PayPal (NASDAQ:PYPL) has seen a surge in new accounts and payment volume as more shopping moves online, but it's certainly not resting on its laurels. In fact, management plans to accelerate some of its investments in order to capitalize on certain opportunities presented by the new consumer environment amid the coronavirus pandemic.
During the company's first-quarter earnings call, CEO Dan Schulman highlighted three areas where the company is looking to accelerate its road map to help its surging user base get the most out of PayPal. It plans to offer more in-store digital payment capabilities, integrate Honey into PayPal, and increase the utility of its peer-to-peer payments.
Cashless and contactless transactions
A big area of interest for PayPal over the last half-decade or so has been increasing its presence in stores. Its biggest challenge has been overcoming existing behaviors like paying with cash or using physical credit cards. With the new increased preference toward contactless transactions, PayPal has an opportunity to help establish new behaviors as people return to shopping in stores.
At an investor conference in March, Schulman explained several ways PayPal is thinking about luring away in-store payments. The easiest way, he says, are card products like the Venmo Card or PayPal Cash Card. "But eventually everything is going to move into the mobile phone," he said.
There are two ways to facilitate in-store payments on mobile phones. One is QR codes, which are extremely popular in some parts of the world (China, for instance). The PayPal app currently has a scan-to-pay feature, but Schulman thinks there's an opportunity to make it more prominent for consumers and increase adoption from merchants.
There's also NFC chips, which enable tap-to-pay features found in some credit cards and smartphones. PayPal's made several deals with payments networks over the last few years that give it the tools needed to facilitate secure contactless payments. Those deals also allow it to only pay the card-present transaction fee instead of the higher card-not-present fee, and PayPal can pass the savings onto merchants. PayPal can offer the feature on Android phones, but Apple doesn't allow third-party access to the iPhone's NFC chip.
Deeper integration between PayPal and Honey
PayPal bought Honey last year with the idea of expanding its presence in the online shopping experience beyond the checkout screen. The coupon app is extremely complementary to PayPal's payments functionality, and that's proven out by its successful cross-selling in the first quarter.
"When we cross-sell into Honey, we see a much higher [lifetime value] customer as well coming out of both for PayPal and Honey," Schulman said on the earnings call. He also noted Honey's net new active accounts grew nearly 180% and revenue grew 40% in April compared to pre-COVID-19 levels.
Increasing the integration of PayPal and Honey should further improve those numbers. PayPal already has a massive mobile user base between Venmo and its PayPal app. Merely integrating Honey into its existing apps should produce stronger engagement for both Honey and PayPal's payments business. On the flip side, PayPal also plans to include its payments capabilities in the Honey app.
Longer-term, there's an opportunity for PayPal to offer the ability to redeem offers from Honey by using the PayPal app for in-store payments, as Schulman mentioned in March. He also thinks there's an opportunity to use data from Honey to help merchants make more sales, which is core to PayPal's value proposition.
Increased utility of peer-to-peer payments
The last area of investment for PayPal is in its peer-to-peer payments capabilities. Management says it saw a rapid change in how people are using Venmo and PayPal to send money to each other. Pre-coronavirus Venmo users often paid each other when splitting payments for social events like eating out or concert tickets. But in April, management saw an uptick in cross-generational payments and payments for goods and services.
In response, PayPal increased the payment limit from $3,000 per week to $5,000 per week on Venmo. It's also looking at ways to make it easier to facilitate new use cases like paying vendors at open markets or online fitness instructors.
Bringing more functionality to the Venmo app and the main PayPal app should increase engagement in the near term, while being additive to the existing behaviors consumers used the app for pre-COVID-19 when things start returning to normal.
With the massive increase in use across all of its apps, PayPal has an opportunity to invest and ensure the surging engagement translates into long-term value for the company.