PayPal Holdings (PYPL 0.18%) is making great strides in improving engagement across its base of 305 million customer accounts. One of the highlights in the fourth-quarter earnings report was an acceleration in average transactions per account, which came in at 40.6, or an increase of 10% year over year, notching a one-point improvement over recent quarters.

There are numerous things PayPal is doing behind the scenes to improve engagement, but the recent acquisition of Honey Science stands out. During the fourth-quarter earnings call, PayPal CEO Dan Schulman highlighted three ways Honey will benefit the company. Here's what he had to say.

A flat-lay of a smartphone displaying the PayPal app, surrounded by a credit card and various luxury goods

Image source: PayPal Holdings. 

1. Increase engagement

Today, customers are using their PayPal accounts more than twice as frequently as they did six years ago. Management's long-term goal is for PayPal customer to use their account every day. That would obviously have a significant impact on growing payment volume and revenue across the business.

This goal is at the heart of why PayPal spent $4 billion to acquire Honey Science. "The addition of Honey and its complementary capabilities to the PayPal network will significantly transform our relevance and drive engagement with our consumers and merchants at the earliest stages of their commerce journey," Schulman said during the call. 

Honey works as a browser extension that tracks product prices and alerts you when it finds a coupon that will save you money on an item you're purchasing. Honey has 17 million monthly active users who saved $1 billion last year while shopping online. 

2. Fuel mobile payment growth

As part of PayPal, Honey's reach is about to increase substantially. One of PayPal's near-term priorities is to integrate Honey into the core PayPal and Venmo apps. "We have significant scale on those mobile apps," Schulman said, alluding to Venmo's 52 million users.

The integration is expected to be completed in the second half of this year. Once complete, Honey could fuel Venmo's momentum, which saw payment volume soar 56% year over year in the last quarter. 

PayPal has launched a Venmo Rewards program that is available with select merchants for Venmo debit cardholders. Honey's money-saving capabilities complement this strategy and could convince many users to stick with Venmo instead of trying competing payment apps.

3. Extend the value proposition beyond checkout

The most important aspect of this deal is that Honey will enable PayPal to offer value to its growing 24 million merchants not just at checkout but also at the initial point of interest when a customer is shopping for a product. As Schulman said, "[A third] of all commerce transactions start with some sort of trigger-based event, whether that be a promotion or some kind of deal." 

There is huge upside for PayPal in winning more merchants to its platform with Honey. While merchants are seeing significant growth opportunities in the age of e-commerce, small businesses are also facing obstacles standing out.

Schulman explained that merchants are looking to PayPal "to basically increase their sales in a world of digital commerce." He added, "Honey is a big tool set for that, and we are excited about working with not just the 30,000 merchants they have today but pretty dramatically accelerating that."

Merchants already love PayPal for its ability to deliver industry-leading conversion rates at checkout (e.g. no abandoned shopping carts). Honey will enhance that value proposition even further. "We can enable personalized, timely, relevant offers for consumers and become a highly value-added partner to our merchants," Schulman explained. 

Honey is a perfect fit with PayPal

Honey will have a minimal impact on PayPal's revenue and earnings in 2020, but it should go a long way to increasing the frequency with which people use their payment accounts and significantly raise PayPal's long-term growth potential in the war on cash.