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PayPal’s financial performance has shined amid the economic crisis, yet it still faces considerable challenges as international merchant acquirers aggressively up their game.
While most companies have reported sharp drops in revenue, PayPal is coming off its best quarter since the company’s IPO five years ago, adding by far the most accounts in a quarter in PayPal’s history as merchants and consumers rush to digital due to the coronavirus’ impact on brick-and-mortar payments. PayPal also raised $4 billion in the bond market in May as its digital payments volume skyrocketed.
PayPal is improving its ability to reach innovators, adding a key executive in its recent hire of former Wells Fargo senior vice president and fintech veteran Peggy Mangot to be operating partner at PayPal Ventures, PayPal’s VC team.
Most merchant acquirers are leaning into the online trend, making Mangot’s expertise an important addition for PayPal. PayPal’s market cap is about $210 billion, but Ant Group — which is affiliated with Alibaba and operates Alipay — plans listings in Hong Kong and Shanghai this year, seeking a $200 billion valuation. Tencent, which operates WeChat Pay, just led a $100 million investment in challenger bank N26, highlighting its international ambitions. WeChat Pay recently began testing livestreaming to add an additional digital channel for shopping and payments at brick-and-mortar stores.
Stripe, Square and traditional merchant acquirers are also aggressively adding a wider range of financial services to merchants and digital businesses. Square this week reported a huge bump in digital business and small-business lending that offset lower payment volume.
As an operating partner at PayPal, Mangot will work with existing portfolio companies, a PayPal spokesperson said. At Wells Fargo, Mangot developed Greenhouse, a mobile banking app aimed at gig economy workers.
Mangot’s career covers banking, credit cards and startups. Before Wells Fargo, Mangot was founder and CEO of SparkGift. SparkGift, which was acquired by Stockpile in 2017, offered micro investing as gifts. Earlier, Mangot was head of partnership management, payments and commerce at Google, where she worked on Google Wallet, APIs and promotions. She was also senior director of debit product and partner marketing at Visa.
“PayPal can have the focus and insight to see things coming down the pike. But it doesn’t mean that banks and legacy firms don’t have access to this innovation,” said Richard Crone, a payments consultant. “Mangot has all of the pieces of the puzzle. The key is having the right people to spot this innovation.”
Mangot’s experience will be helpful in reaching new generations of clients more inclined to adopt digital financial services as the pandemic reduces cash use — creating a possibility of a generation of consumers that come of age with very little experience with cash and ample experience with digital shopping, banking and payments.
“Mangot helped write the playbook for this stuff,” Crone said. “It starts with financial education and money management and that’s not happening with paper cash and coins.”
The PayPal Ventures portfolio includes startups in financial services, commerce enablement, data, security and infrastructure. That gives PayPal access to firms in data breach prevention, cloud computing, e-commerce, lending, expense management and accounting.
One of PayPal Ventures’ most recent moves, for example, was helping raise $4.2 million for TRM Labs, a startup that helps other firms manage crypto asset risk such as digital currency fraud and money laundering. PayPal joined Initialized Capital, Blockchain Capital and Y Combinator, the startup accelerator, in that investment.
The technology has in some cases directly helped PayPal respond to the pandemic. Chargehound, an Oakland, Calif.-based fintech contributed technology to a service that allows merchants to automatically respond to chargeback disputes using Chargeback’s API.
PayPal Ventures is part of a long strategy at PayPal to foster new fintech and commerce products and services that can complement and, in some cases, plug into its payments platform. PayPal hasn’t been a startup for nearly two decades, and is more in league with the major card networks in using open development tool kits and other strategies to bring value-added services to merchants.
PayPal acquired Braintree nearly seven years ago, a deal that brought Venmo and Braintree’s software development acumen in house. More recently, PayPal spent $4 billion to acquire Honey, a firm that allows PayPal to offer incentive marketing and other e-commerce tools that engage consumers at the start of a shopping journey, well before checkout.
“PayPal is pursuing both organic and inorganic growth in order to position PayPal as the leader in digital commerce,” said Thad Peterson, a senior analyst at Aite. “At the same time, their aggressive pursuit of growth is a good defensive strategy as Alipay, WeChat and other digital payment platforms attempt to increase global share.”
Since digital commerce is growing at a faster pace because of the pandemic, transaction volumes are generating a lot of revenue for PayPal, making it a good time to go deeper, Peterson said. “Bringing Mangot on board strengthens an already strong and aggressive growth strategy,” Peterson said.
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