2020 was a transformative year for PayPal (PYPL +2.01%). A surge in online commerce led to a record number of new users, more than 72 million, and a substantial increase in total payment volume. On top of that, PayPal introduced key new products like cryptocurrency investing, QR codes, and the option to buy now and pay later.
"We released more products and services in 2020 than in any previous year, and we will step up that pace in 2021," CEO Dan Schulman said on the company's fourth-quarter earnings call. Here are five products the company has planned for 2021 and what it all means for investors.
Image source: PayPal.
1. Investing
PayPal launched its cryptocurrency investing service in October last year, and management says it's seen excellent traction so far. This year, the company will expand the ability to buy, sell, and hold cryptocurrency to new international markets and increase the number of investment options. Additionally, Schulman says the investing product won't be limited to cryptocurrency, leaving the door open for PayPal to facilitate stock trading this year as well.
Rival payments company Square is way ahead of PayPal when it comes to making investing easy for its users. Square saw strong adoption among its Cash App users when it introduced bitcoin investing in 2017, and it expanded to stocks last year. Management says users that invest through Cash App generate much more gross profit for Square than those that merely use it for peer-to-peer payments.
PayPal can expect similar user behaviors to result in similar financial outcomes. But with a much larger user base than Square, it can benefit more from its scale.
2. Spending cryptocurrency
When PayPal introduced the ability to buy cryptocurrency in its app, it promised the ability to use crypto as a funding source for payments at some point in the future. Schulman said that capability will start rolling out later this quarter.
The ability to spend cryptocurrency through PayPal could lead to even greater adoption of the platform as a wallet to store funds. The number of merchants currently accepting direct payment in bitcoin and other cryptocurrencies is extremely limited. The process of exchanging cryptocurrency for an exact amount of fiat currency can be cumbersome, and fees on small transactions currently make it impractical. PayPal could make spending cryptocurrency simple.
3. Enhanced bill pay
The company has been working on getting bill payments off the ground since it entered a strategic partnership with Paymentus at the start of 2019. It's seen growing engagement in bill pay transactions over the back half of the year, and investors can expect 2021 to be the year bill pay comes to the consumer PayPal app.
Bill pay will give PayPal access to payments it historically hasn't been able to capture. While the take rate for billers is lower than its standard take rate for retail merchants, the cost is much lower as well. Bill payments are usually made with ACH or a debit card instead of a credit card. CFO John Rainey told analysts to focus on transaction margin instead of take rate during the buy-side analyst call after PayPal's third-quarter earnings report.
4. Budget and savings tools
PayPal could introduce budget and savings tools to its wallet in 2021. It's likely PayPal would offer those tools free to its users as such features would encourage users to store more funds in their PayPal wallets and then use those funds for transactions instead of more expensive (for PayPal) card payments.
Adding services and features users can't get with most banks will make it more likely they switch from a traditional bank to something like a PayPal Cash Plus account. The company can generate additional revenue from those accounts with its linked debit card and other bank-like services.
5. Honey's shopping tools
PayPal acquired Honey at the end of 2019, and Schulman had a grand vision for how Honey's shopping tools can fit into PayPal. In 2021, we'll see the early integrations of Honey with PayPal, including wish lists, price monitoring, deals, coupons, and rewards.
Notably, Schulman said he wants to offer those features both online and when shoppers use PayPal in stores. Automatically using an offer from Honey would be one more reason for people to use PayPal in stores instead of a credit card. The company has made similar progress by working with credit card companies' rewards products.
On the merchant end, Honey's integration with PayPal gives merchants the ability to target offers to specific demographics and spending profiles. And ultimately, Schulman sees Honey as being able to develop a demand curve for any product on the internet, and PayPal will help people automatically purchase it when it hits their price.
What all these new products mean for investors
PayPal is quickly evolving from an online payment solution to a financial super app. It's a strategy that's worked well for Square, which once said it wants to replace your bank, but PayPal is quickly catching up and outshining its smaller competitor.
"Each new service we launch drives incremental increases in our overall consumer lifetime value," Schulman said on the earnings call. "Consequently, I would expect that our engagement levels will increase beyond our historic run rates."
More engagement across the app means more transaction volume and more revenue for PayPal. This scale drives operating leverage, and CFO John Rainey expects modest operating margin expansion this year.
