Paypal 的 BNPL ( Buy now pay later ) 追蹤

PayPal has now staked a claim for Paidy, a Japanese BNPL player with 6M members. In March, Paidy had raised JPY 13B from George Soros, one of the largest fundraises by a private company in Japan. Visa is also one of its backers, along with trading house Itochu Corp. Paidy is being valued at $2.7B by PayPal, and the deal should be completed by Q4. 

Thus far, PayPal has been servicing its 4.3M active Japanese accounts, focusing on cross-border e-commerce payments for overseas products. PayPal’s narrow focus in Japan thus far shouldn’t come as a surprise. Japan is the third-largest e-commerce market globally, with online shopping volumes more than tripling over the last decade to over $200B.

With the Paidy acquisition, PayPal is now positioning itself for the domestic payments market in Japan. Its economic superpower tag notwithstanding, Japan still sees two-thirds of its population using cash to make payments. As payment mode shifts to digital, Paidy is right there to grab a share.

Paidy will continue to operate its existing business and maintain its brand even after the transaction is consummated. It’s conceivable that this acquisition is a harbinger for more action coming up for PayPal since 40% of its active accounts are based overseas.

BNPL accounted for 2.1% of the global e-commerce payments in 2020 and is expected to double over the next three years. 

The success of Pay in 4, a massively successful pay later product in the US popularized by PayPal, shows that repayment patterns customized to suit target personas set BNPL apart from traditional credit products

PayPal has introduced in March 2021 short-term, interest-free payments services to its financing options with PayPal Checkout: Pay in 4 (available in the US and France) and PayPal credit (available in the US and UK)

年輕族群，習慣先享受、後付費，也正是因為順應網路原生數位世代的消費模式，先買後付這一年來熱潮...，較知名的平台有：瑞典的Klarna、澳洲Afterpay、日本Paidy和新加坡Atome等。
...近期較著名的併購案包括：美國支付巨擘Paypal斥資3000億日圓(29億美元)併購日本獨角獸Paidy，接手其600萬在地會員；Square以290億美元天價，併購澳洲Afterpay"

Aug 2021

LONDON, Aug 18 (Reuters) - PayPal Holdings Inc (PYPL.O) will no longer charge customers late fees when they miss payments on buy now, pay later (BNPL) purchases globally, as competition heats up in the fast-growing sector.

The changes will be effective from October in the United States, the United Kingdom and France, the San Jose, California-based company said on Wednesday. PayPal's BNPL services in Germany and Australia are already free of late fees.

Asked if there was a risk that dropping late fees would encourage more consumers to default on their loans, he said he didn't expect to see that. PayPal doesn't disclose default rates on BNPL purchases.

BNPL models vary, with some providers earning most profits by collecting fees from merchants at the point of sale, and others charging interest and late fees to consumers.

PayPal's late fees vary based on country and U.S. state regulations. Since launching the service, the company has processed more than $3.5 billion in total payment volume through BNPL products, PayPal said. More than 7 million consumers have used the products, it said.

2022 Q1 analysts earnings call

Question :

Just on the pricing of BNPL [Buy Now Pay Later] as you think about the broader opportunity with Venmo. Do you think it would likely fall under the existing umbrella, or is there opportunity to maybe look at that differently as you roll up the product within Venmo?

Answer :

I do think that BNPL clearly can go across both PayPal and Venmo, and we’re also expanding kind of the buy now pay later portfolio as well. For instance, we’ll do installment loans, which will enable us to capture higher priced checkout points, but we really want to combine the back ends between Venmo and PayPal so that both services can seamlessly access different capabilities, but do it in their unique UX [user experience] way

Josh, I think we feel really good about the pricing. It’s the same pricing that that merchant pays for the other volumes that they see through our platform; we think that’s very competitive and it’s appropriate. Last year we increased branded pricing for sort of the SMB [small to medium businesses] portfolio in the U.S. and that went very, very well. They’re paying a little bit more and larger merchants obviously are paying less, but I think that’s the right value prop given the range of products and services we offer our merchants. We think it’s appropriately competitive

That halo is 21% on TPV [BNPL users in the U.S. on average spend ~21% more in TPV overall than nonusers], over 90% of it incremental. It’s a pretty strong value proposition for us and it’s one of the advantages we have to having such a robust portfolio. We can put the right value proposition in place, which we think is the leading value proposition, and really monetize it in ways that accrue to our benefit.

2022 Q1 buyside earnings call 

Question :
Just given how important ARPA is for the business model, especially now, if you could just talk about some of the biggest drivers of ARPA growth going forward now?


Answer :
Sure. Online checkout is clearly one of the biggest opportunities to drive ARPA. Checkout is our strength. We have a lot of competitive advantage there and a lot of scale. We have a lot of user and merchant preference for PayPal, but again, we can do a lot better at checkout. We're going to do a lot better at checkout. Only 50% of the time when a PayPal user goes to a site that has PayPal, do they transact using PayPal. We have a lot of initiatives around checkout, and it's obviously a piece that drives ARPA growth.這段講說paypal會員網路購物結帳, 只有50%的人在有提供Paypal付款選項使用paypal付款, 暗示未來ARPA仍有相當成長潛力 ( 這個要抱持懷疑觀點 ...逐季觀察ARPA成長狀況和檢視, 過去2年很多競爭者加入市場 )

Venmo, in terms of all the monetization efforts there which we discussed on the call yesterday. We’ll talk more about that later as well. And the digital wallet is a huge area of opportunity for us. Digital wallet users have two times the ARPA of those in the rest of the base. When people interact with the app, there's so much new functionality and things they can do there. Buy now pay later is a great example, which we're investing in and continuing to create additional functionality. Buy now pay later has a 21% halo there in the U.S. [U.S. BNPL users see a 21% TPV increase compared to non-users].


Question :

That's really helpful, Dan. Speaking of engagement, you had 19% [transaction per active growth] ex eBay as of this past quarter, which obviously continues to trend, I think similar to 18% of the quarter before, if you could just touch on how that trended across the business, whether it's Braintree versus Core PayPal? And I imagine churning out the less engaged customers is also going to help sustain that, or at least somewhat stronger growth over time.



Answer :
Longer term having that churn of less engaged customers will clearly lift that engagement metric overall. I think given sort of how we need to move through the year, sequentially we should see some of that benefit. In terms of the drivers in Q1, Braintree clearly was an important driver and core PayPal ex eBay was the secondary driver. Both of those contributed.

Q: thanks. So, my first question was on BNPL. Do you expect a higher rate of losses that should settle out later as you figure out that user has a tendency to use BNPL? And then, eventually will you take this off of the balance sheet?

 

A: First, we don't expect a high rate of losses, For example, when we launched the international consumer product, we saw a higher rate of losses there initially, fortunately, because of our risk capabilities we're not seeing that in BNPL, nor do we expect to. So, very pleased about that.

 

And just to add a finer point around the monetization of that. That's very much a product targeted for share of checkout, because as Dan noted, there's no incremental fee on the merchants related to that product, which is the normal take rate, while others are charging for that. 

Incremental cost is the total cost incurred due to an additional unit of product being produced. Incremental cost is calculated by analyzing the additional expenses

But, clearly, this is an area of credit where a lot of people are participating and we believe we've got a better value proposition there. And then when you get to the fact that it's effectively free, we think that we'll see the benefits through a higher share of checkout

Right now, we don't have any plans to externalize it of Balance sheet. One of the interesting things is that because of the duration of the receivables it's actually much less capital intensive for the amount of revenue that it brings in, in contrast to some of our other consumer-oriented products. And so, we don't have anything in the works right now to put that off balance sheet.還沒有要將BNPL營運結果作表外處理 But that said, our mantra around this remains the same. We will continue to be very thoughtful around how we use credit in our business, where it's not too capital intensive or it doesn't become such a large part of our portfolio of products that it introduces volatility to our earnings that is not desirable. 意思指BNPL規模占比還沒有很大

Q: So, the BNPL came up and there seems to be a lot of optimism around, obviously not this quarter, but where that can go over the next couple of years. So would like to hear what's behind that? And strategically,  some of those companies obviously charge a premium for that take rate. It seems like you're going with more of the standard pricing. So do you see this bringing in volume maybe from someone else's credit card? Just would like to hear how you think about the business case.

Q: Sure. let me give you a little bit of this landscape competitively. We get asked a lot of questions about other payment marks and how we compete on share of checkout with those payment marks, and consistently we've said and we still see that we compete very well with them. We don't see any appreciable shift in share of checkout when a new payment mark, and whatever name you want to give it, Where we have seen some changes in cases is when these buy now, pay later options are offered, we see our share of checkout be affected. And so that really informs our strategy on this to where we want to provide the same offering so we don't jeopardize any of that share of checkout, or, moreover, given the strong consumer demand among certain demographics for payment BNPL, we actually see more payment, more share of checkout 平台商家, more payment volume. And so, we believe the best strategy is to go into and offer basically a free offering for this, where the only monetization is just the take rate model that we have with merchant that was in place beforehand 事先 in most cases and there's no incremental fee that all the others are charging to have this additional product. And so, early indications have been really—This is something we're pretty excited about. This is not just the next product that any company has thrown out there. This has the potential to be pretty meaningful for us. Gabrielle Rabinovitch Yes. Just I think the other piece too is that we're really bringing a very innovative solution to a long tail of merchants that wouldn't be on the road map for a lot of these other sort of single product buy now pay later programs because there's a sales process involved. And so, essentially very seamlessly we're bringing this solution to our long tail of merchants and providing the ability to compete for the same sales on the same basis with those consumers.

Q4 2020 Buyside Conference Call

Question :

All right, John, Erica. Thank you, I just want to make sure we cover it, it’s an often asked question. let's move to some of the revenue drivers. one of the highlights last night was the $750 million here in buy now pay later (BNPL) [volume] that was disclosed in Q4. We think about BNPL offering longer term in terms of the success that we think about, increasing awareness. And really that has to do with two things.

The first is advertising to consumers, so that they just know, that when they sort of get to the end of the tunnel when PayPal is on a website, a buy now pay later offering will be there. And we've seen some of the YouTube ads that you have been running related to that. The second piece is working with merchants to be shown further up into the shopping experience. And last night, you disclosed the 14,000 merchants that are already well ahead of the curve in doing that. Maybe you could just touch a little bit on those two angles in terms of helping to increase the awareness of the PayPal BNPL offerings.

Answer : 

Sure, happy to do that Tim. you know that's one of the beauties of our platform, when you talk about providing awareness to consumers, we control that experience. We present that dynamically in the wallet today to those customers that are eligible. And you know we are constantly tweaking and testing that to make sure that we have the very best presentment to get those customers that want to use a product like that, to be able to avail themselves of it. 做適當行銷技巧讓Merchant 商店端知道BNPL 這個新的支付方式

So that is, it's great that we have the 350 million plus customers that we can eventually present that to all of them, that have that option. On the merchant side, you know the merchant sort of indirectly gets the benefit of buy now pay later, whether they've integrated or not. Because we control that in the wallet. Now the merchant chooses to have that presented further upstream and the checkout channel that requires a little bit effort on their part, but obviously from the number of merchants with which we've already integrated, it's not a very involved effort.這段在講將BNPL整合到PYPL 產品線過程 

But that's the beauty of this product, if you’re a merchant, first of all, we can demonstrate that you're going to see for higher click through on completion of those purchases, you're going to see a higher basket size, they bear no risk. And by the way, we're offering them up a customer base of 350 million people that have access to that. And you know this is all done at no incremental costs for the merchants. 平台商家不需要額外負擔成本, 就可以採用BNPL 方式 So, you know to be arguably one might characterize this as a crowded space, there's a lot of people playing in this space. But I think PayPal is positioned to be one of the winners here. 在自誇Paypal 有多好, 在這場BNPL大戰毫無疑問會是個贏家 We have a value proposition that is frankly second to none here. And our ability to control that integration, to provide those kind of experiences to our consumers and merchants alike, makes us very unique in this experience.

Question :

Excellent John. Just to stay on this topic, given it’s of such high interest. probably you're not pricing for it, it's part of the value of accepting of having the PayPal mark on your website

關於BNPL 如何定價!? 

But is it fair for investors to think of this is potentially take rate protective if you will, meaning maybe longer term this could help you in negotiations with larger merchants and platforms or it would give you a potential ability to increase take rate at some point down the product line

Answer:

Certainly I think when this first really got our focus and attention, it was somewhat of a defensive posture on our part is because I said before Tim alike, (BNPL) we often get asked about how we fare做特別處理 and share of checkout versus the competition. 我們對於這新支付方式的市場策略先採取保守姿態And generally speaking, we fare extremely well and don't see losses and share of checkout related to other payment offerings or digital wallets out there.到目前為止我們做的蠻不錯的, 還沒看到主要支付產品, 數字有下降情況 An exception to that, frankly historically it's been these installment pay type products, where that's presented further upstream, we  actually see some of our share of check out diminish for certain products. 以歷史數據來看, 每當我們採用分期付款方式, 向上游廠商價金 ( VISA, Mastercard, Acquiring bank收款銀行)

我們的手續費狀況就會減少  And it really informed our strategy around this. Rather than go out and charge four, five, six percent as some of these others are to a merchant to provide this product, let's take an approach where we somewhat protect our share of checkout, but then moved to the offense 與其說要先向商家收取5% ~ 6%費用, 我們較傾向先守護自己的地盤. And I think that's kind of you know already three months into this, that's where our head is. That is no longer defensive to protect take rates. It's like how we move to the offense to see our share of checkout grow to something greater than what it even was prior to this offering. Clearly there is a demand for this product ( BNPL) among certain demographics that don't have these traditional revolving credit relationships that you know my vintage of customer sort of grew up with. And I think having a complementary payment offering with the other products that we put out there, clearly there's a huge appetite for. But this is clearly something that will move from just protecting take rate to where we can really be on our front foot and be on the offense with this.我們不會單單只想保護自己的take rate, 會採取擴大市場的策略性思考

Question :

Great. why don't we touch on that one really quick, I wanted to ask around the potential combination with Honey. Would it be something along the lines of the user setting a price that they'd be willing to pay, then it would be sort of auto purchase with Pay in 4 and therefore they might be willing to increase their basket size knowing ahead of time this installment offering would be available. 結合Honey優惠搜索功能, 增加客人購物量, 配合BNPL 分期特色 併購Honey

2002.3月初Paypal 宣布以40億美元，完成對新創購物獎勵平台Honey Science Corporation的收購，再創下華人所辦新創公司被收購交易紀錄新頁。Honey成立於2012年，從開發電子商務價格追蹤工具至今，將服務擴及瀏覽器外掛程式，包括購物助手和獎勵計劃，提供用戶各家網購平台的優惠訊息，一站式比較優惠價格。Honey目前擁有約2,000萬的用戶，其中1,700萬為活躍用戶，並且與3萬家多元的線上零售商合作 . 在PayPal整合Honey之後，不僅可以改善用戶的購物體驗，簡化搜尋多個平台購物優惠的流程，同時能獲得用戶購物偏好及流量等數據。此後，PayPal和行動支付App Venmo超過275億的用戶將獲得Honey的服務，而Honey也將獲得PayPal 2,400萬合作商家的獨家優惠資訊

Answer:
Well eventually, we want to bring all of Honey's technology and experiences into the PayPal experiences, and that's the path we're on right now. And it would include buy now pay later. So, if you're a Honey customer and you've selected an item that you want to purchase at a certain price, then you're now made aware that that's available to you at a certain merchant. You know having that installment pay option, I think it even further enhances the value proposition to that customer. So, we certainly want to include all of those rich and robust experiences that we're going to have with Honey into the buy now pay later experiences 沒錯 ! 我們將Buy now pay later功能嵌進Honey服務, 讓客戶瀏覽優惠訊息，同時使用BNPL支付方式

Question :
Excellent, John. you made some very well taken points around check out share earlier, and definitely resonates.I realize it might be a little bit harder to pull out separately what's incremental, what's just share gain organically ex-BNPL. But we got asked often last night and this morning around, what might be implied in the 2021 guidance for, any sort of a ramp into revenue associated with these offerings. 結合Honey以及 BNPL, 2021 營收數字會有怎麼樣表現 !? 


Answer:
Well, so we certainly have built into our assumptions and expectation around continuing to roll out the buy now pay later experience. So specifically, we rolled out buy now pay later in the first three months in Germany, France, the UK and the US. we intend to cast that net even wider as we go through 2021. But if you think about how that will manifest itself in the P&L for us, the income statement for us. You know because it is not revolving type credit. The only fees that are directly associating with this would be late fees, from a credit perspective this is not a big driver of something like other valueadded services. (附註 : Late fee 在Aug 2021宣佈取消) Instead what you should see is the continuation or acceleration of transaction revenues, as we do increase our share of checkout with many of these merchants.

我們當初在德國-法國- 英國和美國首先上架BNPL三個月, 在2021我們會擴大服務範圍, 但我們不確定它會立即在損益表帶來明顯的數字, 因為BNPL只有遲繳費用, 從信貸角度, 不像其他加值服務能力及帶來收益, BNPL確定的是會引發客人消費更強的意願, 促使平台成交量增加

We actually are seeing as we have upfront presentment of BNPL. We are in fact already seeing some of those conversion increases for merchants that have it. So, we do have some incremental transaction  我們的確看到有些商家正採用BNPL方式

Q4 2020 Analyst Call 

we emphasized Buy Now, Pay Later so much. That doesn’t necessarily have that big of an effect on OVAS revenue(Other Value Added Services revenue) We pick up late fees there, but that’s not a product that we’re charging our merchants for. (附註 : 在Aug 2021宣佈取消Late fee) The benefit from that really comes through increased share of checkout and increased engagement, increased TPV, all of which are really recognized in transaction revenue. Despite Buy Now, Pay Later growing, you won’t see the effect of that, by any material amount, in other value-added services revenue

Question : 

the success you’ve seen with Buy Now, Pay Later, and obviously you’re seeing good uplift, etc., but how does that extend, I guess more broadly, or is there an opportunity to extend that into what has traditionally been more the PayPal Credit product and provide incremental opportunities for your partner in Synchrony or in other markets, etc.? Just trying to think more broadly about that engagement and opportunity that seems to be materializing already.

Answer:

Well, Looking into a crystal ball on that a little bit, James, but for us, the way that we think about that is, it’s another payment option for our customers. Clearly, by just looking at the number of alternative products that are in the market, this is something that certain demographics want. This is the way they want to pay. They don’t necessarily—they’re not attracted to that revolving credit relationship with some of the traditional issuers. For us, it’s a complementary product 互補品 offering to what we already provide today around revolving credit, like with the international consumer or what we’re doing with Synchrony here in the U.S.

Again, if you think about the way that we’ve gone to market here, and basically giving a product like this to merchants for free, this is really designed for us to capture share of checkout. Certainly, we see, particularly when we’re further up in presentment, we see that movement where we get that increase in share of checkout

Just on the Buy Now, Pay Later revenue model, as John said, we’re giving that away for free, in essence, and it’s not an interest-bearing product on the short-term installment. We’re essentially getting revenue on the incremental take rate that we get from additional Buy Now, Pay Later transactions. We do also have the ability to, I would say—speaking a little bit to the previous question, we also have the ability to experiment a little bit with various structures on Buy Now, Pay Later and installments, so we’ll be looking at that as we go to market in the future.

Question :

the experience that you’ve got on the consumer credit side, you think that’s a pretty good framework for how you’re thinking about credit performing domestically with Buy Now, Pay Later?

Answer : 

First off, remember these are relatively short-term duration. They’re fixed dollar amounts, it’s $30 to $600, so when we think about even the adoption of current expected credit losses(CECL), given the nature of those loans and the short-term nature of them, the actual risk profile on them is a lot less than our traditional consumer revolve product. It’s a pretty attractive to us, and I think John’s point, both the debit funding of it as well as the idea all of these customers actually are existing customers that we can risk-decision them pretty effectively, gives us a lot of comfort around what that risk profile is, even in an evolving credit cycle.

Q1 2021 Buy side conference call

Question :

I want to talk about buy now pay later. You gave some pretty impressive stats on adoption of that new product, and obviously you guys have trumpeted how you're buying for it. You're not having to surcharge the merchants for that at all. But how do we think about that in the long run? If you decide to go up ticket size to longer duration, can you maintain that same kind of pricing or you become really tied to interest rates? I'm just wondering how we should think about the evolution of that from a pricing and capability and offer standpoint. And I guess tied to that, where's the appetite or why the appetite for extending credit to consumers, especially after the sale of the [U.S. consumer] credit portfolio to Synchrony, and is there any tie between those two things !?


Answer :

Sure. your previous question about our increasing share of e‐ commerce activity. we consistently have maintained a really strong share of checkout over time.  There are exceptions to that.  And some of those exceptions where we were going head‐to‐head with a buy now pay later option and installment pay option. We would see consumer preference for these other options that were out there, and that really informed our strategy on this我們看到有些客戶偏好BNPL, 那麼對此支付還不是我們主要商業模式, where we thought, to continue that growing share of checkout or that growing share of e‐commerce. We can price this for free and just get people to use PayPal and monetize it that  way. 先用免費使用吸引客戶 

There's no plans right now to change the pricing on this.  And in fact, I would suggest that competitors are probably going to have to move their pricing closer to where we are to be successful because when you consider the size of our platform, the fact that the merchant bears no risks that we're   bringing almost 400 million customers around the world to a merchant to have the ability to check out   with Buy Now, Pay Later with PayPal and it's free for them.  It's a value proposition that is unparalleled in the market.  Longer term, yeah. I mean, we could see some longer duration or higher pricing around that. Those are absolutely things that we're talking about and exploring, but where we are right now, two quarters into Buy Now, Pay Later, this is kind of like wading into the shallow end of the pool. We're testing our risk capabilities around this. We're experimenting with the offerings.  We're trying to get upstream presentment with merchants. all of this will take time.  But getting to the last part of your question, James, we will continue to remain an asset‐light company.  We think that's important.  People aren't buying us because of the credit profile of the company, they're investing in PayPal because of the growth in margin dynamics.  And we don't want to  do anything that changes the durability of our free cash flow and earning streams.  so I think we've  been able to demonstrate that over the last couple of years, even through sort of some of the credit situation that we saw in 2020. As Buy Now, Pay Later grows, we might get to a place where again, we think that we are too asset intensive there, too credit intensive, and we will look to externalize some of the other parts of our portfolio, like the international consumer book or like the merchant lending portfolio, both of which are highly coveted from some of the other issuers that we've talked to.

Payment presentment is how payment options are ordered to online shoppers. 

Payments presentment refers to where payment options show up in the buying journey, and how they look from a design, branding, and functionality standpoint.

Question :

what about other metrics that you're looking at, whether it be frequency of engagement or other things that could be telling and help you kind of sort out really what's happening there, particularly on a go‐forward basis? 

Answer :

I'm looking  closely at engagement lift than I am at the monetization efforts around things like buy now, pay later or crypto or other things like that, because all of this plays to this thesis of the ascendancy of the digital wallet over the next three to five years, which we firmly believe in. if we can increase these levels of engagement, which directly flows to increased levels of revenue there , then to the bottom line稅後淨利.  It's sort of following suit to what the thesis is around what we're going to do over the next five years. 在20221 Q1 終於認真重視BNPL作為未來5年發展計畫

Bottom line : the final total of an account or balance sheet.

Question :

how do they fit with the rest of the PayPal base? Is there a greater adoption among a particular user type or are they   representative? 

Answer :

No doubt that the demographic that uses this skews heavily towards the younger demographic. But we are seeing it spread out across existing users as well, where, maybe they're tapped out on their existing revolving credit, and they want to use this instead. , because the funding mix‐ I've talked about this, the funding mix of our Buy Now, Pay Later customers is over 80% debit payments. It's where someone may have the money, but needs to stretch out over a matter of weeks versus really putting it on a revolving credit card.

Question :
Wanted to ask about Buy Now, Pay Later and just your vision for the product, right? PayPal’s pricing is obviously highly compelling and because you retain the transaction economics it’s still quite profitable for you. I was hoping you could talk about how you see the future of that product in terms of transaction size.


Answer :
One of the great things about Buy Now, Pay Later for us is because so many of the users of that product are existing PayPal customers, the risk metrics around that are so strong for us, meaning that we’ve got a history with a Craig Maurer. We know what his shopping patterns are, what his risk profile is and so underwriting becomes very easy. This first couple of quarters here really sort of just kind of wading into the pool and learning from these experiences, learning how customers use them


I guess I would add to the extent that we move into higher average order size types of transactions, I think some of the characteristics of the product change too. Right now, the products themselves are quite shorter in terms of duration. The U.K. product is three months, the U.S. product is six weeks and we cap it at $600


Question :
which you guys are obviously having some fantastic results. As you move potentially to higher AOV and you maybe push out higher—excuse me, longer duration, John, you worked really hard to move to this asset-light model that you’ve achieved at this point, and I understand that these things very quickly and so you can coursecorrect and the underwriting is good, but there probably will be a time when the opportunity is going to be for you guys to make that a much bigger business, at your discretion


Answer :
It’s a really good question and we’ll think about that as sort of one pillar of our overall credit strategy. The other two, if I can just sort of simplify it, being consumer and merchant, or international consumer and merchant, and both of those lend themselves to externalizing or doing something asset light like much better than the Buy Now, Pay Later. The reason a Synchrony or someone like that is willing to buy that portfolio is because of the relational aspect with the customer and if we’re doing short-duration type stuff, installment loans, then you don’t have that same type of relationship and that revolving credit that is so appealing to them. So, if you were to fast-forward a few years or without being too specific on timing and think about the growth in that portfolio, Buy Now, Pay Later is something we would likely keep on our balance sheet and we would in return externalize either the merchant lending portfolio or international consumer.

SecondQuarter 2021 Buyside Call
Question :
What's a normal loan loss rate for PayPal going forward? And then I'll just add the second one right with that which is how much credit exposure are you willing to take on Buy Now, Pay Later!?


Answer :
So what is normal today anyway, right? You know normal credit losses prior to the adoption of CECL at the beginning of last year we're hovering in the three to five basis points for us. But since then we've added a new product, Buy Now, Pay Later, and we also had to adopt the accounting standard for expected losses, CECL. Right at the adoption of CECL is when we saw COVID hit and so I don't think we've experienced what is normal since then. I think probably a way to a good way to think about our business longer term when we get past COVID and some of the volatility that we've seen in the credit environment is probably slightly higher than what we saw prior to COVID, so slightly higher than the three to five basis points. Sitting here today I'd probably say that's five to eight basis points in that range so not a lot higher. In terms of the credit exposure, we are willing to take on with Buy Now, Pay Later, the way I'd like to answer that question Lisa is the way that I think about the exposure that we have to credit, overall, not just BNPL. We've got $3.9 almost $4 billion of receivables on our balance sheet today but half of that is in the consumer international book with the other half composed of our merchant lending and BNPL is about [$875] million of receivables today. The way that we think about the totality of that credit business is we don't want it to become too capital intensive, you know so much of our revenue that if we get into a credit cycle, we see disruptions to the durability of our revenue growth stream. We also want to look at the size of that from a balance sheet perspective and we have internal guardrails for each of those, you can think of it as a yellow flag or red flag that when we hit a certain level we've got to start thinking about other options here that may include externalizing. If we were to externalize and what I'm referring to is doing an off balance-sheet transaction, an asset light like transaction. The merchant lending book and the international consumer portfolio lend themselves more to doing that, than say BNPL because of the short duration nature of that business. I think we are a ways out given the size of that relative to our overall portfolio. Remember that when we did the transaction with Synchrony a few years ago the US consumer book was about $6 billion dollars [of receivables] for us that point in time. We would still need ~50% growth to get to that point from where we are today. And even then, you know we were a much smaller company when we did that transaction, so I think we've got ample runway there before we need to think about doing some asset light transaction there.




Question :
Buy Now, Pay Later. A couple questions and I’ll kind of ask them together on BNPL, given that this is a pretty crowded competitive market do you expect take rate compression over the next few years, with merchants, and then also can you talk a bit about what your unit economics are like for the BNPL volume compared to say your normal typical checkout volume.


Answer :
Sure, so I'll remind everyone that for BNPL that's a service that we provide for free. So I don't expect any take rate compression for us because we're not going to pay people to take it. Certainly when you look at the other price points in the market that some other competitors are charging, upwards of 5% in some cases, it would stand to reason that you know, maybe over time there's compression there, that's a competitive space and it's tough to compete whenyou’ve got a company that's got 400 million customers,


Question :
If a consumer was doing just typical checkout transaction versus instead, they select Pay in 4, what are the unit economic differences !?


Answer :
We don't directly monetize that by charging for it so to start with that so there's if you're thinking about unit economics there there's not a direct revenue element to that. From a funding cost perspective about 80% of the funding mix here is debit and that carries whatever your assumption is around debit cost. Our loss experience has been exceptional in this category, in part because it's a known customer base. The other thing to consider, though, is that, when someone uses BNPL, at least on our platform, our experience that it has about twice the average order value of a standard transaction. For us, where it becomes very appealing, from an economic perspective, is where we see that 15% lift in payment volume when someone uses this and their willingness to increase their share of checkout or whatthey're choosing to do is checkout with PayPal versus someone else. That's a more indirect benefit here as we're talking about unit economics, but that is something that we are happy to realize the benefit of that in that way, because we think that's better for overall value proposition for our customers longer term.




Yeah and that statistic that you just quoted that's payouts share of checkout that goes up is that what you were saying !?
Well, not the percentage that I shared. The 15% is that we see when a customer uses by now pay later that there's about a 15% lift in payment volume, but your other point is correct, as well, although I didn't provide a statistic on it. When PayPal is offered as a as an installment pay option we see our share of checkout go up. That is the north star for us here, that is what we are going after. So said differently, we monetize that, through our traditional take rate model that we charge the merchant so we're not charging for BNPL, but we are charging our standard take rate with that merchant.


And the merchant is getting the extra 15%, the lift you a seeing. !?
Answer : Yes

Yeah and that statistic that you just quoted that's payouts share of checkout that goes up is that what you were sayings !?

Well, not the percentage that I shared. The 15% is that we see when a customer uses by now pay later that there's about a 15% lift in payment volume, but your other point is correct, as well, although I didn't provide a statistic on it. When PayPal is offered as a as an installment pay option we see our share of checkout go up. That is the north star for us here, that is what we are going after. So said differently, we monetize that, through our traditional take rate model that we charge the merchant so we're not charging for BNPL, but we are charging our standard take rate with that merchant.

Q2 2021  Analysts Conference call

Answer : 

As we expand that into the offline world, and we include the many different payment optionslike we're talking about, like buy now pay later, the ability to use rewards, that those value propositions will shine. One of the things that we're very focused on, as you talk about end-to-end solutions and controlling that complete process, is latency, and the in-store experience. When we first launched with CVS, as an example, we had about a seven second latency, in that experience; that's obviously not a good experience. We have that down to two seconds right now and plan to improve it from there It's all these types of things that, over time, we think will be very competitive in arguably what will be a fragmented area for a period of time, but I subscribe to the theory that you're going to see a couple of digital wallets win in the space. I say a couple,

Question :
question on buy now, pay later. Having the best value prop and getting that dramatic growth that you are, what is your confidence? Why can you have the best value prop and still generate very attractive profitability? How would you view the risks on credit quality on that business, especially growing that fast? Is there a plan to offload the credit quality with a partner like Synchrony or somebody like that, eventually?




Answer:

Sure, Bob, First of all, let's talk about our value proposition. From a price perspective, well, it's free. When you're a merchant and you're thinking about adding a payment option that provides installment payments to your customers and you look at the net that we cast with over 400 million customers around the world, that's unequalled distribution for that merchant. That's a fantastic opportunity for them, and they bear no risk. The way that we monetize that, because we don't charge for it, It's by increasing our share at checkout. 

對於Buy now pay later我們不需要收取費用, 這是免費的. 因為Paypal全球4億用戶數, 假如現在增加BNPL支付選擇, 這對於商家是一個很大誘因, 允許客戶分期還款, 可預見我們商家Checkout的TPV會成長

We've given some data points that support where already we're quite encouraged about. We don't need to specifically ascribe a price to that to charge for that, when we can increase our share at checkout with these merchants. In terms of the credit quality, it's very strong with this. In fact, about 80% of that is funded with debit. Moreover, we have visibility into the customers that are using this product. Many of these customers we've had relationships with for years, if not over a decade, and so we understand their payment history and their willingness to repay. We've had great results there around the credit quality. with respect to offloading,Computation offloading is the transfer of resource intensive computational tasks to a separate processor, 

this is not a part of our portfolio, it likely would lend itself to offloading or doing off balance sheet because of the short duration nature of it. When issuers like Synchrony want to partner with us, they did with the U.S. consumer book, they're looking for that revolving nature of that. If we were to do another off-balance sheet transaction or asset light transaction, it would likely be either international consumer book, which is about half of the almost $4 billion that we have today on our balance sheet around credit, or it would be one of our merchant portfolios.

Question :

My question about the pricing strategy, when I think about this broad array of services, branded, obviously, a lot of value, how much did you factor in some of the newer services like pay later, Pay in 4, to justify the premium versus unbranded? Just curious how big of a component that was in that pricing differential?

Answer :

Josh, that's a great question, as we step back and we look at, on the branded side—well, on both sides, but I'll start with branded—how we're priced against the competition. We look at the value that we provide and capabilities, including things like Buy Now, Pay Later, we recognize that there was an opportunity to be more transparent in that pricing, but also price up to the value that we add in the market. You're exactly correct that we considered the full suite of capabilities that PayPal brings to bear to merchants when we change that pricing. By the same token, did the same thing on the unbranded side and recognize that it's a less differentiated service. It's more of a commoditized product, and we need to be more in line with where some of the competition was.

Question :

The quick follow up is on buy now pay later traction with large enterprises. Obviously, whenever you have a number at 40,000, right, there's going to be many smaller merchants as well. But how have the discussions been going with the larger enterprises?

Answer :

Yes. I think the discussions continue to go well. I think the selling process is probably a little more protractedwith larger merchants because their checkout areas are more competitive. They take a much more long-term approach to how they think about it relative to a lot of SMBs who are not integrating with other Buy Now, Pay Later providers right now. We can easily add additional conversion to them and they see the incrementality very easily. But on the large enterprise side, I think our last update was, call it, about 150 LE's; we're up to about 250 LE's now. We're making good progress in terms of large enterprise integrations. But that's clearly a very important focus for us as we go forward. I think John mentioned on the main call that we see really strong checkoutshare when we have that upstream presentment. We get 11% lift on checkoutwhen we bring ourselves upstream. We know how incremental it is and how important it is. That's something we're going to continue to work on the same way we work on merchant presentment more broadly.

Question :

My question was on the pricing changes. Slide 22 has that revenue walk from third quarter guidance to fourth quarter implied, a very, very small bar for U.S. pricing changes. My question there is: one, is that a little bit smaller than it would be normally because you got a half a quarter of pricing in third quarter, so it's actually maybe a little bit more than that on a run rate basis? Then the more important question, John, maybe you could just talk about the opportunity to reprice some of your contractual merchants in the United States, uneasy to do with enterprise, but you are adding a lot of value.

Answer:

Your first point is exactly correct. It's lapping half a quarter in the third quarter. On a run rate basis(run rate refers to the financial performance of a company based on using current financial information as a predictor of future performance. ) a normal quarter would be a little bit larger than that. With respect to opportunities around some of our contracted merchants,that really comes down to the value or the services that we provide for them and Buy Now, Pay Later is a good example there. Maybe there's some opportunities there depending upon the relative importance of those services to merchants. But that's a one-by-one negotiation and it's very difficult to generalize if there's a huge opportunity to do that over time. 與大型店商開始洽談BNPL 項目事宜, 因為BNPL對於這些大型平台有很不錯的商業成長機會

Q3 Buyside conference call
Question :
I guess if you look at credit pre-pandemic, I think the loan losses were running, I'll call it, around five [basis points] of TPV. So, it sounds like that's kind of the benchmark. And then, like you said, depending on BNPL mix, you know, maybe you can do a little bit better, but probably not too much because obviously you're continuing to expand the loan book here as the macro is improving


Answer : Yeah. That's absolutely the right way to think about that




Question :
Understood. Want to make sure we have time to talk about paying for- obviously you guys have accomplished a lot in BNPL in a relatively short period of time. I guess, how would you assess your progress there? I guess it's been a year plus since you entered the market. And then just talk about the BNPL roadmap going forward. I know there were some comments last night about pushing into some longer duration loans and higher limits. What could that do for the growth here off of the--I guess you're at about an $8 billion annualized run rate already


Answer :
Yeah, well, I think that's a good starting point to address the question is to be at $8 billion already, I think is a strong indicator of the success of this program already. And as Dan noted on his call- on the call yesterday in his remarks, we're rolling this out to Italy and Spain in the next quarter. We're really, really excited about this. It has been arguably one of the more successful product launches that we've had and pleased that we were able to do this organically at a fraction of the cost of what others have had to go do. And so, we've got great experiences. We're continuing to focus on upstream presentment with merchants because we see the strong value there. But, you know, one of the things that I look at, Jason, that is sort of an indicator for future success is what is the experience or how are consumers using this? And does it have the halo effect that we anticipated when we first rolled this out? And the answer to that is an absolute yes. And so, one of the things that we look at is like the engagement lifts and that can be measured in transactions or TPV. Those customers that are using our installment paid product, our buy now pay later product, have a 21% increase in engagement, relative to other customers. And so that is like precisely what we want to see and fits exactly to the thesis that we laid out around adding all these experiences to increase the level of engagement of our customers. And again, you see that even from a more macro perspective, as I started the call saying that ex-eBay, our engagement was up 18% in the quarter. So really excited about this. The $8 billion in run rate, I think, compares very favorably to others that have been in this business for a while. And I think there's an important takeaway from that because when we roll out products like this, given the scale that we have, the reach that we have with over 400 million customers around the world, we're able to really accelerate the impact of that. And so, it's things like that that get us quite excited as we talk about other products that we want to roll out savings account or whatever the example may be, because we can do that at scale very quickly.




when you move BNPL into the longer duration loans next year, you're going to continue to keep all those on your balance sheet !?


Answer :
You know, TBD is the answer to that. The thinking right now is that we'd likely keep the installment pay product on our balance sheet. There may be some appetite to externalize that. Obviously with the shorter duration loans, that's not as appealing to an issue or to come by because you don't have the revolving nature of that relationship. So, I think the areas that I would focus investors on, if we were to look at externalizing something would probably be the UK consumer book or some of our merchant lending programs. But again, you know, our overall credit right now or the balance that we have is $3.7 billion. That's a fraction of where we were when we sold the US consumer book. That was a $6 billion portfolio. And in that period of time, we probably have doubled or tripled in the size of our company. And so, I think we've got a little bit of runway before we need to really focus on externalizing that, but mind you, we have a very clear guardrails around our credit business, and we don't ever want to get to the point where we are too dependent on credit, or it is too much of a draw on free cash flow that it's taken away from other things. So, as we've demonstrated in the past, we will avail ourselves of opportunities to sell that portfolio and partner with companies like Synchrony, which has been a fantastic partnership if we get to that point.




your comment on the BNPL upstream presentment, still seems like there's a lot of opportunity there. I think it's less than 10% of the merchants that are using paying for, you know, have actually embedded upstream presentment. I guess, where can that figure ultimately go? How big of a lift is it to get it there? I guess it's just a lot of blocking and tackling. !? 
blocking and tackling” is used to describe the importance of focus and execution in business

Answer:
I mean like with merchants adoption of upstream I think you'll see that continue to grow next year, it’s also just the improved accessibility of BNPL in the wallet for consumers. Our numbers, as John said, compare really favorably to some of the companies that have been in this for awhile, but only ~9 million of our consumers have adopted it up to now. And so, there's a tremendous amount of penetration there as well to go. And some of the new digital wallet experiences, where it's really in context like deals and offers and other things like that, I think are going to also show the growth of this there too. So, it's really kind of attacking both sides of the network, but we do see really strong growth next year there.

Q3 Analysts conference call 

Question :

my second question was just you’re investing quite a bit in buy now, pay later [BNPL], the acquisition of Paidy. Just your confidence on the unit economics, what types of margins do you expect to have on buy now, pay later and returns, your confidence in the credit quality? I mean, your loans were up a good amount this quarter, I think mostly from short term buy now, pay later. Just the overall confidence, what you expect from economics on buy now, pay later? I mean, it's early days in the growth of that industry, if you would, and you’re certainly leaning forward into it. 

Answer :

On buy now, pay later, so there are a couple aspects to that; one is credit quality, the second is margin performance. Credit quality is probably one of the areas that we are most excited about with what we’re seeing on buy now, pay later. Those skew heavily towards debit funding, and we’ve got great history on our customer base that is electing to use that. The underwriting of those customers comes at a very low risk, and so I think across the board what we’ve seen on buy now, pay later, our installment pay product, is that the risk performance or the risk losses around that have been much better than what we originally expected, but let me remind everyone about how we monetize that, and that’ll get to your question on the margin performance. We actually don’t charge for that to our merchants or our consumers. The way that we elect to monetize that is by increased engagement, or increased transactions, or more TPV. This is one of the things that, again, looking at this early on, we’re most excited about, because as we look at those customers that are using buy now, pay later, they have over a 20% increase in engagement, or transactions, or TPV, however you want to look at that. That is precisely the type of performance that we hope for, and in fact, better than what we had hoped for. Again, we’re about a year into this, and still expanding this, as we noted with Italy and Spain, into certain regions, but really pleased about this. Clearly, there is demand among the consumer segment that this product appeals to, so it’s a great complement to our existing portfolio of credit products.

Hey John, this is Erica. Can I just add on BNPL—so, to John’s point, the BNPL unit economics are basically our branded business economics, because this is just another way to pay in our wallet, but it’s that value proposition, and actually the relative pricing of those transactions as compared to our competitors in this area, that has enabled us, for example, to raise our U.S. headline price over the last quarter.

It’s really the inclusion of this value proposition that’s actually enabling us to raise prices where it’s appropriate. Now we lowered our unbranded pricin same time, but we see this as an enabler of future unit economics. 

Q4 buyside conference call

Question :

I think we shared it with you guys. We ran a survey. And always surprised by how strong PayPal is relative to the other players. And  just to close out on that same topic, how is the pipeline and the outlook here for adding new merchants, marketplaces, etc.? Any update on that front?


Answer :
I read your survey, which I would encourage everyone to, that you put out this week, but I think that really underscores the value that we provide and how people think about us in the ecosystem. Whether it’s things like Buy Now, Pay Later or simply wallet presentment where, over 50% of the time, when someone has a choice of choosing PayPal or some other wallet, they’re choosing PayPal. And that resonates with merchants. They recognise that, as well, they get higher conversion, and it’s why Braintree has been so successful.



Question :
Yes. No, thank you for that. I know you guys have put a lot of thought and didn’t take this decision lightly, so I trust that to be the case. But from a sizing, I don’t know if it’s possible to do it here, but can you size your prior marketing spend on lower engaged users or this incentive-driven activation? Is there a way to size how big that is? And can we assume also that you’re going to reallocate that towards the engagement model fully?  因為市場快速變化, 預估new customer 會快速被其他BNPL player 給搶走, 公司必須重新擬定市場戰略, 


Answer :
Yes. Look, we’re going to continue to invest in activation in places where we see the highest return on investment. We’re just going to reduce where we don’t see a good return on investment. So we’re still going to have activation spend. From an overall marketing point of view, our marketing investment, it’s going to be relatively on par with what we did last year, but we are going to rebalance quite a bit towards marketing new products and services to our base, possibly additional investment in incentives for engagement and other things like that. So we’ve just seen a much, much better yield when we invest in incenting people to use new products and services. Buy Now, Pay Later has an incredible return for us, not just in actual usage of the product but we actually see a halo effect of about double the revenue of the product usage itself when people use that product. Even the same with people buying crypto. When customers sell off their crypto position, they actually reuse their balance at more than double the use of a normal customer. And  we see a lot of network benefits to the activation of our current base into new products and services. And that’s where we’re going to be rebalancing. One more final comment is we are also going to invest in loyalty this year


Question :
Very good. So I suppose I have to ask a pricing question here, John. So another lever on ARPU is pricing. I know take rate was up sequentially in the fourth quarter. What’s implied in the outlook for take rate? And any surprises from some of the pricing action you guys took in the fourth quarter?


Answer :
The only surprise, Tien-Tsin, I would say is the lack of customer churn. Any time you raise prices, there’s some fall-out. Some customers churn away and we have to make assumptions about that when we initiate those pricing changes. We’ve actually seen the response to this has been very favourable. Another data point is just in customer service. We tend to get an influx of calls when pricing changes are announced, and then again when they’re implemented. And there was very little of that. In fact, I would say less of that this time than any time in our history. And I think that really underscores that our value proposition resonates with customers, that they understand that adding things like Buy Now, Pay Later, where you can increase conversion for merchants and there’s effectively no direct incremental cost for them, that those things are very compelling. And so this experience, this specifically being the pricing change that we announced in August, informs our point of view going forward around pricing changes. And keep in mind, we both lowered and raised prices when we did that. We lowered prices on some of the card processing part of our business. But that informs our point of view about expanding that out to other regions, other verticals, larger merchants as we go forward. And so in any year, there is some assumption about price changes in our business. With respect to take rate, you’re right, it was a nice change because I know a lot of people focus on take rate and the decline that we’ve seen. And maybe a better way to really understand how that will be is to look at the year-over-year comparison. So not the sequential change from the third quarter, but year over year. And that was a 17 basis point decline. About half of that, eight basis points, was related to eBay. Well, that’s going to go away. And the next largest contributor to that decline, which was five basis points, was a decline in foreign currency fees, which affects us, or the currency volatility affects what that number can be. And so in a more volatile currency environment, we’re able to price to that more versus a less volatile environment, which we experienced this last quarter.


And that’s another way of saying that can go either way, that some quarters, it’s a contributor to take rate, and some quarters, it’s something that is making a decline. And so you strip those out and you look at the remainder, you’re only talking about four basis points or of take rate decline, which is really just a result of mix changes in our business. And that’s something that people should expect going forward. We’ll continue to see that. Other things like foreign currency fees and hedge gains or losses, those are going to vacillate back and forth from one quarter to the next, and eBay will eventually be gone here in two quarters.




Question :
Okay. So that’s the goal. Good. 10 minutes left? So let’s hit margins. Can’t let you go without talking about margin. So the puts and takes to arrive at the 23% [non-GAAP operating margin] for this year back to the pre-pandemic level that we point to sometimes. But I think it’s down modestly, adjusting for the credit comp. So walk us through the puts and takes there if you don’t mind.


Answer :
Sure. We’re going to see pressure on the more transaction related expenses, specifically credit losses this year. As we get back to a more normalised environment, credit environment, and we begin to build out specifically the Buy Now, Pay Later book, that’s going to put a little bit of pressure on loan losses for the year. But on the flipside, we are continuing to do a ton of work on our non-transaction related expenses. And we should expect to see a lot of leverage there this year, and going forward into next year as well. I think we’ve had good discipline in this area of our business over the last several years, but there’s certainly a renewed focus around that, to make sure that we are growing in a healthy way, in a very efficient and productive way so that we can realise that leverage in the business and either see our margins expand or reinvest that into areas that we think are very important for our future growth.




Question :
good. I’ll just maybe fire a few more. Buy Now, Pay Later, a popular topic. Very strong, up sequentially in a big way. It’s now about, what, 1% of TPV? So where do you think this can go in the short and mid-term? I know you’ve been quite bullish on it in the past, John. So any new thinking around BNPL investment and growth?


Answer :
Well, this has been a great product launch for us, something that we did organically. The team here launched that very quickly. And your own survey that you put out showed a strong preference for that versus some of the other Buy Now, Pay Later companies that are out there. As I’ve said repeatedly, I think our value proposition is second to none. And so we’ll continue to expand this into other regions, expand maybe the product offering as well. But we also are going to be consistent with the guardrails we put up around our credit business. And as we’ve talked about before, we look at the amount of free cash flow that’s devoted to funding credit. We look at the size of the business from both an overall revenue composition relative to total PayPal as well as the size of the assets on our balance sheet (BNPL Loan as current asset). And if we get to a point where we think those are getting too large and we are too dependent upon credit to where maybe it influences the durability of our earnings stream, then we’ll look at externalizing that, like with did with Synchrony, with the US consumer credit receivables a few years back. I think we’re a ways away from that right now, but certainly something the team is getting out ahead of to make sure that we are evaluating those opportunities, should we get to that point.




Question :
Okay. No, glad to hear it and glad to hear you still feel comfort with promoting that product, and it’s done great. So you mentioned free cash flow to fund credit. Let me ask about free cash flow overall. I think you’re targeting, what, $6 billion, up 10% in 2022. If I look back the last couple of years, you spent, what, $3 to $4 billion per year in acquisitions during the pandemic. Now, is that going to change here, given the pivot? Can we expect PayPal to still stay active on the acquisition front, like we’ve seen during the pandemic? Or is maybe a pause something we should look for?


Answer :
You should not look for a pause. I think our policy going forward… I shouldn’t say our policy. Our approach going forward will be very similar to what we’ve done historically, where we typically look at smaller, tuck-in acquisitions that are complementary to our platform. Look, there’s a couple points to mention here. We are, I think, in pretty rare company in terms of the amount of cash flow that we generate, particularly given our growth profile. And that gives us another arrow in our quiver to compete with the industry, and in terms of whether we want to go out and acquire companies, whether we return cash to shareholders, invest organically. And so we’re going to continue to allocate capital in a similar fashion to what we’ve done over the last few years, and do it to the best effort to create more shareholder value.

 

Q4 2021 analysts conference call

Question :

Good afternoon. Thank you for taking the question. John, two questions. One, just the buy now, pay later, your view on the profit model. It seems like for the industry that the real profit, long-term profit models are still in flux. What is your confidence on the revenue growth, the revenue you expect to have with buy now, pay later, your confidence in the profit model?  

Answer :

Thanks for the questions. I'll take buy now, pay later first. As a reminder, our model on that is different than many of the others that are out there and that we don't charge the merchants an incremental fee for that offering. which is, last I checked, the best pricing that's out there. Frankly, we see the results of that in our business, whether it's consumer studies in terms of preference for our product versus others, or even the amount of volume, where for the year where we were ramping that over the year, we generated around $8 billion of total volume there. But where we monetize that, very importantly, is through what we sort of generally describe as a halo effect. What I mean by that is increased engagement or increased TPV [Total Payment Volume] of those customers that avail themselves of that product. Importantly, we see an over 20% uplift in both of those for customers that are using buy now pay later. Moreover, it's very good for the merchant because they see a much higher conversion when this product is offered

Question :

buy now, pay later topic—and I understand the value prop to merchants from not [providing] any extra MDR [Merchant Discount Rate], etc., at least in the framework and the duration that you're doing those buy now, pay later loans at. But when near term or short-term interest rates rise, how does that impact the economics of that business? Does it make it less profitable? Do you have to increase the credit valuation and tighten that up a little bit? Just wondering what, if any, the rise in near term interest rates would have or where it could start to impact how you approach the business 

Answer :

Because of the fee structure around that business, interest rates going up are really not going to have any outsized impact on that product. But I will say as you think about the rest of our business, there is some impact there. So, taking a step back even before we go to interest rates. If you just think about the effect of inflation, because we're a take rate model and our fee is some percentage of the product or service that is sold, an inflationary environment, everything else being equal, generally should benefit our top line. Now that's only to the extent that we don't see some corresponding pressure around consumer behavior, which is exactly what we pointed to around the low-income cohort. So, there's a give and a take there. Other areas of our business where we're seeing the inflationary pressure is related to labor. We've got the largest increase in our year-over-year labor rates related to sort of merit and inflation than we've ever had since I've been here. So that certainly has put some pressure on the P&L. But as you think about interest rates and sort of the response of higher inflation, where we benefit from higher interest rates is on the interest that we earn on our customer balances. And that continues to grow year-on-year as we become larger, scale more and more relevant with our customers. And so, we've had a headwind to the tune of several hundred million dollars over the last few years as interest rates have gone down. If we get into an environment where we see several rate increases and, of course, this is assuming kind of everything else being equal, that could stand to benefit. And again, that's other value-added services in our P&L where we recognize that interest income.

Question :

the corollary to that question is, the lower income consumers that are on your platform, which sounds like it's actually quite sizable, and you can certainly correct me if I'm wrong there but that was kind of my read from what you guys were saying on the first call. They're suffering, I think is what you said. So, are you—in this pivot, are you pivoting up to more affluent consumers? Because buy now, pay later certainly attracts a lot of less than prime consumers. I think we all know that. Crypto, I'm not really sure. So I'm wondering when I asked the question about demographics and characteristics, I'm trying to gauge how the lower income cohort is either going to be a larger or a smaller piece of your book as we think about the coming two years.