PayPal Enjoys a Robust Quarter As It Outlines a ‘Fundamental Overhaul’ of Its Apps

PayPal Holdings Inc.’s top executives late Monday laid out what chief executive Dan Schulman called “a fundamental overhaul” of the company’s PayPal and Venmo apps that will include a new cryptocurrency feature as well as bill payment and QR code capability on top of near-field communication technology and PayPal’s Pay in 4 installment-lending option.

The timetable for the new features starts with the bill-pay feature this month, progressing toward “everything in place” by the end of next year, Schulman told equity analysts during a conference call to discuss PayPal’s third-quarter results.

The makeover comes as PayPal is adding net new accounts by the boatload and as a new Venmo-branded credit card is helping the peer-to-peer payment app head toward profitability. “We expect Venmo to make a positive contribution in 2021,” Schulman said, with revenue around $900 million. “Venmo is clearly turning the corner.”

The San Jose, Calif.-based payments giant is adding more merchants for its QR code technology for contactless point-of-sale transactions. Ten “major merchants” are now signed to process the barcodes, including CVS, Nike, and Bed, Bath and Beyond, Schulman told the analysts, adding that more than 500,000 small and micro merchants will be accepting them by the end of the year.

Another thrust into the physical point of sale involves a feature that will allow PayPal users, and, later, Venmo wallet holders, to buy, hold, and sell cryptocurrency and spend it at stores by converting it into fiat money. News of the feature, which includes Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, first emerged in June. The capability will be available in the U.S. market first, with the spend capability to come next year at all 28 million merchants accepting PayPal and Venmo.

There will be no fees to merchants beyond ordinary PayPal rates, the company says, since the transactions will simply be additional payments settled in dollars. “There’s no question digital currencies are going to be rising in importance. Our digital wallets can help shape the utility of those currencies,” Schulman said. The crypto capability has been rolled out to 10% of the wallets so far, he added, with “demand” building for wider distribution.

Some of that enthusiasm stems from what the new wallet features will do for PayPal’s long-held ambition to gain a higher profile at the physical point of sale. While physical merchants have been forced by the pandemic to beef up e-commerce capabilities, long-time e-commerce processor PayPal has plotted a course in the other direction. Already, Schulman said, “we’re seeing nice adoption in what we’re doing in the offline space. We want to capture what is a huge in-store opportunity.”

Another factor in that strategy is Pay in 4, launched at the end of August as PayPal’s entry in a rapidly growing market for no-interest credit offered at the point of sale. “Demand is tremendous,” Schulman said. “It’s going to be one of our big growth drivers.”

But Covid-related restrictions have also helped PayPal as stay-at-home consumers turned to e-commerce. At the rate that consumers are signing up, PayPal now expects to add 70 million net new active accounts by year’s end, with 15.2 million having been signed up in the quarter. The total at quarter’s end was 361 million (including the 28 million merchant accounts), up 22% year-over-year.

Total payment volume for the quarter came to $247 billion, up 38%, on just over 4 billion transactions, a 30% increase. Revenue totaled $5.46 billion, up 25%. The company’s transaction take rate—the percentage of revenue it keeps on each transaction—fell to 2.06% from 2.23% in the second quarter and from 2.21% a year ago on a 47% surge in peer-to-peer transactions.