Paypal's competitive assessment as an alternate payment mechanism by Sutherland Global Services

Paypal's competitive assessment as an alternate payment mechanism

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PayPal had around 1.1% global payments market share in 2012 Company Overview • PayPal provides online payment solutions for individuals and businesses worldwide – PayPal was formerly known as X.com Corp. and changed its name to PayPal in March 2000 – As of October 3, 2002, PayPal operates as a subsidiary of eBay • PayPal also offers products and services, such as integration centre, recurring payments, request money, multi-user access, reports, and invoicing • PayPal is made up of three online payment services – The PayPal global payment service – The Payflow Gateway – Bill Me Later • PayPal enables users to send and receive payments online across various locations, currencies, and languages through various mediums – The Company has 123 million active registered accounts in 190 markets and supports payments in 25 currencies • PayPal had ~1.1% global payments market share in 2012 and is expected to reach 2.8% in 2022 • In 2012, PayPal revenues represented 40% of eBay Inc. revenues • PayPal’s net total payment volume (total transaction) increased by 22% y-o-y to reach at $145 billion in 2012 – The company processed $14 billion in mobile payment volume in 2012 and expects to process $20 billion in 2013

Financial Highlights (FY 2012) Revenue $Mn

$5.6 Bn

YoY Growth (%)

27%

Active Registered Accounts (2008-12) (Million) 140

23%

25%

120 15%

100

17% 13%

15%

10%

40 20

20%

5% 70.4

81.0

94.4

106.3

122.7

2008

2009

2010

2011

2012

Active Registered Accounts

Y-o-Y Growth

Source: eBay Analyst Report, Company website, SGS secondary research

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PayPal facilitates online and offline payment and money transfers globally Product/Service Categories

Description

PayPal

Key Competitors

Online Payment

Shop and pay online

PayPal personal accounts

MasterCard, Visa, American Express and ACH

Money Transfer

Send-receive money (domestic/cross-border)

PayPal Personal Accounts

MoneyGram, Western Union, Global Payments, Inc. and Euronet

P2P Online Transfer

Person-to-person money transfer over the internet

PayPal Personal Accounts

Fiserv's Popmoney and clearXchange

P2P Mobile Transfer

Person-to-person money transfer from mobile

PayPal Mobile

ISIS in the U.S, Buyster in France and Mpass in Germany,

Online Payment Gateway

Payment processing platform on merchant’s website

PayPal – Invoice PayPal – Website Payments Standard PayPal – Express Checkout PayPal – Micropayments

Authorize.Net , Google Checkout, Braintree and WePay

Mobile Payment Gateway

Payment processing platform for mobile

PayPal – Mobile Website Payments Standard PayPal – Mobile Express Checkout Library PayPal – Mobile Express Checkout (API) PayPal - Micropayments

CyberSource and Authorize.net (both owned by Visa), Braintree and First Data

eBay Payments

Pay/receive payments on eBay Platform

Source: Company website, 2012 eBay Annual Reports

* Not Applicable

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PayPal also offers allied services such as prepaid cards Product/Service Categories

Description

PayPal

Key Competitors

In-store Payment

Payment at POS

PayPal – mobile or payment card

MasterCard, Visa, Amex cards

Mobile Card Reader

A card reader that plugs into mobile phone via the headset jack of the mobile handset

PayPal Here

Square

Credit Facility

Bill Me Later lets customer buy now and pay later

Bill Me Later

Credex

Cards

Debit, Credit and Prepaid cards for both online and offline payments

PayPal Extras MasterCard PayPal Debit Card PayPal My Cash Card,

MasterCard, Visa, American Express

Reporting Tools

PayPal's provides reports and search tools to help with payment reconciliation, forecasting and order tracking

PayPal's Reporting Tools

–

Subscriptions and Recurring Payment

It is a low-cost way to accept credit card and bank account payments for content site subscriptions, newsletter fees, club dues, or recurring donations. It can be integrated with merchant’s website

PayPal - Subscriptions

–

Source: Company website, 2012 eBay Annual Reports

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PayPal targets retailers, where the foothold of smarthphone users and youths are high Company Name

PayPal

In-Store Payments

VISA

MasterCard

Products Name

USP

Target Customer

PayPal point-ofsale (POS)

• Lower fees • Payment without exposing personal financial information for financial security • PayPal technology can be integrated into POS systems, alleviating the need to replace existing hardware in-store

Retailers with more youth oriented, mobile-engaged buyers who use social networks to create

–

• The payment requires no signature to check or PIN to enter enables quicker bill payment

• Busy merchant outlets with high volumes where speed of service is essential • Example cafes, fast food outlets, entertainment venues, convenience stores, petrol stations

In 2012, 37 million Visa payWaveenabled credit, debit and prepaid cards were in circulation across Europe

Visa payWave

PayPass

• Smooth and quick contactless payments

• Merchants with no previous experience in accepting credit or debit cards

Total Customers

At the end of 2012, 700,000 merchants were accepting PayPass worldwide

Sutherland Research and Analysis

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All payment provides have adopted mobile transfers to provide frictionless payment option Company Name

Products Name

PayPal

• P2P • P2P App – ‘Send Money’ for Facebook users

•

Personal Payments Mobile

•

VISA

Mobile Transfers

USP

• •

MasterCard

MoneySend

Target Customer

Mobile transfer by mobile number NFC – Tap and Pay

•

Majorly targeting consumer-to-consumer (C2C) market Financial Institutions Facebook users

Financial institutions and payment service providers The consumers with web-enabled mobile phone or access to the internet MasterCard is targeting financially underserved mobile-phone users in emerging markets in Asia, Africa, Eastern Europe and South America.

Total Customers

–

Sutherland Research and Analysis

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There is very little differentiation among the P2P online payment products Company Name

Product Name

USP

PayPal

PayPal's Send Money

•

VISA

Online Transfers

Personal Payments

•

MasterCard

Target Customer PayPal's Send Money for Financial Institutions allows funds to be sent to people in more than 60 countries with email addresses

•

The Personal Payments is available to Visa’s 200 million consumers through 74 financial institutions in 18 countries Approximately 90% of transactions are conducted online or through self-service kiosks

•

Financial Institutions –

•

MoneySend

Demographics

Financial institutions and payment service providers The consumers with access to the internet

Small businesses

MasterCard MoneySend, sends money to the recipients in 24 to 48 hours

–

Consumers who require easy payment of service

Sutherland Research and Analysis

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PayPal perceived as the most preferred digital wallet service provider after banks in US Current/Checking Account Banks Preferred as Digital Wallet Providers* Percentage of Respondents 25

Rating 7

Extremely safe and secure

21 20 15

17 5.5

4.7

5.0

5.3 4.9

4.4

4.5

4.2

5.1 3.2

8 6

4 3

Microsoft

My mobile network operator (MNO)

2 1

1 Current checking account bank

PayPal

Apple

Visa

Most interested in using provider's digital wallet

Credit card issuer

Google

MasterCard

Facebook

Not at all safe and secure

Safe and secure as the provider and manager of your digital wallet mean rating

Comments â&#x20AC;˘ â&#x20AC;˘

17% of US online consumers prefer to use PayPal for digital wallet services Credit cards provider MasterCard and Visa accounts for the relatively low percentage of respondents as US consumers are reducing their reliance on credit cards provider for preferred payment service provider

Source: Gartner (April 2012)

* Plots the perceptions of U.S. online consumers of the security of providers (right-hand scale) and their level of interest in using the providers' digital wallet solutions (left-hand scale).

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PayPal’s total payment volume from cross-border payment to reach $40 billion by 2014 Cross-border TPV on track to reach $40 billion by 2013

Key Observations • PayPal cross border represents 25% of the PayPal business and the company expects that cross border will represent more than $40bln in Total Payment Volume by 2013 • PayPal has around 117 million card under circulation, it may become the next big network

$14B

$17B

$22B

$40-45B

2008

2009

2010

2013E

0 Source: Company Presentation

U.S. General Purpose Cards - Data through 3Q 2012 Visa

MasterCard

Amex

Discover

PayPal

Category

3Q12

Chg.

3Q12

Chg.

3Q12

Chg.

3Q12

Chg.

3Q12

Chg.

Card (million)

682.0

4.1%

313.0

3.0%

52.0

2.8%

61.5

4.7%

117.4

14.0%

30.4

‐0.1%

13.0

11.1%

2.0

13.3%

1.4

7.2%

1.7

30.0%

1,540.1

1.9%

725.6

9.6%

432.7

9.6%

90.6

5.7%

103.5

21.0%

102.0

8.0%

59.2

9.4%

Transactions (billion) Total Volume ($ billion) Outstandings (billion)

Note: This Data is for the first 9 months of 2012 and includes data for all consumer and commercial credit, debit, and prepaid cards Source: Nilson Report; SFG Research

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PayPal Growth Strategies (1/2) Mobile Payments • In 2010, PayPal introduced Mobile Express Checkout • It continues to add functionalities of PayPal mobile apps, such as PayPal Local feature, which helps to locate merchants offering deals

PayPal Merchant Services • PayPal intend to continue to market its global payments solution in geographies where it is already present and to add geographies to spur its growth as a payment solution off of eBay.com for sole proprietors and small, medium and large businesses • Merchant service business accounts for around 65-70% of PayPal’s net total volume. PayPal has significantly broadened its product/services portfolio to attract merchant business

Marketplaces • PayPal’s services are integrated into the checkout flow of the eBay.com platform in our key markets, including the U.S., Germany, the U.K. and Canada • Its Marketplaces platforms are accessible through a traditional online experience and from mobile devices

Bill Me Later • PayPal is aiming to capitalize synergies between Bill Me Later and PayPal • In 2010, PayPal and Bill Me Later sales team were combined to offer bundled product to merchants

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PayPal Growth Strategies (2/2) Payments Financial Products • PayPal continues to identify under-penetrated transactions and markets by existing payment systems and seeks to developed new products • It also aims to expand the breadth of PayPal’s product/services available to its account holders • The financial products of PayPal include: • PayPal ATM/Debit Card/Prepaid card, which enables business users to withdraw funds from their PayPal accounts at ATMs, pay for offline purchases with funds from their PayPal account, and in the U.S. qualify to receive cash back on eligible purchases; • PayPal Plus Credit Card and eBay MasterCard issued by GE Money Bank, which allow users to earn rewards on purchases made offline or using PayPal, as well as a PayPal Credit Card offered to U.K. users through Santander; • PayPal Student Account, which enables parents to electronically transfer money to an account their children can access for use online and offline via the Student Card; and • PayPal Money Market Fund, which allows participants to earn a yield on the funds in their PayPal accounts through a money market portfolio managed by BlackRock Fund Advisors • PayPal Access Card

Point-of-sales terminals • PayPal continues to identify under-penetrated transactions and markets by existing payment systems and seeks to developed new products • Users will be able to access their PayPal accounts through a PayPal Access Card, their mobile phone number and personal identification number (PIN), or a Near Field Communication-enabled device depending on what the retailer offers. This initiative is an important part of PayPal's strategy to provide a comprehensive payment solution for retailers both online and offline

PayPal Developer Platform • In 2009, it launched PayPal Developer Platform to enable third party developers to access a wide variety of PayPal products and programming code specifications • Since the launch of PayPal's platform, 50,000 new developers have joined and more than 1,000 apps have been built • It allows easy access for third-party developers wishing to embed PayPal functionality in their customer-facing applications

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PayPalâ&#x20AC;&#x2122;s Strategies against Visa and MasterCard

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Mobile Payment Adoption at “Brick-and-Mortar” Retailers

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PayPal has been transforming itself as a leading mobile payment provider, m-payments account 10% of its total TPV Mobile Payment as a % of Total Payment Volume

PayPalâ&#x20AC;&#x2122;s Mobile Total Payment Volume - TPV (US$ Million) 464%

25,000

432%

500%

433%

12%

11.10%

20,000 20,000 15,000

14,500

257%

10,000

263% 38%

4,000

5,000 25

141

750

2008

2009

2010

0 2011

2012

10.00%

400%

10%

300%

200%

100%

2013E

3.40%

0.04%

0.19%

2008

2009

0.80%

0% Mobile TPV

Y/Y Growth

Source: SFG Research

2010

2011

2012

2013E

Source: SFG Research

Ecommerce and brick-and-mortar commerce is merging Yesterday

Today

Online 4%

Online 6%

Offline 96%

Tomorrow Webinfluenced offline 37%

Online + Offline

Offline 57%

2008 = $325B

2013 = $10T

Source: Company Presentation

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With PayPal Here card-reader, PayPal is competing with traditional POS manufacturers PayPal Here’s rates are cheaper than competitors like Square and Intuit Go payment solutions Square* Rate for Swiped Card v. Keyed Transaction Transaction Size Discount /Transaction Rate Per Transaction Fee Merchant net proceeds on $100 Payment Processing Fees

PayPal Here

Intuit Go Payment*

Swiped

Keyed

Swiped

Keyed

Swiped

Keyed

$100

2.75%

3.50%

2.70%

3.50%

2.75%

3.75%

–

$0.15

–

$0.15

–

$97.25

$96.35

$97.30

$96.35

$97.25

$96.25

$2.75

$3.65

$2.70

$3.65

$2.75

$3.75

* Pay-as-you-go pricing ( does not factor in pricing with a monthly fee, which affects per swipe pricing) Source: Company Websites, SFG Research

Key Observations • PayPal, on one hand, forming alliance with POS manufacturers to get is payment enable on their POSs, but on the other hand, it is competing with these companies that offer POS tablet solutions to small businesses • PayPal Here is available in five markets, which includes retail distribution at AT&T stores in the U.S. As of 3Q12, PayPal Here already received upwards of 300,000 orders from small businesses

Source: SFG Research

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PayPal is gradually pushing its mobile payment platform globally In-store Geography Expansion Strategy United States • PayPal launched its new mobile wallet services in more than 2,000 Home Depot stores across the U.S in 2012 – This would help the consumers to pay for items at checkout via mobile device or a special PayPal card • In addition to mobile and point-of-sale payments, PayPal is launching geo-targeted mobile advertising campaigns, barcode scanning tools and realtime inventory data United Kingdom •

PayPal customers in the UK can now use their smartphones to pay for their shopping at four major high street retail stores: Coast, Oasis, Warehouse and Karen Millen – This service launched in 2012 is available in 230 stores and makes mobile shopping possible in the UK

Asia-Pacific • PayPal expanded in Asia-Pacific with the region's first payments service for smartphones – The company currently has six sales offices in Tokyo, Shanghai, Hong Kong, Taipei, Singapore and Sydney – It has development centers in India and Singapore and customer support centers in China and Malaysia

Europe • PayPal is planning to expand its mobile payment market share and features with an app-based payment trial at McDonald’s locations in France in 2012 – The company is currently testing a payment system in 30 McDonald’s locations in France

Brazil • PayPal announced a partnership with Brazilian mobile company Vivo for creating a messaging technology that works without Internet and allows customers to use PayPal on their phones to buy call minutes – PayPal is planning to expand the program, which will allow Vivo users to shop any of the 50,000 PayPal merchants in Brazil from their phone, without Internet

Source: Company website, SGS Research

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Adoption of PayPal’s in-store payment is gradually gaining ground

Product Name

Partners

Key Retailers

PayPal point-of-sale (POS)

POS hardware manufacturers: • VeriFone • Equinox POS software providers : • Leapset • ShopKeep • Vend • Erply Discover Financial Services

• • • • • • • • • • • • • • • • • • • • •

PayPal Here

Accepts payments from : • Visa • MasterCard • Discover • American Express

• Kara's Cupcakes Retailers selling PayPal Here device • AT&T • Softbank (Japan)

PayPal

Home Depot (2,000 locations) Abercrombie & Fitch Advance Auto Parts Aeropostale American Eagle Outfitters Barnes & Noble Foot Locker Guitar Center Jamba Juice JC Penney Nine West, Office Depot Rooms To Go Tiger Direct and Toys “R” Us McDonald’s RadioShack Dollar General McDonald’s Famous Footwear Mapco Express Spartan Stores Home Depot

Geographical Presence • • • • •

US Australia France UK Asia-Pacific – Tokyo – Shanghai – Hong Kong – Taipei – Singapore – Sydney • France • Brazil

• • • • • •

US Hong Kong Canada Australia Japan Europe

Source: Company Website, SGS Research

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Visa and MasterCard are pushing their NFC-enabled POS to select retailers across the globe

VISA

Mobile Transaction

Product Name

Partners

Key Retailers

PayWave

• • • • • •

• • • • • • •

Dearing Drive In Braum‘s McDonald‘s Dairy Queen Subway KFC Scotiabank

-NA-

• • • • •

US Asia Pacific Europe Australia Canada

• • • • • •

Amegy Bank Arvest Bank Barclaycard US BB&T Chase First Internet Bank of Indiana INOVA FCU PNC Bank SunTrust Wells Fargo Zions Bank ANZ Bank

• • • • • • • • • • • • • • • •

Viseca Card Service SA Westpac Bank of America Banca Intesa Beograd Fifth Third Bank JPMorgan Chase Citibank HSBC Bank USA Washington Mutual Commonwealth Bank Garanti Bank Capital One Shinhan Bank Takarék Bank Lloyds TSB Alfa-Bank

• • • • •

Marks and Spencer McDonalds Post Office Greggs Timpson

-NA-

• • • • • • • • • • •

US UK Australia Europe Serbia Turkey Philippines Canada Malaysia Poland Russia

SmartPass (Mobile NFC App)

PayPass

MasterCard

Geographical Presence

Source: Company Website, SGS Research

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