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There’s much more to PayPal Holdings Inc. than Venmo, but that’s where the payments industry’s spotlight has shone in recent years. Still, in spite of all the attention it gets, Venmo had always kept one thing secret: how many active users it has. Late in April, PayPal lifted the veil. More than 40 million people, it turns out, use the peer-to-peer payment service.
Venmo users rang up $21 billion in volume in the first quarter, up 73% year-over-year and triple the volume seen two years ago. That means Venmo, which already accounts for 13% of PayPal’s dollar volume, will generate almost $100 billion in volume this year, PayPal predicts.
But Venmo gets outsized attention compared to the rest of PayPal not only because of its sizzling growth but also because of the impact the free service is having on its parent company’s financial results. On a quarterly earnings call, PayPal’s top brass expressed some frustration with that assessment, pointing to how merchant acceptance is beefing up Venmo’s top line.
“Merchants are increasingly turning to Venmo,” chief executive Dan Schulman told analysts on the call. He was echoed by Bill Ready, chief operating officer: “We’re pleased with the monetization of Venmo and the rate at which that’s progressing.”
The top execs didn’t go so far as to release a P&L for Venmo, but they’re clearly encouraged by moves over the past couple of years to induce merchants to accept a Venmo-branded debit card and to take the service in payment for e-commerce sales.
Tactics like these, which draw acceptance fees from sellers, have driven Venmo’s annualized revenue run rate to more than $300 million as of the end of the first quarter, according to Schulman. “I expect that to continue to grow,” he said on the earnings call. Merchants taking Venmo include Uber, Uber Eats, Grubhub, Seamless, and Fandango.
One example of how a merchant could succeed with Venmo acceptance, he added, is a recent campaign by the restaurant chain Chipotle to promote Venmo. The company signed up 1 million customers for the rewards-linked program in just one week, Schulman reported. “There are a lot of areas where we can grow top-line revenue” for Venmo, he said.
For now, though, Venmo’s fast growth continues to put pressure on PayPal’s margins. The company’s transaction take rate, or the percentage of a sale it keeps, drifted down again in the first quarter to 2.31%. Twelve months ago, that rate stood at 2.42%. Chief financial officer John Rainey blamed “strong P2P growth” for two-thirds of the decline.
Another hot spot for PayPal is its relationship with eBay Inc. The big online marketplace, which once owned PayPal, is moving ahead with a so-called payments intermediation plan that relies on the Dutch payments provider Adyen for gateway services to PayPal as well as other payment methods.
Meanwhile, an operating agreement the parties signed in 2015, when eBay spun off PayPal, runs until the summer of 2020. By that time, Schulman predicted, eBay will account for “well under” 5% of PayPal’s volume, compared to just under 10% now.
“They’re just becoming a much smaller part of PayPal at a much faster pace, which is great,” said Schulman. “There’s nothing that gives us any pause for concern.” That may be because PayPal has been working with merchants to list on “multiple marketplaces,” Schulman added. “Consumers are 54% more likely to buy when a merchant accepts PayPal, and eBay sellers know that.”
Also, PayPal during the quarter invested $750 million in Mercado Libre, an Argentina-based e-commerce marketplace with 248 million registered users in 19 countries, more than eBay’s 179 million. The company expects the investment to pay off in growth in Latin America and in cross-border payments.
