PayPal’s CEO Dan Schulman said white labelled payments processing is a “strategic imperative” for the payments company – and it will “primarily focus on enabling unbranded processing” moving forwards.
The move will also give it richer datasets from merchants as it expands, which PayPal can in turn use to power more AI workloads and refined fraud prevention capabilities, the outgoing chief executive said.
Schulman made the comments on a Q1 earnings call late May 8, as PayPal reported revenues of $7.04 billion, up 9%, on 5.8 billion payment transactions of over $354 billion across the 12 week reporting period.
The move comes amid growing pressure from rivals: according to Salesforce data analysed by Deutsche Bank, Apple Pay has been eating away at PayPal’s market share when it comes to branded checkout services.
November 2022 figures showed Apple Pay growing ~52% year-on-year globally while, over the same period, PayPal adoption had fallen -8% the analysts said. That, in part, is driving a significant strategic shift at PayPal, which continues to have significant market share, with 35 million active accounts in more than 200 markets.
Schulman emphasised on the earnings call that PayPal’s unbranded payments platform focus was being led by Braintree, PayPal’s division focused on enterprise grade payments processing, which PayPal acquired in 2013, following an $800 million all-cash deal: “We've got a lot of momentum in Braintree” Schulman insisted.
“I think its success -- it's differentiated. It's driven by an open architecture where we are perfectly willing to orchestrate transactions to third-party services and other PSPs [payment services providers].”
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PayPal is prioritising this unbranded approach with a new service called PayPal Complete Payments, which gives merchants the ability to accept cards and digital wallets as well Venmo and PayPal services. In April 2023, this added the ability to accept Apple Pay – citing a study that said 59% of merchants found that their customers “frequently abandon their shopping cart when their preferred payment method is unavailable.”
Rolling out unbranded payments services to more merchants and SMEs will also allow PayPal to bolster its datasets, which in turn will power its development of more Artificial Intelligence services, Schulman said.
“We'll expand [white labelled payments services] to EU and to Australia next quarter. And the other really important thing about our unbranded services besides, the fact that they've got a deep relationship with our most important clients, if they drive a ton of data into our machine learning and AI engines, it's why we have among the lowest loss rates in the industry, the lowest instances of fraud, the highest conversion rates.
Despite raising its profit outlook for 2023, PayPal shares fell after Q1 earnings call, with analysts stating that the company lowering its operating margin expansion forecast is at blame for this slump. Braintree, where PayPal says the growth and future focus is, is a lower-margin business than PayPal’s branded business. In Q1 Braintree saw a 30% increase in volume, whereas branded saw 6.5% increase over the same period.
Braintree ships with a drop-in UI for a quick and easy way to securely accept payments that includes a card entry form and, if enabled, PayPal, Venmo, Apple Pay, and Google Pay buttons. When a user successfully completes the UI, the client code obtains a payment method nonce for use on the adopter’s server, but also lets merchants style their checkout form according to their specific brand guidelines.
