PayPal was first founded in 1998; it was called Confinity (among its founders was Peter Thiel); later, it merged with X.com, its major competitor, founded by Elon Musk (which would become known for other companies like Tesla and SpaceX). From this merger, PayPal was born. In 2002, PayPal was bought by eBay for $1.5 billion. eBay spun off PayPal in 2015, which would be listed as an independent entity. Today, PayPal owns brands like Braintree, Venmo, Xoom, and iZettle. Today, PayPal is mostly owned by institutional investors like The Vanguard Group (8.4%) and Blackrock (6.7%)
Aspect
Description
Analysis
Examples
Products and Services
PayPal is a digital payments platform that offers a range of financial services. Its core offerings include online payment processing, money transfers, and digital wallet services. PayPal also provides solutions for businesses, including payment processing, invoicing, and merchant services. Additionally, the company has expanded into peer-to-peer payments, online shopping protection, and cryptocurrency services.
PayPal’s primary products and services center around facilitating online payments, money transfers, and digital wallet capabilities. These services cater to both individuals and businesses, enabling secure and convenient financial transactions. PayPal has diversified its offerings with business solutions, peer-to-peer payments (Venmo), online shopping protection (PayPal Buyer Protection), and cryptocurrency services (buying, selling, and holding cryptocurrencies).
PayPal generates revenue through various channels, primarily transaction fees from online payments and money transfers. The company charges fees to businesses for using its payment processing and merchant services. Additionally, PayPal earns interest income from customer balances held in digital wallets and generates revenue from currency conversion fees.
Revenue sources encompass transaction fees from online payments and money transfers, fees charged to businesses for payment processing and merchant services, interest income from customer balances in digital wallets, and currency conversion fees. Diverse revenue streams contribute to PayPal’s financial stability.
Revenue from transaction fees (e.g., online payments, money transfers), fees for payment processing and merchant services, interest income from customer balances in digital wallets, currency conversion fees.
Customer Segments
PayPal serves a broad customer base, including individual consumers, online shoppers, freelancers, small businesses, e-commerce platforms, and larger enterprises. The company’s services cater to various industries and sectors, offering secure and convenient payment solutions. PayPal aims to empower users with digital financial tools.
PayPal’s customer segments encompass individual consumers seeking secure online payments, online shoppers making purchases from e-commerce websites, freelancers receiving payments for services, small businesses utilizing payment processing and merchant services, e-commerce platforms facilitating transactions, and larger enterprises with diverse payment needs. The company’s services target various industries and sectors, providing secure and convenient payment solutions. PayPal’s mission is to empower individuals and businesses with digital financial tools.
Individual consumers (e.g., online shoppers, freelancers), online shoppers making purchases, freelancers receiving payments for services, small businesses utilizing payment processing and merchant services, e-commerce platforms facilitating transactions, larger enterprises with diverse payment needs, PayPal’s mission to empower individuals and businesses with digital financial tools.
Distribution Channels
PayPal primarily distributes its services through its website and mobile app, where users can create accounts, link bank accounts or credit cards, and make transactions. The platform is accessible on various devices, including smartphones and computers. PayPal also partners with online merchants to offer its payment services as a checkout option during online shopping.
Distribution channels focus on PayPal’s website and mobile app, enabling users to create accounts, link their financial instruments, and conduct transactions. Accessibility extends to various devices, including smartphones and computers. The company collaborates with online merchants to integrate PayPal as a payment option during the checkout process, making it convenient for users to pay for goods and services.
Distribution through PayPal’s website and mobile app for account management and transactions, accessibility on smartphones and computers, partnerships with online merchants to offer PayPal as a payment option during online shopping checkout.
Key Partnerships
PayPal collaborates with various partners to enhance its offerings. These partnerships include online merchants and e-commerce platforms that integrate PayPal as a payment option, banks and financial institutions to facilitate money transfers, payment processors for transaction processing, and technology companies for innovations and integrations. Additionally, PayPal has formed partnerships in the cryptocurrency space to enable cryptocurrency transactions.
Collaborations with online merchants and e-commerce platforms enhance user convenience by offering PayPal as a payment option. Partnerships with banks and financial institutions facilitate money transfers and provide access to customer accounts. Payment processor partnerships enable secure transaction processing. Collaborations with technology companies foster innovations and integrations to enhance PayPal’s services. Partnerships in the cryptocurrency space enable users to buy, sell, and hold cryptocurrencies through the platform.
Collaborations with online merchants and e-commerce platforms for convenient payment options, partnerships with banks and financial institutions for money transfers and account access, collaborations with payment processors for secure transaction processing, partnerships with technology companies for innovations and integrations, collaborations in the cryptocurrency space for cryptocurrency transactions.
Key Resources
PayPal’s key resources include its digital payments platform, a vast user base, a network of online merchants and businesses, partnerships with banks and financial institutions, payment processing technology, a mobile app and website infrastructure, customer accounts and balances, a strong brand identity associated with security and trust, and technological capabilities for innovations.
The digital payments platform forms the core resource, enabling secure and convenient financial transactions. A vast user base contributes to the platform’s network effect. Partnerships with online merchants and businesses enrich the ecosystem. Collaborations with banks and financial institutions facilitate money transfers. Payment processing technology ensures secure and efficient transactions. The mobile app and website infrastructure support user access and transactions. Customer accounts and balances provide liquidity. A strong brand identity fosters trust and loyalty. Technological capabilities drive innovations and enhancements.
Digital payments platform for secure and convenient transactions, vast user base contributing to the network effect, partnerships with online merchants and businesses enriching the ecosystem, collaborations with banks and financial institutions for money transfers, payment processing technology ensuring secure and efficient transactions, mobile app and website infrastructure supporting user access and transactions, customer accounts and balances providing liquidity, strong brand identity associated with security and trust, technological capabilities for innovations and enhancements.
Cost Structure
PayPal incurs costs related to payment processing, transaction fees, customer support and dispute resolution, marketing and advertising expenses to attract and retain users, employee salaries and benefits for a diverse workforce, technology infrastructure maintenance, research and development (R&D) for platform enhancements and innovations, and potential compliance and regulatory costs.
Costs related to payment processing include transaction fees and expenses associated with the movement of funds. Customer support and dispute resolution expenses are essential for maintaining user satisfaction. Marketing and advertising efforts are crucial for user acquisition and retention. Employee salaries and benefits cover various roles, including customer support, software development, and operations. Technology infrastructure maintenance ensures platform reliability. R&D investments drive platform enhancements and innovations. Compliance and regulatory costs may arise to meet financial industry requirements.
Costs related to payment processing (e.g., transaction fees), customer support and dispute resolution expenses, marketing and advertising expenses for user acquisition and retention, employee salaries and benefits (e.g., customer support, software development, operations), technology infrastructure maintenance for platform reliability, research and development (R&D) investments for platform enhancements and innovations, potential compliance and regulatory costs to meet industry requirements.
Competitive Advantage
PayPal’s competitive advantage lies in its user-friendly digital payments platform, a vast and engaged user base, a network effect that attracts both individual consumers and businesses, a strong brand identity associated with security and trust, partnerships with online merchants and banks for convenience and accessibility, payment processing technology that ensures secure and efficient transactions, and continuous innovation
A user-friendly digital payments platform ensures accessibility and ease of use. A vast and engaged user base contributes to the network effect, attracting both consumers and businesses. A strong brand identity fosters trust and loyalty among users. Partnerships with online merchants and banks enhance convenience and accessibility. Payment processing technology ensures secure and efficient transactions. Continuous innovation in financial services keeps PayPal competitive and adaptable to evolving market trends. The platform’s diverse offerings cater to various financial needs, positioning it as a prominent player in the digital payments industry.
User-friendly digital payments platform for accessibility and ease of use, vast and engaged user base contributing to the network effect, strong brand identity fostering trust and loyalty, partnerships with online merchants and banks for convenience and accessibility, payment processing technology ensuring secure and efficient transactions, continuous innovation in financial services for adaptability to market trends, diverse offerings catering to various financial needs, positioning PayPal as a prominent player in the digital payments industry.
Today PayPal has become an empire in the fintech space.
Top institutional investors comprise mutual funds, like The Vanguard Group, owning 8.01% of PayPal. And BlackRock, owning 6.5$ of PayPal. PayPal’s top individual shareholders in 2022 comprise people like Daniel Schulman, John Rainey, Mark Britto, Lousie Pentald, and Jonathan Auerbach.
The spin-off from eBay
The official spin-off of PayPal from eBay, as announced on eBay’s website (Source: eBay News).
In the distribution, eBay Inc. stockholders will receive one share of PayPal common stock for each share of eBay Inc. common stock held as of the close of business on July 8, 2015, the record date for the distribution. Subject to the satisfaction of the conditions to the distribution, the distribution of PayPal common stock is expected to occur on July 17, 2015. PayPal will not issue fractional shares of its common stock in the distribution. Immediately following the distribution, PayPal will be an independent, publicly traded company and will be listed on the NASDAQ Stock Market under the ticker “PYPL.” eBay will continue to trade on the NASDAQ Stock Market under the ticker “EBAY.”
eBay’s core business is a platform business model that makes money from transaction fees through its marketplaces. In short, eBay primarily makes money by charging fees on successfully closed transactions. For instance, in 2021, on an $87 billion worth of gross merchandise value sold on eBay, the company generated $9.77 billion in transaction revenues at an 11.19% take rate (fee).
Interestingly, over time, PayPal was born as a side feature within eBay, and after it, was purchased by eBay, PayPal became more valuable than eBay.
In September 2022, PayPal had a market cap of over $100 billion, whereas eBay had a market cap of over $20 billion.
PayPal makes money primarily by processing customer transactions on the Payments Platform and other value-added services. Thus, the revenue streams are divided into transaction revenues based on the volume of activity or total payments volume—and value-added services, such as interest and fees earned on loans and interest receivable. In 2023, PayPal generated nearly $30 billion in revenues and $4.24 billion in net profits.
This is PayPal’s board of directors in 2022:
Below is the compensation mix as per PayPal’s financials:
History of PayPal
The story of PayPal is so interesting for a few reasons that we can summarize below.
The story of PayPal has so many events that seem improbable.
Two startups (Confinity and X.com) were two startups operating in the internet payment industry. Yet, while they were neighbors, they also recognized how different was each other’s vision.
Confinity had started to build a valuable company by looking at a narrow application (enabling payments through the PalmPilot).
Those two companies not only had a fundamentally different visions.
They also had different philosophies regarding the underlying technological infrastructure they had developed (X.com leveraged the Microsoft stack, whereas Confinity leveraged Linux, an open-source software).
Eventually, those two companies ended up merging to become one, PayPal.
While both companies had some grandiose visions, the market also turned out in a direction none had foreseen.
Enabling email payments which were supposed to be a “side feature,” became the killer commercial application for both companies.
They also figured that their tools had become extremely relevant on eBay. This triggered an irreversible journey. Where both startups understood the path to growth, leveraged on virality to get there, and eventually decided to merge to tackle the market.
During this process, a new business playbook has been developed.
Today we give for granted, but it didn’t exist at the time.
That is why PayPal’s history is so instrumental to the commercial Internet.
The founding members of PayPal would go on to build many other valuable companies and found the next wave of the Internet, what we now call Web 2.0 or Web2.
PayPal was first founded in 1998; it was called Confinity (among its founders was Peter Thiel); later, it merged with X.com, its major competitor, founded by Elon Musk (which would become known for other companies like Tesla and SpaceX). From this merger, PayPal was born. In 2002, PayPal was bought by eBay for $1.5 billion. eBay spun off PayPal in 2015, which would be listed as an independent entity. Today, PayPal owns brands like Braintree, Venmo, Xoom, and iZettle. Today, PayPal is mostly owned by institutional investors like The Vanguard Group (8.4%) and Blackrock (6.7%)
PayPal makes money primarily by processing customer transactions on the Payments Platform and other value-added services. Thus, the revenue streams are divided into transaction revenues based on the volume of activity or total payments volume—and value-added services, such as interest and fees earned on loans and interest receivable. In 2023, PayPal generated nearly $30 billion in revenues and $4.24 billion in net profits.
PayPal is a two-sided marketplace which collects a transaction fee for each payment that happens via the platform. PayPal’s flywheel is based on creating a stronger and stronger network, where the company provides a suite of services to merchants, and consumers are given affordable digital payment solutions. In 2022, PayPal processed over $1.35 trillion in global payments.
PayPal processed $1.53 trillion in payment volume in 2023, $1.36 trillion in payment volume in 2022, and $1.25 trillion in 2021—a growth of 12.5% year over year. In 2020, PayPal passed a trillion-dollar in payment volume, with $936 billion processed via the platform.
In 2023, PayPal generated nearly $30 billion in revenue compared to over $4.24 billion in profits. Compared to over $27.52 billion in revenue and over $2.42 billion in revenue in 2022.
In 2023, of nearly $30 billion in revenue, nearly $27 billion came from transaction revenues. Thus, transaction revenue represented over 90% of total revenue, while revenues from other value-added services (primarily comprising revenue earned through partnerships, interest and fees from merchants and consumer credit products, interest earned on certain assets underlying customer balances, referral fees, subscription fees, and gateway services) were over $2.91 billion, representing about 9% of PayPal’s total revenue.
PayPal had 426 million active accounts in 2023, a 2% slowdown compared to 435 million active accounts (users) in 2022, back to the 2021 level, when PayPal had 426 million active accounts.
The PayPal transaction per active account/user is a critical metric to measure the level of usage of PayPal. In 2023, the transaction per active account grew to 58.7, compared to 51.4 in 2022 and 45.4 in 2021. Thus, each active account has performed (on average) nearly 59 transactions via PayPal in 2023.
The PayPal Mafia describes a group of former PayPal employees and founders who have since become involved with other tech companies. While most know SpaceX founder Elon Musk’s association with PayPal, the company also has links with YouTube, LinkedIn, and Yelp, among many others. In addition to founding these generation-defining companies, the members of the PayPal Mafia are some of the richest men in Silicon Valley.
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.
Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
Braintree
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.
E-Trade is a trading platform, allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts, acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and through other fees and service charges.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financialmodel to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.
Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market, founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015. All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England. The company enjoys many revenue streams: business and consumer subscriptions, interchange and overdraft fees, personal loans, and more.
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.
Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.
Revolut an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earn interests from customer cash and stocks, and rebates from market makers and trading venues.
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.
Squarespace is a North American hosting and website building company. Founded in 2004 by college student Anthony Casalena as a blog hosting service, it grew to become among the most successful website building companies. The company mostly makes money via its subscription plans. It also makes money via customizations on top of its subscription plans. And in part also as transaction fees for the website where it processes the sales.
Stash is a FinTech platform offering a suite of financial tools for young investors, coupled with personalized investment advice and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cashmanagement products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services, free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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