Source: PayPal

Since its spin-off from eBay last summer, PayPal (PYPL -0.86%) stock has easily outperformed its former parent company and topped broad market trading as well.

PayPal CFO John Rainey spoke at the KBW Cards, Payments and Financial Technology Symposium in New York last month, offering key insight into the cost-cutting measures, mobile strategies, and competitive advantages driving these strong results.

An eye toward efficiencies and cost structure discipline
Rainey joined PayPal in Aug. 2015 after serving a five-year stint as CFO of United Airlines. In discussions with analysts and industry insiders at the KBW symposium, he contrasted the bulky, cost-cutting environment of a large airline company with that of a payment processor, "PayPal today is still very much operating like a start-up company." He also went on to indicate that management had no plans to cut costs that could stifle innovation and growth.

However, he did point out that the company lacks discipline in certain areas, including capital investment, sourcing, procurement and pricing:

Pricing is a lever that has virtually been untapped for PayPal for decades, and it is a true value driver. I don't mean that in the sense of we are just going to go raise prices. There are many places today where we price uncompetitively, we're too high. And we could increase our presence with the consumer and drive more value by lowering prices, and the reserve of that is true as well.

Rainey also talked about how the company plans to continue to drive efficiencies in both its volume-related, variable expenses and discretionary fixed spending, in order to improve upon the payment processor's take rate, or the amount the company keeps from each payment made using its platform.

In building on the characterization of PayPal as a start-up with a lack of cost discipline, Rainey indicated that many departments across the organization were fragmented before his arrival. Procurement, for example, had a very fragmented purchasing process as many departments within the organization ended up competing with one another for similar products:

Take consultants. We had the legal group that was using consultant XYZ and the finance group, strategy group was using the same consultant and they weren't even talking to one other. And by centralizing procurement, and I brought in new leadership there, we can leverage a lot that experience to negotiate better rates and better agreements for us.

Rainey also indicated that PayPal has the opportunity to reduce costs by allowing some of its customer support workforce to work from home. He notes that United Airlines employed this tactic under a program called at-home reservations and reduced costs while improving customer service. Approximately half of PayPal's workforce of 17,000 is made up of customer service agents.

A valuable mobile ecosystem
Rainey highlighted that the chief mantra at PayPal headquarters is to be the customer champion. He indicated that the company wants to allow the customer to have the choice of whatever funding instrument they want. He also described the impetus for the company to have a strong mobile presence and strategy:

But what we are doing today is basically following the consumer. If you want to build sidewalks on campus, you look to where the grass is worn. And that is what we are doing with mobile.

Rainey underlined the importance of the mobile platform as it intersects with online, in-store, and in-app solutions. He also indicates that many competitors are offering a simple payment solution in store, while PayPal is attempting to offer an ecosystem of value propositions to consumers by creating a different shopping experience that strengthens their relationship with the merchant. He uses the Subway app, powered by PayPal as his primary example:

You can go to the Subway app, you can customize your sandwich, you can take pickles off of it, you can say what time you want to pick it up, you can split tender, you can use rewards, and you go to the store, and it's an altogether different experience. And it is not too farfetched to take that example and apply it to a lot of other merchants to where that is truly a value change to the consumer, and it is something they truly see as a different shopping experience. That's where we are going with mobile.

Rainey also elaborated on how the company is leveraging its recent acquisition of payment processor Braintree, stating that the company is not integrating Braintree into PayPal but actually integrating PayPal into Braintree. The ultimate impact of this integration will give customers the option of using PayPal as a payment option when checking out on third party websites.

Source: Subway

More than just a button
Rainey also discussed the unique value proposition that PayPal can offer merchants over competitors like Google Wallet and Apple Pay, stating that PayPal's solution is technologically agnostic:

PayPal is truly different, we are the only company in the world that is 100% focused on digital payments. And perhaps more importantly, what is unique to us is that we are technology and device and operating system agnostic. So Apple Pay, while it is perhaps very convenient device in terms of paying in store, I believe the figure is something like 15% of the mobile devices in the world are iPhones. Now if you are a merchant, you don't want to put all your eggs in one basket, you want to have the ability to have many different forms of payment and attract many different customers.

This agnosticism, he indicated, can form a unique relationship with the merchant and consumer. Given that PayPal has over 180 million customers, the platform can bring a lot of new shoppers to a merchant.

Rainey indicated that PayPal is misunderstood in the ecosystem as many still view the company simply as a button on eBay. The fact that the company is an acquirer, network, and issuer is missed by many customers, and the company must make in-roads in establishing its identity.

Core vines of strength
From cost crunching to a dynamic mobile ecosystem and unique merchant value proposition, Rainey is sowing the seeds that PayPal needs to succeed as it establishes itself as an independent company. These initiatives should prove to form a solid, inner core for the payment processor and soon, it will be known as more than just a payment option on eBay.