Investment and 'open mind' key to successful expansion, CEO says
After struggling for years to extend its reach in the Japanese domestic market and the rest of Asia, PayPal is charting a new growth strategy there focused on greater investments, tie-ups and acquisitions to tap surging demand for cashless payment services.
The U.S.-based platform acquired Japanese "buy now, pay later" startup Paidy for roughly $2.7 billion earlier this year. CEO Dan Schulman hinted at the potential for more similar deals in an interview with Nikkei, as the company relies on existing brands and their assets to expand its footprint in domestic payments in Japan and beyond.
For markets in which PayPal wants to "double down and play an important role," Schulman said, it will "need to invest organically. We need to invest through partnerships, and we need to keep an open mind to acquisitions as well."
Founded in 1998, PayPal is used across numerous websites, smartphone apps and brick-and-mortar stores in markets like the U.S. and the U.K. Its total payment volume has roughly doubled over two years to about $1.25 trillion in 2021, with growth accelerating dramatically from the 20 years it took for the platform to achieve its first $600 billion. It has a market capitalization of about $225 billion, outpacing several traditional banks like Citigroup and Wells Fargo.
The coronavirus accelerated the global transition toward a digital economy "by anywhere between three and five years," Schulman said.
PayPal now aims to achieve at least $50 billion in revenue in 2025 -- roughly 2.3 times its figure from 2020. This would require annual growth of about 20%. It also targets 750 million active accounts across customers and merchants.
To achieve this goal, a greater presence in Asia, particularly Japan, is critical.
PayPal entered Japan back in 2010 as a unit of e-commerce company eBay, but has been slow to win fans in the domestic market and their focus has been on facilitating cross-border e-commerce payments. In 2020, it counted 4.3 million active accounts in Japan, amounting to only about 1% of its global tally. Many of these are used for cross-border payments to overseas e-retailers, and the platform remains a relatively small player in Japan's crowded domestic payments market.
Schulman, who became CEO of PayPal at about the time when the company spun off from eBay in 2015, believes the key to making inroads in Japan is to actively take advantage of partnerships and acquisitions in the country instead of focusing solely on the PayPal brand.
Paidy represents one example. "Paidy and a lot of incremental resource and potential incremental acquisitions inside of Japan will really be the focus of our activity there," Schulman said.
PayPal plans to keep the Paidy brand alive, he said, adding: "We are leaning on the Paidy team as we move into [Japan's] domestic market, and one of the things about the domestic market is that it is still predominantly a cash-based economy." The CEO expressed high hopes for Paidy's connectivity with Japan's ubiquitous convenience stores.
Schulman was also bullish on partnerships with Japanese financial institutions to create "one-stop banking" solutions. Combining PayPal's assets, like its digital wallet and online fraud and risk management capabilities, as well as financial institution assets like credit cards, "can provide consumers and merchants with a very powerful value proposition," he said.
PayPal has already seen success with such partnerships in the U.S., making it easy for customers to add credit cards from players like JPMorgan Chase and Citigroup to their digital wallets. This gave banks a boost in credit-card transactions, and allows customers to pay for things via PayPal using credit card points.
But cracks are starting to emerge as PayPal carves into fields that traditionally fell under financial institutions, like debit cards and high-yield savings accounts. During an earnings call in January, JPMorgan Chase CEO Jamie Dimon said: "We're going to compete where we need to."
"We don't think of ourselves as disrupters. We think of ourselves as enablers," Schulman told Nikkei, stressing that traditional financial institutions will continue to have a role to play. But PayPal likely will have no choice but to compete with them in certain areas, especially as it looks to integrate its payments, consumer finance and shopping services to spur future growth.
Schulman also touched on cryptocurrencies, another key area for the company in Japan. PayPal has become one of the leading players in the field "in a very short amount of time," he said.
The company has a dedicated business unit not only thinking about cryptocurrencies as an asset but also "about distributed ledger technology and cryptocurrencies as added utility to payments, like programmable money, or how to make the underlying infrastructure of a financial system more efficient," he said.
Users in the U.S. and the U.K. can already buy and sell cryptocurrency via PayPal. These customers tend to use the PayPal app often alongside the platform's other services. Schulman said crypto-related services would eventually be expanded worldwide, pending approval from relevant authorities.
Beyond Japan, PayPal has struggled to gain momentum in domestic services in other Asian markets as well. It announced its exit from domestic payment services in India in February, for instance, focusing instead on cross-border payments. Leading rivals are creating their own payments ecosystem in Southeast Asia.
Asian markets "are extremely dynamic, growing rapidly in the use of digital payments," Schulman said. "In many ways, we've learned from the use cases in Asia."
PayPal is also focusing on cross-border payments in China, where it took full ownership of GoPay at the end of 2020, rather than compete in the domestic market with giants like Alibaba Group Holding's Alipay or Tencent Holdings' WeChat Pay. Success in Japan could serve as a blueprint for PayPal to tap domestic payments in other Asian markets moving forward.
TAKENORI MIYAMOTO and KAORI YOSHIDA, Nikkei staff writers
