to force its corporate philosophy on its new units. An immediate example of this new approach led to Facebook Messenger's integration of Uber as part of the app's natural conversation flow, a deal that demonstrates how PayPal is willing to be an enabler of others' innovations as much as it is a payments brand in its own right.
"We have become the underlying platform for established disruptors through Braintree, and even for the next generation of disruptors," said Anuj Nayar, senior director of global initiatives for PayPal.
Every time a consumer pays for Uber through Facebook or for Airbnb, they are doing so through a PayPal company, Nayar added.
"All of these virtual systems are going to grow over the next year with Facebook M, Google Now and Apple Siri," Nayar added. "Right now they can make recommendations, but they can't complete transactions."
That's where a company like PayPal can make a difference, but many other companies will be competing for the same prize.
PayPal has long been a big target for new companies to attack, but it has managed to weather all of these challenges by either adapting to the new way of doing business or by acquiring the talent and technology it needs to survive.
"Traditionally, PayPal has always succeeded when commerce moves into a new context," Nayar said. "The rumors of PayPal's death have been going on for years."
PayPal split from eBay, its parent company since 2002, in July. Its newfound independence enables PayPal to concentrate on its own growth and assets, and this new structure will help as PayPal continues to extend its reach to new markets.
PayPal represents "the benchmark" for e-commerce, mobile apps, and consumer accounts in e-commerce, said Tim Sloane, director of emerging technologies advisory services for Boston-based Mercator Advisory Group. "The assets they have are remarkable."
This, in turn, makes PayPal important to an e-commerce market that is increasingly global. But a key challenge will be making sure PayPal's voice is heard in each region where it seeks business.
"The only thing that makes PayPal questionable is what comes across as a lack of initiative to leverage all of the assets they have in a manner that is consistently loud," Sloane said.
But its message is getting across. This month PayPal extended its relationship with Alibaba by launching a pilot with seven companies that are active on the B2B portion of Alibaba.com.
PayPal has so much momentum going that it is not hard to imagine the company at some point cozying up more to banks and financial institutions, an arena in which PayPal has long tried to portray itself as more of an ally than a competitor.
"We may see more cooperation with banks because PayPal has really grown into being as secure and trusted as the card brands," said Nick Holland, an independent mobile and digital payments analyst.
PayPal also hasn't "burned any bridges" with banks, Holland said. "Banks and traditional financial services players will start seeing PayPal more as a potential partner."
One partnership that remains uncertain is how PayPal will address the Merchant Customer Exchange, a mobile wallet initiative backed by Walmart, Target and other mega-retailers. PayPal's Paydiant unit was an MCX partner before the acquisition, but that doesn't necessarily give PayPal an in with the MCX backers. Walmart, for example, does not accept PayPal in its stores.
Nayar declined to comment on any direct relationship with MCX, except to say that PayPal is still exploring what role it could play.
PayPal is no longer issuing the plastic cards that were tied in with its partnership with Discover nearly four years ago to establish a presence at the physical point of sale, Nayar said.
"They still work, but we just aren't continuing that process with reissued cards," Nayar added.
Rather, PayPal is addressing the physical store market through mobile this time around in a deal with Macy's in which QR codes generated through the PayPal or Macy's app will initiate the One Touch payment technology for users.
But there is a "dark cloud" hanging over PayPal, Holland said. The problem is that other major payment companies, such as Visa and MasterCard, are undergoing a similar transformation and are viewing PayPal's traditional customer base as a new segment for them to serve.
"Look at the traditional networks with Visa Checkout and MasterCard with MasterPass and you can see they are moving into the online space that PayPal has been very comfortable in," Holland said.