Global retail e-commerce sales will reach nearly $4.5 trillion by 2021 according to online statistics website Statista.com. It is also estimated that 1.66 billion people worldwide purchased goods online in 2017, accounting for 10.2 percent of all global retail sales during that year. By 2021, it’s expected that e-commerce will reach 17.5 percent of all global retail sales.
Without question, one of the companies which has benefited the most from the growing Internet marketplace is PayPal Holdings (NASDAQ:PYPL). In 2012, app performance management company New Relic estimated that PayPal processed 60 percent of all web transactions. By the end of 2018’s first quarter, the total number of active user accounts on PayPal reached an estimated 237 million active customer accounts. That total represented an increase of 32 million more accounts over the number of PayPal accounts that were active by the end of 2017’s first quarter. The company also reported that it earned $3.69 billion in revenues for 2018’s first quarter, an increase of more than $700,000 over the company’s revenues earned during the first quarter of 2017.
PayPal is also gaining acceptance as a payment platform for retail establishments looking to move away from processing credit and debit card transactions. Although Apple Pay has a slightly larger footprint, about one-third of North American retailers accept digital payments made through PayPal. By the end of 2018, it’s estimated that half of U.S. retailers will accept payments through PayPal. Investor analyst firm Stifel raised its rating of PayPal stock in May, expecting shares to hit a price target of $99 per share. In a note to its clients by Stifel analyst Scott Devitt, he told investors that PayPal is growing from a “button/online checkout company to a global payments platform.”
Perhaps one of the reasons that PayPal is expected to grow is the mid-2018 acquisition of iZettle, a “tools for business” online start-up which PayPal bought for $2.2 billion. The Swedish company sells card readers, point-of-sale systems, invoicing software, access to smart analytics regarding customer reach and offers up capital for small businesses.
This May, cloud management solution provider Sage announced that it was partnering with PayPal to integrate that company’s payment services into Sage’s cloud platform. It’s expected that the deal will enable Sage cloud subscribers to make use of faster and simpler payment options, cutting down on the estimated 120 days per year small businesses spend on administrative tasks, including the average of 15 days spent each year chasing late payments. Similarly, Google has allowed PayPal as an option for customers since 2014 but, in the interests of security, is revamping its services to allow users to choose PayPal without having to log out of Google’s G Pay.
Despite PayPal’s reputation for being an innovative payment solutions company, recent news stories have reported that PayPal is moving towards operating as a more traditional bank. These initiatives include new features such as Federal Deposit Insurance Corporation (FDIC) government backing of PayPal balances, issuing debit cards that can be used at ATMs and providing direct-deposit options for paycheck deposit. PayPal COO Bill Ready has publicly indicated that these services are meant to bridge the gap between those who have an account with a traditional bank and those who don’t.
But while PayPal moves to become something like a banking firm, the company is still an Internet service and is involved with developing new technology. One PayPal executive, Senior Vice President and Asia-Pacific CEO Rohan Mahadevan, said that the pace of financial technology innovation will be greater over the next five years than it has been over the past two decades, making those remarks at the Rakuten Fintech conference in Tokyo this January.
The unusual direction of innovative developments in the field of fintech is underscored by U.S. Patent No. 9953350, called Augmented Reality View of Product Instructions, which was issued to PayPal in late April. This patent protects a method by which an augmented reality view of an identified object is generated to include promotional material, recommendations, location to purchase the product and product instructions from a database correlated with the object. This technology enables the user’s ability to access information related to a product by creating an augmented reality in which users may be able to see product and service reviews and listings associated with buyers and sellers, recommendations, and product tutorials.
Another financial technology developed to take advantage of new technological platforms is covered by U.S. Patent No. 9710812, titled Social Network Payment System. This patent claims a method by which users of social networks can pay one another without having to go to a financial site for the transaction. This is done through a social network payment gateway that couples a payment service to social network or networks. The disclosed method solves the problem which social networks such as Facebook or LinkedIn have in that those social media platformsdo not provide an easy ability for users to pay for goods and services seamlessly from the social networking site.
Other than social media networking, PayPal is developing technologies for sending payments over the Internet as described in U.S. Patent No. 9275384, titled Point of Sale Payment System. It covers a system for point of sale payments that receives payment information over a network from a seller device, the payment information associated with payment code information in a database which is sent to a payer device to initiate a payment to a seller account. The payer of these goods and services may make use of their payer device, such as a smart phone, by taking a picture of payment code information and confirming a payment. These points of sale may be from the parking lot where the user’s car is located, bypassing the need to find a kiosk, or from the user’s table at a restaurant, bypassing the wait that occurs when a server takes a credit card and then process the card to complete the transaction.
While convenience is important, security in an online world is paramount. U.S. Patent No. 9508072, titled Secure Payment Instruction System, discloses a method for providing secure payment instructions. This may be done with a payment service provider verifying a payer device being used in a transaction with a payee device. The verification may be performed by receiving the payer’s credentials or detecting a cookie on the payer device. Typically, a sale online requires personal information, a payer name and address, and may raise issues because the online merchant may not be trusted by the payer. This technology provides a solution by using a payment service provider website, such as PayPal, to complete the sale. In this way, the payer is not giving an online merchant personal information, and the online merchant is being compensated for its product. Both ends of the transaction are taken care of by the payment service provider.
PayPal has been utilized for more than a decade and is well-situated for a world that will move away from the use of credit and debit cards, a reality that was recently conceded by Michael Corbat, CEO of Citigroup, the world’s largest issuer of credit cards. As of last November, independent credit card news website Creditcards.com reported that four out of ten Americans are banking online more frequently than any other method. While 18- to 29-year olds are using mobile banking in droves, about 52 percent of older consumers aged 65 years and over are also banking online. With online payment companies like PayPal and its rivals making it easier to shop and spend even at brick and mortar stores, it’s no secret that this trend towards digitally networked payment systems will continue.