PayPal targets small businesses to improve margins
PayPal targets small businesses as it is pressured to improve margins, and Coinbase plans to bring US products to Europe, sees opportunities in derivatives trading
I hope you had a great weekend! On Friday, “Fintech Takes”, one of the coolest newsletters in the Fintech industry, included “Popular Fintech” in the “Ultimate List of Fintech Resources”. So I spent the weekend feeling like a CEO of a company, that was just included in the S&P 500 index. I also listened to Fintech executives speaking at various industry events, and here is what I learned
PayPal targets small businesses to improve margins, and
Coinbase wants to bring US product range to Europe
Thank you for reading and see you tomorrow!
PayPal Targets Small Businesses in Seach of Better Margins
PayPal’s “unbranded” processing business has been the key driver behind the company’s growth over the last few years. Thus, unbranded processing volumes, primarily comprising Braintree business, increased 40% YoY in 2022, compared to 5% and 7% YoY growth for PayPal Checkout and Venmo respectively. Unbranded processing also caught up with branded processing in terms of the share in the total volume mix in 2022 (see the chart below). However, the unbranded processing business comes with lower margins. Braintree, which is typically used by larger merchants to process e-commerce payments, does not directly benefit from the PayPal network and directly competes with the likes of Stripe and Adyen.
As a result, PayPal’s unbranded processing and the company’s plans to improve margins were at the center of conversations at the MoffettNathanson Technology, Media and Telecom Conference and Barclays Emerging Payments & Fintech Forum that took place last week. Peggy Alford, Executive VP of Global Sales, pointed out three levers that the company aims to use to increase its margin profile. First, PayPal sees higher profitability in its unbranded business in Europe due to the differences in the interchange fees. Second, the company is improving its offering to smaller businesses, which have a better margin profile than enterprise clients. Finally, PayPal is doubling down on value-added services such as FX and BNPL.
PayPal Complete Payments, the company’s new offering for small businesses, allows accessing Braintree’s processing capabilities through pre-built integrations with major e-commerce platforms and is expected to replace PayPal Pro. The platform launched in the US in the first quarter and will be brought to other countries later this year. “PayPal is suboptimal in terms of what an SMB would need today, so we've been working to bring to market a branded processing platform that really is incredibly relevant for the needs of SMBs. Our PayPal Complete Payments platform is taking the best in breed from Braintree, and making it applicable to the SMB [customers],” said Gabrielle Rabinovitch, the company’s interim CFO.
✔️ PayPal Investor Relations: Events
✔️ PayPal First Quarter 2023 Earnings Release
✔️ PayPal Slumps After Lowering Forecast for Full-Year Margins
✔️ PayPal Adds New Features to Its Complete Payments Solution for Small Businesses
Coinbase Wants to Bring US Product Range to Europe
Alesia Haas, CFO at Coinbase, speaking at the Barclays Emerging Payments & Fintech Forum, mentioned the company’s plans to bring the full US product range to European markets. “We are trying to unlock the U.S. portfolio of products to international customers on the retail side. So […] we just launched USDC in the last few months. We are looking to unlock staking opportunities, and just to continue to roll out our U.S. offerings.” Historically, international markets revenue, which primarily comprised fiat on-ramp and trading in Bitcoin and Ethereum, contributed as much 20% of the company’s total income, but dropped to 11% in the first quarter of 2023 on the back of lower trading volumes.
In addition, the company’s executive highlighted the opportunity in derivatives trading. As a reminder, Coinbase launched its International Exchange, which utilizes its Bermuda licenses to offer non-US companies trading in perpetual crypto futures. “This is an area where FTX had a lot of revenue, this is an area that Binance has a lot of revenue. And now there's a question of like how will Coinbase compete and can we offer a competitive product,” commented Alesia Hass on the opportunity. Currently, the International Exchange is targeting institutional customers; however, I would not exclude the possibility of the company expanding the offering to its retail customers outside fo the US.
The comments from Alesia Haas reinforce the company’s ambitious plans for Europe. Thus, just last week Coinbase announced the launch of its subscription service, Coinbase One, in the United Kingdom, Germany, and Ireland. The service will be rolled out across the whole European continent in the coming months, according to Techcrunch. With Coinbase One, subscribers gain access to exclusive benefits such as zero trading fees, faster customer support, boosted staking rewards, and exclusive offers from partners, including Messari and CoinTracker. Coinbase One service was initially launched in the United States in 2021.
✔️ Coinbase launches subscription service with focus on European expansion
✔️ Coinbase Launches International Exchange as Tensions With US Regulators Grow
✔️ Coinbase launches international perps exchange
✔️ An update to Coinbase’s global scale to go broad and deep
PayPal stock is down 19.33% since the release of the first quarter results, and now trades at $60.92, the lowest since August 2017. Apparently, investors didn’t like see operating margin compression in the company’s full year guidance. Not a surprise that improving margins is on the top of the mind of the company’s executives.
Senior Product Manager - Venmo Payments
San Jose, CA, New York, NY, or Remote, United States
Product Manager - Venmo Payments
San Jose, CA, New York, NY, or Remote, United States
Head of Emerging Markets, Compliance
Ireland Chief Risk Officer and Senior Manager of International Enterprise Risk Management
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Cover image: Microsoft Bing Image Creator, Powered by DALL·E, prompt “Americans looking at the map of Europe, excited, pop art style”
Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.