PayPal Holdings, Inc. (NASDAQ:PYPL) Citi’s 2022 Global Fintech Conference November 15, 2022 4:15 PM ET
Company Participants
Doug Bland – SVP and GM, Head of Consumer
Conference Call Participants
Ashwin Shirvaikar – Citi
Ashwin Shirvaikar
All right. Good afternoon, everyone, and welcome to the last session of our fabulous two day Fintech Conference. Thank you all for being here. It’s been a tremendous and very insightful two days, and hope to end here on an equally insightful note. So just kind of want to say, thank you for doing this. Doug Bland from PayPal, Head of Consumer, and thank you Gabriel for arranging.
I just wanted to kind of kick off with maybe a question because many investors don’t know you, don’t know your role. So maybe talk about your background, your current role at PayPal.
Doug Bland
Oh, great. Well, first of all, thank you for the opportunity for us to be here.
Ashwin Shirvaikar
Yeah. Absolutely.
Doug Bland
We appreciate it. As the last session, hopefully, we will make it engaging. I’ll make it engaging and not people like, it’s time for us to get out of here after two long days, but we really appreciate the opportunity.
So at PayPal, I’ve been in the company now for five years. I came as part of an acquisition, was running a commercial finance company and came into the company and ended up running the global credit business. And over time as we move to this new segment, customer segment, operating strategy, I was asked to come in and run the consumer segment.
And what that means is responsibility from an end-to-end perspective across the consumer as it relates to both PayPal brand, as well as the Venmo brand. In addition, continuing to run the global credit business as well. My background, I’ve spent close to 30 years of doing financial services, lending type businesses. The company that I sold into PayPal was a VC backed company. So I had that experience.
I spent about a decade at one of the large — largest financial institutions in the U.S. running credit businesses there as well as other financial services, debit cards, et cetera. And then also to spend time at other privately held companies and some other banks. But had a couple of different exits during that time period. So it’s been pretty diverse from a cultural standpoint, really large complex companies to very small startups.
And they’re now sitting at PayPal, which I think is a really interesting company culture, very good. If — I probably had more fun here, although, I’ve enjoyed my entire career as I look back upon it, but really appreciate the people aspect of PayPal in particular, as well as really excited about the work and the vision that we have around helping consumers and merchants alike.
Ashwin Shirvaikar
Great. No. Thank you for that, that backdrop by the way. Credit people who start a look with consumers, not better than consumer, credit expenses of success or higher.
Doug Bland
Well, thank you.
Ashwin Shirvaikar
But if you could — if you talk about sort of the — you have a very wide purview. What are the top two or three things that you do that, that pick up sort of most of your time here?
Doug Bland
Yeah. So first and foremost, we’re focused on our customer needs. So when I look at it from a consumer RINs, perspective and all about driving engagement. And if you think about how historically PayPal has been organized in a very functional way. And we’ve tended to create silos of products that we haven’t always looked at it from an end-to-end consumer perspective.
So it’s all about engagement and how do all of the products work together in a holistic value proposition in a type way. We think that there’s significant upside to further drive engagement. We’ve seen a lot of success with the launch last year with our new app and, within the digital wallet. We see that continuing. There’s a lot of evolution. We’re testing, doing a lot of experimentation every day to improve that.
But it’s really focused around three things that we think about — when we think about engagement. It’s really driving commerce and payments. At the core of what we do, we’re a payments technology company and we want to drive more payments activity. And the way that I can do that from a consumer standpoint is ensuring that I’m enhancing that value prop of why consumers would select PayPal to do checkout. So driving commerce and payments is very critical.
The second thing is, how do we improve the experience of moving money? So whether it’s through our P2P capabilities, remittances, donation capability that we offer. We’re always looking at how to streamline and improve the ability to move money, whether it’s through groups, whether it’s through consumers to businesses, but how do we make that a seamless process?
And then maybe the last thing is around financial services on a very select use case basis. And I have a map (ph) flying around my head right now. So I saw you. So things like savings. We have incredible product that we launched with Synchrony Bank, which is a high yield savings account offering a 3% APY and we’re starting to see a lot of traction for that. So those are sort of the areas that we’re focused on as from an umbrella standpoint thinking about engagement.
Ashwin Shirvaikar
Okay. You know, when I sort of step back and think of PayPal and one of the things, we always been fans of is sort of the position of spend, if you will, of having that, that set of platform. So in your role, how do you work with the merchant side and the seller side? I mean, with both the sides of the platform.
Doug Bland
So maybe, stepping back from a company standpoint and thinking about where we operate and how we think about strategy. If you can envision three concentric circles that are overlapping each other and one represents commerce, one represents payments and the other is financial services. At the center of that is really the core of what we do, which we consider branded checkout, right? And so if you think about the merchant business and the consumer business, there’s a network that exists between the two, which requires us to work hand-in-hand.
And when you think about it from a consumer standpoint, how can we help consumers actually want to select PayPal and Checkout more. And the things that we’re doing around that is really pretty straightforward and leveraging the scale that we have, which is how can we help consumers save money? How can we help them earn things like cashback on their purchases, and then give them flexibility on ways to pay.
So if you think about our Buy Now Pay Later capabilities that we launched two years ago, it’s an incredible way to allow consumers to budget out certain purchases and — so those are the things that, we are hyper focused on and working hand-in-hand with the merchant team and ensuring that we can improve that engagement, improve the overall value proposition.
Ashwin Shirvaikar
Understood. One of the things, I think Dan had said this thing in a couple of different situations. He said, we’re going to do fewer things better, right? And frankly, simplification is a theme that we see across the space, and it’s a good thing. But what about the low pricing practice at PayPal? And does that also apply to your consumer facing products that you’re kind of whittling down.
Doug Bland
Yeah. Absolutely. It’s so important to us from a prioritization standpoint. I think one of the blessings of being part of PayPal is that there are so many things that we can do. We have these two incredible brands of PayPal and Venmo, and customers trust us so much. We have this incredible scale that we have, whether it’s seen over 400 million roughly consumer accounts, another 35 million merchant accounts, just this massive scale that is out there.
And there are so many things that we could go do. A lot of good ideas. But one of the challenges that come with that too is, you can’t do too many of them because you’ll do none of it very well. And I love the focus that our company has taken and certainly driven from Dan down as we have to prioritize the things that, that really, really matter.
I think I’ll give you a couple of quick examples on the consumer side. Recently a few months ago, we made the decision that we were going to not do invest for our customers. So if you step back to think about the scale that we have, and the various services that we can offer to customers, and this conceptually makes sense. Like, that could be another adjacency that you bring to the business.
But given everything else that we need to focus on, and we — and on the core of our business now is just not the time. Doesn’t mean that we won’t ever write up and invest capability and maybe partnering with someone who has that expertise might be a better solution than trying to build it organically, but that’s, a good example.
Another one is QR. The investment, as we went into the pandemic, we — it was a logical bet for us to make and an investment of saying, we should invest in QR and as we’re watching consumer behavior change. But as the pandemic has receded, we’ve seen more customers go back into physical stores. Now we’ve shifted more of our resources away from that and into things like driving omnichannel type behavior and focusing on our debit card strategy both on PayPal as well as Venmo in addition to our credit card strategy.
So I think over the past six months, and maybe even over the past year, I would say, during 2022, in the five years that I’ve been at PayPal, I’ve seen us take a much more focused approach around how we’re spending resources, what we are investing in, and the results that we expect. A very disciplined approach that coming from someone who spent a lot of time in the credit business and love metrics and numbers and driving through from a result driven process. I really appreciate it. And I think that it’s going to benefit us for many years to come.
Ashwin Shirvaikar
Okay. When you think of growth and this may sound very simplistic, but at the highest level you’ve got gross adds then you have. How do you manage churn? And whoever is left, how do you make them use you more? I mean, it’s pretty basic from a conceptual standpoint, but could you — obviously a lot more difficult in practice. But could you talk about the relative importance of those pieces? One of the things that, that I think you’re doing now that deserves more attention is maybe the churn element? And then we’ll talk about engagement as well. But could you talk about the pieces?
Doug Bland
Yeah. I think you really can’t talk about churn without talking about engagement because that’s the way to manage what you are describing, which is going back to the very first thing you asked me, what do we really focus on, what are the one or two things and its engagement, engagement, engagement. And how do we do that is, we have to ensure that we have relevant value propositions that we’re providing to our customers both at a product level as well as holistically.
Doing things like, recently, we launched a PayPal Rewards capability. Very early in the process. But simply what we’ve done is, we’ve created a unified currency called PayPal Rewards. Previously, we offered something called PayPal Gold and Honey Gold, which was part of our Honey acquisition three years ago and now we’ve unified that into a single sourced currency. And we’re positioning it, working with merchants of giving consumers cashback and we see that there’s significant upside opportunity, but that drives engagement.
If we can show value to consumers and then there are other things that we can do, from a rewards perspective to further drive engagement. But that really gets to the heart of, as you think about gross new actives, the churn and then what ultimately ends up at net new actives just given our size and scale, if we can create that engagement, create the relevancy for our consumers both on the PayPal side as well as the Venmo brands that’s going to unlock tremendous value for us. So we’re frankly really excited about some of the things that are in play right now and what that’s good going to do on a go forward basis.
Ashwin Shirvaikar
Okay. The question of macro is not very far from what investors think about nowadays has come up in pretty much every, every single meeting. And justifiable so, right? As you think of your consumer base with PayPal does you a little bit some time, can you maybe — tell us how you think of that, that demographic? And are you seeing any real impact? Because a lot of the companies have talked about their peers of an impact, but are you seeing any real impact in terms of — in terms of spending or in terms of behavior?
Doug Bland
So if you look at the scale of what we have in, the markets that we operate, 400 million plus consumer accounts. We really end up looking a lot like the markets that we operate in. So if you think about the distribution of consumers, we certainly have, if you want to call it subprime, prime and higher wealth type customers within our customer base. But even close to a year ago, we started seeing some pressure in lower income type households as we saw some of their spend behavior change, which is natural as we’re seeing what’s happening across the markets with inflation and discretionary spend.
And the shift in some of the behavior from discretionary to non-discretionary. We see a little bit of that pressure even happening in middle income, households as well. But it’s very consistent with what’s experiencing across the industry. And then you have dynamics of online spend versus offline spend and some of the shifts in behavior. But I think we are positioning ourselves the right way.
I mean, obviously, you saw the Q3 results that we came out with our hyper focus around operating leverage and being very sensitive from a company perspective around expenses and thinking about this macro environment and how long it might persist, which could be some time across the various markets that we operate in. But I would say that given the size of our company doing over $1 trillion (ph) in payments per year, it’s very similar to what you would see in every market economy.
Ashwin Shirvaikar
Okay. And any kind of tapped into your years of experience from a credit standpoint, are you thinking of that aspect any differently?
Doug Bland
Yes. I mean, certainly, I think we’re doing very prudent and responsible things right now as the leadership team needs and discusses how we should make investments? What are things that we should be doing to strengthen ourselves and monitor day-to-day movement across the business? Certainly, in the credit business, we’re being proactive around ensuring that we are well positioned there as well. And of course, we work with various partners depending on the type of product and market that we operate.
But I would say that it’s something that is constantly top of mind of the leadership team that we’re continuously monitoring and looking at of what’s happening. It’s a difficult environment to forecast right now. We’re going into holiday shopping season and really trying to understand like our consumers really going to start shopping. We’ve seen a bit of delay in that start across the industry and will that pick up as we go further into November.
Ashwin Shirvaikar
Okay. Yeah. So from a tech stack perspective, right, again, shifting gears. But as we think of the tech stack and there was a net spending on the tech stack that time frame last year and the investments that happened before that $12 billion plus investment, I guess the question really is with regards to seeing that spending on which items, right?
As you kind of look at the tech stack now and you try to figure out, what are the things that lead to the most engaged because that seems to be a top priority for you? How are you thinking of that? And you mentioned maybe [indiscernible] and a couple of other examples, but what’s the up down approach you’re taking to engagement from a tech stack perspective?
Doug Bland
It really goes back to just the prioritization, back to strategically what are we really focused on as a company, talking about engagement, ensuring that we have hardened and optimized use of our products. So the Braintree platform, our branded checkout business and then focusing on and continuing to invest in the digital wallet. Those are the things that are very important to us. We have significant upside opportunity as we look into the future of driving value out of those investments, and those are the areas that we’re hyper focused on.
Ashwin Shirvaikar
And do you think as you look at the tech team and your interaction with the tech team, PayPal is iterating fast enough?
Doug Bland
I think we’re always challenging ourselves to increase velocity, and looking at it through a lens of quality and quantity as well. I’m really excited. We hired a new Chief Product Officer, who is covering both the product and the engineering side. And I think it’s bringing new and fresh perspective to us that is really energizing and providing, I think, some new ways to look at how do we increase further velocity even where we are right now. But I think you can look back over the past couple of years and look at how we continue to innovate.
You look at things like Buy Now, Pay Later, which was launched in October of 2020, which, arguably, we started late. There were a lot of competitors ahead of us doing this for several years. But fast forward to today, two years later, we’ve had over 150 million loans across seven different countries. So I would argue that there’s some pretty good velocity that was created in launching that product, scaling that product and really creating value for our customers, which, again, is all about how do we defend and grow our branded checkout business and helping customers split their payments up through Buy Now Pay Later is another very relevant and valued way for them to select PayPal for those purchases.
Ashwin Shirvaikar
Over time, PayPal has clearly increased engagement, right? But in the near term, as you kind of observe the last few months, have you noticed positive changes? So for example, the introduction of pass, does that actually make a difference? Have you seen a noticeable uplift in engagement? How closely are you measuring this? Some quantitative input would be fabulous, if you can.
Doug Bland
Pass keys, in particular, we have — we’re really excited about. We just launched that or announced that, I guess, two or three weeks ago and recently launched on Apple iOS platform. And so we’re just in the process of ramping up that will go to more platforms as we go into next year. We have a full road map around how to deliver the frictionless experience that adopting pass key can bring, especially as part of the checkout process. So that’s going to really drive, we think, incremental improvements that can be very material to us.
But we’ve been working on other activities as it comes to log-in success rate, and have made some substantial process over the course of the year and we actually monitor this on a daily basis. I mean we’ve got teams monitoring it real-time to understand how often are we seeing failures is something that we need to immediately go in and address or what the use cases are around it. But we’ve seen a significant improvement over the course of this year and how we measure login success rate, looking at desktop, looking at app, looking at mobile web differently, looking at the different platforms and trying to understand that.
But there’s a pretty significant team that is decked against ensuring that we drive this, which ultimately leads to better engagement, which ultimately leads to lower churn. When you pick up and want to use PayPal, you expect the product to work, whether you’re doing a checkout, whether you’re doing a P2P transaction, you’ve got to make it easy and simple for our customers to use. And that’s something that, I would say, probably over the past 12 months, the level of intensity inside our company are focusing on that, seeing improved results and knowing that there’s further results that we can drive is something that I think can be material to us.
Ashwin Shirvaikar
Right. And then as we sort of extend the discussion on tech and tech stack to wallet, right, how do you continue simplifying the wallet experience, removing friction and so on and so forth?
Doug Bland
Yeah. So it’s so important for us to do this. The value that, that drives what we see when our consumers adopt the app. For example, we see a 50% improvement in average revenue per user. So that’s — it’s a significant lift driven by we see over 60% more in checkout transactions with an app user versus a non-app user. And so ensuring that we continue to drive those improvements or things that we’re doing every single day on daily experimentation on how do we change the flows? How do we change the user screen?
We recently have rolled out different enhancements. And you’ll probably experienced this from time to time, but created a menu button that is something that we’re constantly doing customer research on and talking to our customers to figure out what it is that you like about the app? What do you not like about the app? And constantly testing that and making really real-time changes. Every two weeks, we have a cycle where we’re doing this experimentation, reading results and how do we roll these out further to customers. But there’s a material uplift that we are observing in terms of average revenue per user as well as the transaction per active that we’re seeing adopting the app.
Ashwin Shirvaikar
Okay. The Amazon launch, when — tell us more about that. And when is a reason in full time after launch is sort of the observable result?
Doug Bland
So we announced the launch, I guess, at earnings. And we recently went to a 100% ramp on November 8. And the early, early inning results, and we’re so early in the journey, but working very closely with the Amazon team.
We’re really pleased with what we’re seeing with the Venmo population adopting and linking their accounts into Amazon as a funding instrument. So we have over the course of the rest of this year and into really the second half of next year, a very robust road map around enhancements we’re going to be making and different ways to incentivize consumers from a Venmo standpoint, working closely with Amazon.
Hopefully, if you open the Amazon homepage right now, you’ll see a banner for Venmo. If not, keep refreshing it and then make sure you add your funding instrument. Call me, if you need any help. I was talking to someone earlier, and we’re testing different incentives right now and trying to understand elasticity of offerings. And someone said, well, I would have expected some type of incentive? And unfortunately, they got a zero dollar incentive. But yeah, we’re out there testing.
And I think we’re already seeing some very positive green shoots occur. And again, we’re a week into the 100% ramp, but we’re being very measured around what we’re doing, the tactics that we’re deploying. I know Amazon, working with that team, has just been amazing, a great company, just incredible engineers that we’re working with on a daily basis. And I think the cultural fit between our two teams has been really good. And so I would say that both sides are really excited about the future.
Ashwin Shirvaikar
Okay. And some of those things we talked about, but we talked about pass keys, you’ve talked about rewards a bit. Other elements of your overall offering, I don’t know, maybe bill payment or something like that, that can help with engagement? Is it — are you looking at single product in launches? Are you looking at all of it together, helping — can you give us a flavor of what you’re looking for?
Doug Bland
It’s really trying to link our products together into a more of a holistic value proposition of why someone would want to do business with us from a PayPal perspective or from a Venmo perspective. There’s — I know we haven’t spent a lot of time talking about Venmo, but equally a very exciting opportunity to further drive commerce activities, of course, pay with Venmo. And Amazon is a big part of that solution, but there’s other like commerce activity.
Some of the things that I described around like our shopping tools, where we can help consumers save money. We can — if you’re wanting to purchase an item, we could track prices for you. We could give you a history of what those prices are. There are so many things that we can do. And I think even on a more proactive basis, which is where we’re going is how can we become more proactive in helping our customers do the things that they need rather than on a reactive basis.
So I think as we go into 2023, you’re going to see more and more capabilities that we bring. So the Honey acquisition that we made, it came with a lot of really good capabilities we need to bring to the PayPal surfaces and then ultimately to Venmo as well. But helping consumers from a commerce standpoint, helping consumers from an everyday spend perspective, focusing on things like debit cards, credit cards, rewards capability, but tying it all together, where it’s intuitive, where it’s a delightful experience, it’s something that you want to do and that you’re truly getting value out of this in really a holistic way is what we’re striving for.
And I think that’s a very different mindset than maybe what we’ve had in the past, which was a very siloed product driven, product specific way. And so back to your question on this, we’re not necessarily looking at launching single products by themselves, but how do they fit into the overall value that we can bring to customers.
Ashwin Shirvaikar
Right. So maybe you can spend some time on the point you mentioned Venmo, and we didn’t talk that much about Venmo, and Venmo engagement. Do you sort of give us a feel of all the different things that you’re doing there to promote commerce via Venmo?
Doug Bland
Sure. So stepping back on Venmo, there’s really sort of a three pronged approach. Commerce is being one of them. We’re going to continue to enhance P2P as well. Arguably, we’re the largest P2P U.S. platform out there with 57 million monthly active users. We have 90 million 12 month actives and continuing to drive that behavior. We continue to see good growth there, and we still think that there’s upside potential in the U.S. market. But the monetization of that is going to be focused on commerce — driving commerce and then everyday spend. So if you think about those three areas, that’s sort of the pillars of how we think about overall Venmo strategy.
Commerce are things like our Venmo business profiles. Venmo is all about community. And whether it’s P2P or being able to accept payments from my local retail store or local farmers market that I’m going to, so things like — recently, we announced that we’re bringing to life. We’re piloting later next month is tap to pay. So we did this deal with Apple that we’re really excited about and starting on the Venmo brand will take it to PayPal into next year.
But that’s a good example that we think can really drive a lot more local activity and paying by phone through tap to pay using Venmo business profile, which is going to drive consumers back to their app to have them do other activities as well. So it’s all about how do we continuously drive this habituation and this engagement of getting people to open the app on an everyday basis.
Ashwin Shirvaikar
Understood. Let me close with the last question on Venmo. We’re kind of out of time here, but Venmo already have 90 million users, I believe. What’s next, I guess, in terms of your expectations there?
Doug Bland
Yeah. I think if you look at the opportunity for driving further engagement and monetization of that engagement, such upside for us. And within the existing customer base, we’ll continue to drive more at 57 million monthly actives, I think that number can continue to rise as well. But it’s really focused on the commerce side as well as everyday spend. Things like group activities, we’re also going to be launching a team account through Venmo, which I think is pretty exciting. And [indiscernible], I hope I didn’t release something that I shouldn’t have, but you guys can blame me for that.
But that’s something that we’re testing later this month as well and into next year, which is another area of potential growth when you think about there’s 25 million teens between the age of 13 and 18 in the U.S. alone. And we know how the Venmo brand skews to a younger demographic. And as someone with a 15-year old at home who keeps saying that, I need a Venmo account. And I say, well, I can’t give it to you right now. But he’s going to go into the pilot, so I’ll give you some real-time feedback on how that’s working.
Ashwin Shirvaikar
Awesome. Thank you very much, Doug.
Doug Bland
Thank you.
Ashwin Shirvaikar
Thank you for your time, everyone.
Question-and-Answer Session
End of Q&A
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