With the S&P 500 index still down 2.5% year to date and volatility still high, investors may not think the market is a friendly place to be. But while some sectors have struggled during the COVID-19 pandemic, others have flourished. One is financial technology, where online payments leader PayPal Holdings (PYPL -0.13%) is up 69% through Thursday's close. Here's why.

It's prepared for this moment

PayPal is even more attractive now than it was before COVID-19 hit the scene, when it was already an outstanding business offering innovative e-commerce solutions. It's crushing the market because its technology has become essential for the new normal of e-commerce -- expedited by current norms but not formed by them.

Couple paying for an online purchase.

Image source: Getty Images.

In the first quarter, which ended March 31, transactions were up 20%, and branded transactions were up 43%, more than double the amount in January and February. And that was only at the beginning of the lockdown. On May 1, PayPal recorded the most transactions in its history -- including Black Friday and Cyber Monday.

In April, net new active users were up 140% from January and February levels, working out to 250,000 net new users each day. April revenue increased 20% year over year.

Clearly, these outstanding numbers are the run-up from COVID-19, but the point is that PayPal was ready for it. CEO Dan Schulman said, "We've worked hard in recent years to establish PayPal as one of the world's most trusted digital payments brands, with substantial reach and scale for both consumers and merchants, and those efforts are clearly paying off."

Coming from a focus on innovation

PayPal has seized the moment to offer new options for companies under the new normal circumstances. Recognizing the limits of its functionality for in-store purchases in the COVID-19 era, PayPal introduced a contactless payment method for small businesses in May that allows it to better compete with payment-solution organizations such as Square.

This development comes on the heels of many other developments and acquisitions that PayPal has made to extend its services and keep its lead. 

It acquired cash pay app Venmo when it purchased Braintree in 2013, and that brand has contributed to the company's strong performance and increased revenue by widening its lead in digital payments. It purchased GoPay in 2019 to enter the Chinese market. And in January, PayPal bought Honey, a service that users can download to find discounts online before making purchases and that encourages them to go through with the sale.

Looking to the future

Let's be careful to note that PayPal is not succeeding because of the pandemic. The reason PayPal is benefiting right now is because it has been able to successfully build up a platform over time that can do well in any type of environment. It has developed core partnerships, first as a division of eBay and more recently with a host of online businesses that feature its button as a payment option. And it has continued to invest in applications that actually make life easier for its clients. That winning strategy placed the company in a position to succeed as the future of the economy merged with technology. That's why it's beating the market now, and that's why it has been for years, returning close to 400% over the past five years.

With its eye on the ball, PayPal is poised to keep innovating and moving where technology and consumer trends are leading it. That kind of strategy will ensure further growth and more returns for investors in the future.