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It is concerning that the spread between the transaction take rate and the sum of the transaction expense rate and the transaction & credit loss rate has declined over the years. Understanding the individual weight of the above considerations can be abstruse but the cumulative impact over the years has been undeniable as take rates have fallen: An August 2021 blog post by notes that increased bill payment volume is an additional factor in declining take rates. Another factor in the transaction take rate decline has been the reduction of eBay-related transaction revenue relative to overall payment revenue. We know Venmo did about $900 million in revenue in 2021 from about $230 billion in TPV for a take rate of less than 40 basis points. One of the reasons the transaction take rate has declined is that P2P transaction volume has helped increase the overall transaction volume substantially and Venmo is a big part of P2P. The 4Q21 TPV was $339.5 billion such that the transaction take rate was 1.88% and the total take rate was 2.04%. In 4Q21, PayPal’s $6,377 million transaction revenues made up 92% of the $6,918 million total revenue. consumer credit business which only represented 2% of TPV and $1 billion of revenue. At the November 2017 Synchrony call, CFO John Rainey revealed that at the time, they were using 40% to 50% of FCF to fund their U.S. The 2021 10-K shows 1,165,004,913 shares outstanding while the 2015 10-K shows 1,222,675,902, so buybacks over the years have only reduced the shares outstanding by about 5%.

The cash portion of the September 2018 iZettle acquisition was $2.1 billion. The January 2020 cash component of the Honey Science acquisition was $3.6 billion. 10-K filings show that the cash component of the Paidy acquisition in October 2021 was $2.6 billion. There have been significant acquisitions during this time that were largely paid for with cash from FCF. The above would be especially impressive if PayPal returned much of the FCF to shareholders in the form of dividends or buybacks but that is not the case. 2017 is adjusted up by $1,299 million and 2018 is adjusted down by $1,508 million. Impact of held for sale accounting presentation related to US consumer credit receivables portfolio on cash flow from operating activities. Stock-based compensation is treated like a cash expense. Management has done a nice job increasing adjusted FCF over the years: We recognize that a P2P customer has 2x the lifetime value of someone that doesn't use P2P, so we'd absolutely want to do that to grow our profits in the future.įor every dollar of revenue, about one quarter makes its way down to operating cash flow (“OCF”). If you take our hamburger store example, it's akin to offering a freebie to someone to come into the store. P2P doesn't have necessarily the revenue associated with it, but we have the volume. On P2P, if you think about what take rate is, it's the revenue divided by volume. It's absolutely what we want to do for our business. But we realize that with no incremental overhead, we can start selling hot dogs because hot dogs come in at 20% margin. Like if you think about, say, you and I have a hamburger store. They want to increase peer-to-peer (“P2P”) total payment volume (“TPV”) because it increases engagement even though it has a low take rate:

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PayPal - Managing The BusinessĪt the 2018 Deutsche Bank Technology Conference, CFO John Rainey uses a hot dog example to explain that they manage the business for free cash flow (“FCF”) as opposed to the take rate. I believe Alipay and WeChat Pay will continue to influence the rest of the world such that we’ll keep seeing a decline in transaction take rates globally. Instead, payments are a way of keeping users engaged such that money can be made in areas like credit, insurance, and wealth management. So they're quite developed.ĬEO Schulman has noted that Alipay and WeChat pay don’t make money in payments. It amuses me if somebody says to me like, 'Oh, are you worried if you go into China that they may take your trade secrets,' like I want to take their trade secrets. So first of all, China is not a developing market when it comes to digital payments. This was acknowledged by CEO Schulman at the December 2018 Goldman Sachs US Financial Services Conference: China has been ahead of the rest of the world with payment processing for many years. My thesis is that the payments landscape will continue to evolve and PayPal will have to remain open-minded.Īt the September 2015 Deutsche Bank Technology Conference, CEO Dan Schulman said the only digital payment companies at scale were PayPal, Tencent’s ( OTCPK:TCEHY) WeChat Pay, and Alipay which is partially owned by Alibaba ( BABA). Originally PayPal ( NASDAQ: PYPL) was supposed to be a tool for beaming funds from one PalmPilot to another. Justin Sullivan/Getty Images News Introduction

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