PayPal Tops 203 Million Consumer Accounts As Partnerships Begin To Pay Off

Pay with Venmo, a fledgling merchant-payments service from PayPal Holdings Inc., is advancing to a broader testing stage with merchants, PayPal chief executive Dan Schulman said during a conference call with analysts to discuss the company’s first-quarter results Wednesday.

Announced in 2016, Pay with Venmo is an attempt to capitalize on Venmo, a popular mobile person-to-person service that relies on social media. PayPal hopes to generate even more transactions by enabling consumers to pay for merchandise with the service.

The test will be open to select PayPal merchants, Schulman said. “We’re mirroring our approach we used to roll out One Touch,” Schulman told analysts. One Touch is PayPal’s rapidly growing checkout service available to mobile and online shoppers that enables them to pay for purchases with a single tap for each transaction, avoiding the need to enter a password and user name.

Launched in August 2014, PayPal’s One Touch gradually expanded to increasing numbers of selected merchants before being made generally available in May 2015.

More than 53 million consumers have opted to use One Touch, Schulman said, up from 45 million at the end of 2015, and more than 5 million merchants now accept the payment method. “We expect the number of merchants accepting One Touch to increase noticeably in the year,” said Schulman.

“The reason it got such quick merchant acceptance is the merchant had to do no work to enable acceptance,” he said. “We now have a platform to turn on merchants to accept Pay with Venmo as an option. That will roll out more toward the back half of the year.”

One Touch and Pay with Venmo are part of the reason, too, that PayPal’s active customer accounts increased to 203 million in the first quarter, a 10.3% increase from 184 million in the same quarter a year ago. The 203 million tally is 6 million more than the quarter ended Dec. 31. Fifty-four percent of them are outside of the United States. “We expect our net additions will increase by more than 20 million in 2017,” Schulman said. PayPal also said it has 16 million active merchant accounts.

That 6 million growth in customer accounts in three months beat one analyst’s forecast of 4.1 million. “We believe PayPal’s familiarity with consumers, its scale, and its technology represent competitive advantages over most current competitors and new entrants,” wrote Robert Napoli, analyst with William Blair & Co. LLC, in a research note Wednesday. “Still, we believe the market is large enough to support multiple winners.”

Not only are PayPal’s own products contributing to this growth, but the results of several partnerships with financial institutions and technology companies are, too. It’s the manifestation of PayPal’s view of customer choice, a principle that favors giving consumers more opportunities to more easily manage and move their money online, in app, and in store, PayPal said.

Examples are PayPal’s latest deals, announced earlier this month, to let shoppers use PayPal within the Android Pay mobile wallet for in-store, online, and in-app purchases, and to let Wells Fargo & Co.’s customers use their Wells debit or credit cards within their PayPal wallet on Android devices.

These follow groundbreaking agreements with Visa Inc. and Mastercard Inc. Payment volume was $99.3 billion, a 22.4% increase from $81.1 billion in 2016.

Schulman said it’s hard to overstate the difference this shift in PayPal’s approach to partnerships has had when viewed against its prior relationships.

“The partnerships enable us to get certain things we didn’t have before,” Schulman said, such as access to tokenization and greater in-store acceptance, and the elimination of Mastercard’s digital-wallet fees.

Other financial metrics for the quarter include the transaction take rate, which tracks transaction revenue as a percentage of payments volume and is closely watched by analysts, at 2.62%, down from 2.76% a year prior. PayPal cites the growth in P2P transactions, including Venmo, which is free, as a primary factor.

PayPal’s overall revenue of $2.98 billion is 17.3% more than the 2016 first quarter total of $2.54 billion. Its net income was $384 million, a 5.2% increase from $365 million a year earlier.