The second quarter of 2020, which was all about COVID-19, turned out to be a phase of accelerated growth for PayPal with the pandemic providing people an additional reason to adopt contactless payment. Introduction of new services, and good results from the partnerships and acquisitions done in the past, contributed to the stellar performance. The company’s revenue rose 14% QoQ in the second quarter compared to a fall of 7% in the previous quarter.

Exhibit 1: Quarterly Change in Revenue of PayPal since Q2 2018

Source: Counterpoint Research

Report Card: Q2 2020 Earnings

The COVID-19 Factor

Before the COVID-19 pandemic, money in its intangible form was being increasingly adopted by people, with the graph following a steady path. However, COVID-19 gave a big additional push to digital payment platforms following concerns over spread of the pandemic through currency notes. Those who were reluctant to join such platforms before the pandemic took no time in adopting the contactless mode to pay for their essential purchases.

One of the most accepted modes of contactless payment is the QR code. Though it is not the latest form of contactless payment, it caught wider attention when PayPal recently launched the QR code service in 28 markets globally both on the Venmo and PayPal platforms. QR code enables the users to make a payment just by scanning a code. This service has helped many small merchants survive the pandemic. In fact, PayPal marketed the QR facility as a safer mode of payment during the pandemic.

The pandemic has seen a remarkable shift in people towards e-commerce, helping PayPal garner new users at a remarkable rate. However, the company also points to the higher rate of activity by mature users and their loyalty to PayPal.

PayPal registered a fall in revenue from the travel and vertical event segment. However, this segment has a smaller role in the overall numbers since March, when the pandemic accelerated at an explosive rate globally.

Strength of relationships created by PayPal

PayPal, which has its reach in around 200 markets, has been active in entering collaboration, partnership and acquisition deals since its beginning. Some of the major acquisitions include Venmo, Honey, Braintree and iZettle. Honey, Braintree and Venmo continue to outshine their outcome every quarter. In line with the trend, in the last segment of the second quarter, PayPal entered a tie-up with Gojek. The strength of Gojek in Southeast Asia is being seen as an opportunity to have a deeper penetration in that region. In another move, PayPal has extended the Visa Direct partnership across the world with an extra push to global white label Visa direct payment functionality through PayPal, Braintree, Hyper wallet and iZettle.

Exhibit 2: Partnerships & Acquisitions of PayPal

Source: Counterpoint Research

PayPal role in addressing socio-economic concerns

PayPal is not only focusing on expanding its reach to people but also looking at leaving an impression in their minds that it cares for their socio-economic well-being. To bridge the economic divide, PayPal has contributed more than half a billion dollars towards the black- and minority-owned businesses and communities in the US, also among the hardest hit by COVID-19. Besides, for the US Small Business Administration’s Paycheck Protection Program (PPP), PayPal has contributed $2 billion in loans to more than 76,000 small businesses. PayPal has also acted as a medium for the customers, employees, and partners for the COVID-19 associated donations. The company campaigned across 12 markets and facilitated over $5.6 billion in donations.

Key takeaways

With the competition in the digital payment industry getting tougher at every turn, PayPal has been making efforts to sustain its growth. A wider reach across nations, along with some complements and substitutes, has helped PayPal in leaving its impression globally at the right time. At the same time, it is essential to educate people about digital payment platforms and their functionality.  With the COVID-19 factor still there, the ripple impact of the second quarter is likely to be highlighted in the coming quarters.