The digital payments industry is gargantuan, and it's only getting bigger from here.
In this clip from Industry Focus: Technology, analyst Dylan Lewis and Motley Fool contributor Matthew Cochrane examine payments behemoth PayPal (PYPL +1.25%) and its many different segments, and discuss which areas investors should keep an eye on. Watch to find out more about PayPal's central platform, as well as Braintree, Venmo, and the ultra-sticky One Touch.
A full transcript follows the video.
This video was recorded on May 25, 2018.
Dylan Lewis: Why don't we do a quick couple of minutes on the story with PayPal, how things have looked over the last couple years, and what investors are watching?
Matthew Cochrane: Sure. I think, most people are semi-familiar with PayPal. It's the world's largest open digital payment platform, which consumers can use to move and manage their money. Every time consumers use PayPal to make a transaction, PayPal takes just a little off the top. We're talking about a fraction of a percentage point, but it quickly adds up, when you're talking about billions of transactions.
PayPal also has Venmo, which is very similar to the core platform, though it is more popular with millennials and has a bit of a social element to it. Venmo is still primarily used for P2P, or person-to-person, transactions, so the company is beginning to roll the platform out more for other types of transactions that can be monetized. Another PayPal subsidiary is Braintree, which offers payment processing solutions to merchants, with one of Braintree's most prolific customers being Uber.
Lewis: You mentioned Braintree, you mentioned Venmo. They're strong in mobile. We've seen that this company is a company that's kind of ahead of the curve with the payments industry, a little bit. One thing in particular that stands out to me is what they've been doing with One Touch. Not only are they really focusing on making mobile payments easier and removing some of the friction there, they're also doing that with the standard e-commerce experience for customers.
Cochrane: Correct. Mobile payment volume on PayPal has exploded in the last quarter. It was up 52% year over year. The company definitely gives most of that credit to One Touch. One Touch's sales conversion rate is 89%, which is about double the industry average. When we're talking about mobile sales conversion rate, what that means is basically, once a consumer or a customer of an online merchant begins the checkout process, how often do they finish that checkout process? This is a big issue for merchants. If a customer is on your site and they've expressed interest in buying an item or product or service that you sell, you want that customer to complete the sale. You don't want the customer to get bogged down in the payments process and be like, "Oh, I'll come back to it later," and then they never do. So, this is a big thing.
One Touch allows a user to register a device -- say, your smartphone -- and from now on, when the consumer is shopping online and using that device and they come to a website's checkout page, they can simply click the PayPal button, and they're done. There's no need to enter their credit card number, their expiration date, the billing address, the shipping address. It's more secure and more convenient.
Personally, I find it easy to use. I probably literally get annoyed every time an online merchant doesn't offer it. And I'm not alone. Yesterday, at PayPal's investor day, they said 31% of consumers -- this is according to a comScore survey -- would not even complete a purchase without PayPal One Touch. One Touch now has 92 million consumers enrolled and 8.6 million merchants enrolled.
