PayPal: Creating a New Global Standard for Online Payments

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Creating a new global
standard for online payments
10/07/04
PayPal overview
•
•
50M user accounts
A growing community
of users
5 currencies, 45 countries
50
46
Alternative funding options
for buyers who don’t own
credit cards or prefer not to
use them:
40
35
32
27
23
•
•
•
•
Bank account transfer
eCheck
Stored balance
Buyer Credit
3 5
2
1
10
7 8
12
14
17
19
1Q
00
2Q
00
3Q
00
4Q
00
1Q
01
2Q
01
3Q
01
4Q
01
1Q
02
2Q
02
3Q
02
4Q
02
1Q
03
2Q
03
3Q
03
4Q
03
1Q
04
2Q
04
•
PayPal Member Account Growth through Q2 ‘04
eBay is a premier growth company …
(Real $M)
1,000,000
100,000
GMV
10,000
STARBUCKS
1,000
100
10
1
11
45
7
10
30 34 35
43
37 40 40
16 19 2022 2525 28 31
10 13 15
Years from incorporation
Note: Sales and GMV adjusted to reflect 2003 dollars. http://www.bea.gov/dn/home/gdp.htm
Source: eBay; US Department of commerce; Bureau of Economic Analysis; BCG analysis.
… and so is PayPal!
(Real $M)
1,000,000
100,000
TPV
GMV
10,000
STARBUCKS
1,000
100
10
1
11
45
7
10
30 34 35
43
37 40 40
16 19 2022 2525 28 31
10 13 15
Years from incorporation
Note: Sales and GMV adjusted to reflect 2003 dollars. http://www.bea.gov/dn/home/gdp.htm
Source: eBay; US Department of commerce; Bureau of Economic Analysis; BCG analysis.
How PayPal works
Senders
Receivers
Bank
Account
Visa/MC,
Amex,
Discover
PayPal Debit
MasterCard
Bank Account
Another PayPal
account
eCheck
Debit Card
(e.g., SwitchSolo in UK)
Stored Value
Account
Stored Value
Account
Paper Check
Why PayPal works for buyers
•
•
•
•
•
Free to use
Pay anyone with a credit card or bank account: “online wallet”
Fast, secure payment – 1 week → 1 minute
Stores financial information securely to maintains user privacy
Works cross-border
eCommerce
P2P/remittances
Importance
Cost
Network
Convenience
Rewards/loyalty points
Security
PP competitiveness
Why PayPal works for sellers
•
•
•
•
•
•
Enables credit card acceptance
Faster payment = faster inventory turn
Easy to sign up
No setup, monthly or gateway fees
Competitive price with no minimum time commitment
Fraud protection – 25 bp vs. 110 bp
Complementary missions
The world’s
online
marketplace
Powering
Online
Commerce
The world’s
online
payments
standard
Symbiotic relationship with eBay
• Increases
velocity of trade
• Enhances trust &
safety
• Provides the
aggregation
point for small
business
• Drives critical
mass of buyers
& sellers
• Solved counterparty problem
• Enables
innovation
Impact to eBay marketplace
Year-over-year US transaction revenue growth
80%
68%
70%
68%
60%
58%
56%
53%
50%
48%
44%
49%
44%
45%
41%
40%
39%
38%
32%
30%
20%
10%
0%
1Q
01
2Q
01
3Q
01
4Q
01
1Q
02
2Q
02
3Q
02
4Q
02
1Q
03
2Q
03
3Q
03
4Q
03
1Q
04
2Q
04
Note: 2001 data reflects growth rates in total US revenues, not just “transaction revenues.” Transaction revenues have constituted
over 95% of total US revenues from 2002 through Q2, 2004.
PayPal enables global trade
Can be used in 45
countries
PayPal available
Currencies Supported: US $, CA $, GBP £, Euro €, JP Yen ¥
PayPal available + Local Bank Acct. Withdrawal
Localized: US, UK, DE, FR, BE, CH, NL, AT
A Global Destiny
US$ Billions
PayPal TPV
$4.42 $4.46
$3.76
$3.07
$2.86
$2.63
$2.12
$1.10
$0.63 $0.74
Q1
01
Q2
01
Q3
$1.30
$1.41 $1.59
• Milestones
$0.88
01
Q4
01
Q1
02
Q2
02
Q3
02
Q4
02
Q1
03
Q2
03
Q3
03
Q4
03
Q1
04
Q2
04
• Multi-currency support in November
2002
• UK site: September 2003
• DE site: July 2004
• FR site: August 2003
% of PayPal revenues from Int'l
26.2%
19.6%
Q1
03
Q2
03
23.2%
21.4%
21.0%
Q3
03
28.7%
Q4
03
Q1
04
Q2
04
• PayPal will continue to support eBay
in key geographies where eBay is
strong and payments solutions are
required
Can banks profit from “remittances”?
• Yes, but…
• Market competition is fierce
•
•
•
MTOs have 90% of the “official” market (Western Union, MoneyGram)
MTOs have robust physical distribution, low access barriers, real time funds transfer
Internet P2P players (e.g., Yahoo PayDirect)
• Need to overcome the “the first mile problem”
•
•
•
•
•
Establish profitability to serve customers
Customer-friendly interface
Customer acquisition
No real time funds transfer between institutions
Legal/Regulatory barriers – USA Patriot Act, card associations, NACHA
• Need to overcome the “the last mile problem”
•
•
•
Receivers are largely “unbanked,” exhibit low financial literacy
Local bank networks (branches and ATMs) still in development
FATF
Possible market strategies
• Banks
•
•
•
•
Learn from past experiences – C2it, from Citibank
Acquire user base – lower barriers to access
Offer a compelling product
Compete on price, value
• MTOs
•
•
•
•
Business model already works
Compete on “real time funds transfer”
Offer a customer-friendly UI, “fast and secure” payment to reach out new
customer segments
Upgrade product line to offer P2P, “delayed payment” offering
• New technologies mean new opportunities
•
•
Leverage ATM networks
Use the proliferation of the Internet
Partnering for success in remittances
PayPal offers
PayPal needs
•
User network of 50 million, with stored
financial information
Millions of immigrants
Convenient, “always on” front end in key
sender countries: US, UK, DE
Pricing is 50% less than MTO
Real time funds availability (instant ACH or
credit cards)
•
Innovative products
Trusted payments brand in US
Secure platform
Money transmitter license
Compliant with USA Patriot Act
International account-to-account transfers
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Banked senders and receivers, who are
online; OR
Partner to deliver funds from a user’s
PayPal account; OR
Physical access points for offline or
unbanked receivers
Access to customers in receiver countries
Sponsorship into the ATM network
Compliance – OFAC, AML, etc
Trusted payments brand in receiver
countries
Segment share (projected)
60%
Segment share
50%
Western Union
40%
MoneyGram
30%
Large banks
Card to Card ATM
20%
P2P
10%
0%
2002E
2003E
2004E
2005E
2006E
2007E
2008E
2009E
2010E
• Card-based transactions will be disruptive to agent-based players like Western Union
→ Ubiquity
– 30,000 McDonalds
– 169,000 Western Union Agents
– 1.2 million ATM locations
→ Acceptance
– In 2003, there were 2.5 million remittance ATM-card holders in developing world
– By 2006, that could be 13 million
• Revenue opportunity in card-based transactions could exceed $2 billion
Source: Financial DNA, June 2002; Celent Communications, August 2002
Preferred payment methods
Cashless Payment Usage
100
90
80
% of Volume
70
60
50
40
30
20
10
0
US
Canada
Checks
France
Cards
UK
Bank Transfer
Source: BIS Red Book
Italy
Germany
Prioritizing segments for remittances
#
High
UK
CA
EU
• Sophistication of
bank system
• Financial
services
coverage
• Trustworthiness
of financial
institutions
Philippines
India China
Eastern Europe
Mexico
Middle east
LAC
Low
Low
• Internet adoption
• Online penetration
• High-speed access
High
Segment size
($ Billions)
Thank You!
Merci
Xie xie
Spasibo
Dankë
Dhanyabad
Grazie
Cheers!
Abhar
Asante
Domo arigato
Gracias
Sipas
Go raibh maith agaibh
Murromboo
Komapsumnida
Shukriya
Doh je
Achiu
Toda
Wanìshi
Shukran
Tashakkur
Mahalo
Aman Verjee
[email protected]
Dickson Chu
[email protected]
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