PayPal Logs A Strong Quarter As It Shifts Its Strategy to Boost User Engagement

As all payments companies know, some active accounts are more active than others. On Tuesday, PayPal Holdings Inc.’s top executives made it plain the company’s 2022 priority is to emphasize—and pour money into promoting—accountholder activity. “The shift is, we’re not going to throw marketing dollars at low-value customers coming in,” declared chief executive Dan Schulman during an afternoon session to discuss his company’s fourth-quarter 2021 results. That means, he said, that “we are shifting our emphasis toward engagement.”

User engagement is a metric Schulman has watched closely since taking over as the payments giant’s top executive more than six years ago. Now, with PayPal having weathered the worst the pandemic could throw at it, and with e-commerce activity stronger than ever, he’s looking for ways to get more revenue—and potential profit—out of PayPal’s most active users. “The vast majority of our volume comes from one-third of our customers,” said chief financial officer John Rainey during the call.

PayPal measures engagement in terms of transactions per account, and here the trend is positive. Overall, the active user base performed 45.4 transactions per account in the fourth quarter, up 11% from the final quarter of 2020. That was with 49 million net new active accounts added to bring the total to 426 million. Payment volume jumped fully 23% year-over-year to $340 billion in the quarter. Volume for the full year totaled $1.25 trillion—exceeding the trillion-dollar level for the first time in the company’s 22-year history.

The new emphasis on customer engagement may already be paying off at the bottom line. PayPal posted a transaction take rate—the percentage of dollars it keeps on each transaction—of 1.88% in the quarter, reversing a slide that had seen the rate dwindle from 2.06% in the third quarter of 2020 to 1.81% a year later.

Supply-chain issues have hampered cross-border traffic for PayPal, but the company is weathering the latest impact of the pandemic, the top executives said. “It’s clear to me we are in a significantly stronger position than when we entered the pandemic,” Schulman said.

Another positive is the early performance of PayPal’s so-called super app, which launched last summer. The app supports an array of payments, shopping, and financial features and represents the company’s first complete redesign of its app in seven years. It also enables cryptocurrency transactions. “Our super app is showing extraordinary early results,” Schulman said, pointing out the app generates twice the average revenue per active account.

In the highly popular buy now, pay later space, PayPal ended the year with $7.9 billion in payment volume, 1.2 million merchants, and 12.2 million consumer accounts across eight countries.

Across the company, PayPal reported 426 million active accounts for 2021, up 13% year-over-year, including 34 million merchants. The company added 9.8 million active accounts in the fourth quarter alone, including 700,000 merchant accounts. The fourth-quarter total includes 3.2 million consumer accounts that came to PayPal in October via its $2.7-billion acquisition of Paidy, a Japanese buy now, pay later provider.

Revenue for the quarter totaled $6.9 billion, up 25% year-over-year.