Happy Weekend! Payments Weekender is a collection of our favourite digital media news of the week from BI Intelligence, Business Insider’s paid research service.
A FINAL LOOK AT PAYPAL AS PART OF EBAY: PayPal will officially spin off from parent-company eBay beginning July 20, and a number of factors indicate that it will perform strongly as a stand-alone company, according to yesterday’s report of eBay’s earnings. But there’s also some cause for concern. First, let’s look at the numbers.
- Volume is growing faster than US e-commerce: PayPal’s total payment volume (TPV) grew 19.8% (28% FX-neutral) quarter-over-quarter to $US66 billion. US e-commerce has been growing around 14.7% per quarter for the year ending in Q1 2015.
- PayPal’s off-eBay business is growing even faster: Payments processed for third-party merchants grew 27.4% to $US51.5 billion, compared with 35.4% a year earlier.
- Volume on eBay is actually holding PayPal’s growth rate back: Payments processed for purchases made on eBay’s marketplace shrank 1.2% to $US14.5 billion, compared with a 9% increase a year earlier.
- eBay only accounts for about one-fifth of PayPal’s volume: Payments volume on eBay shrank as a percentage of TPV, from 27% in Q2 2014 to 22% in Q2 2015.
Here’s what PayPal has to look forward to as a stand-alone company:
- A move into in-store commerce: Digital payments in stores are become increasingly more common. And at $US300 billion in sales, e-commerce in the US accounts for just over 6% of total retail sales, meaning the in-store opportunity is significantly greater. PayPal is actively pursuing this opportunity, most recently with its acquisition of white-label mobile wallet provider Paydiant. Paydiant already boasts clients with a huge retail footprint, including Subway and the merchant consortium behind MCX.
- Increased influence in digital remittances. There’s $US34 billion in revenue from international remittances — payments sent by foreign workers to their relatives back home — at stake as digital makes this market more accessible to new entrants. PayPal recently made it clear that it’s going to pursue this market aggressively through its acquisition of digital remittance company Xoom.
- Expansion in mobile commerce: PayPal admittedly dropped the ball on mobile, but the company has redefined itself thanks to the acquisition of Braintree in late 2013. Braintree, which is prides itself on its mobile-first strategy, has been able to consistently win clients for PayPal including some of the hottest mobile startups, like Uber and OpenTable. Mobile commerce reached $US31.5 billion in the US, or 10.5% of e-commerce, in 2014.
But PayPal could face trouble for these reasons:
- Increased competition in e-commerce and mobile commerce: Visa, American Express, and Amazon have already released ‘buy buttons’ that customers can use to pay for goods offered on third-party sites where PayPal has historically been strong. PayPal will face hurdles with the launch of Apple Pay and forthcoming launch of Android Pay on mobile. These features, which will come preloaded on smartphones, serve the same function as PayPal and may be easier to use.
- High barriers to entry in stores: Paydiant’s biggest value to brick-and-mortar retailers is that it makes loyalty and marketing through mobile easy. But Apple and Google plan to push their own commerce ecosystem for in-store retailers as well. And since they are a step ahead in terms of in-store payments apps, it’s going to be hard for PayPal to compete.
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PEERTRANSFER OPENING HUB IN CHINA: peerTransfer, a cross-border money transfer company focused on tuition payments, is launching an affiliate in Shanghai called PingFuFei Commercial Consultancy Limited Company that will help peerTransfer develop closer ties to its customers in China. peerTransfer helps international students’ families pay their children’s tuition at colleges in North America, Europe and Australia. peerTransfer is primarily competing against bank wire transfers, undercutting their processing and foreign exchange fees.
peerTransfer is sharpening its focus on China because it is the largest source of international students in the US. Twenty-eight per cent of international students in the US come from China, according to the company.
peerTransfer markets to the international student segment because they represent a lucrative demographic. Families of international students studying abroad at colleges in the US are usually relatively wealthy. That’s because it’s extremely expensive to go to college in the US and most international families don’t receive any financial aid. The wealthy are also more likely to own a smartphone or computer, which are the only platforms peerTransfer supports.
To gain access to these families, peerTransfer partners with hundreds of colleges to advertise their services. By using universities’ international student departments as distribution channels, peerTransfer has a captive audience that it can market to.
TRANSFAST DEPLOYS BANK DEPOSIT NETWORK IN AFRICA: Transfast, the digital-focused remittance company, has extended its bank deposit network to allow people in the US and Canada to send funds to friends and family members’ bank accounts in 23 more African countries. Transfast has partnered with 600 banks representing 6,000 branch locations to allow senders to directly deposit funds into a recipient’s bank account. The new network covers 90% of adult bank account holders in the 23 countries, according to Transfast’s press release. Senders can also choose to send funds for cash pick up, or they can deposit money into the receiver’s M-PESA mobile money account. Transfast senders can only move funds using a computer or mobile phone.
Transfast is serving both the banked and the unbanked with its diversified receive options. Receive-side markets are fragmented, with concentrations of banked and unbanked consumers. By allowing for mobile money, bank deposits, and cash pick-up, Transfast will be able to serve anyone in those countries.
ZESTFINANCE SERVING NEAR-PRIME BORROWERS: ZestFinance, the US-based big data company, has launched an online loan product called Basix that provides loans to an underserved segment — US near-prime borrowers. Near-prime borrowers have credit scores that are just below 660, meaning they still have fairly strong financial histories but are often cut out of the traditional lending market because they are deemed too risky by banks.
Basix will offer loans ranging from $US3,000 to $US5,000 on three year terms, carrying interest rates between 26% and 36%. The service will first be rolled out for borrowers in Alabama, Georgia, Missouri, New Mexico, South Dakota and Utah. Basix will report a borrower’s payment history to traditional credit scorers, in the hopes that the borrowers’ credit scores will improve and lift them into the “prime” category. To help them make payments on time, ZestFinance is giving borrower’s a 15 day grace period.
ZestFinance’s near-prime credit scoring technology could make it an appropriate fit for China’s market. The vast majority of China’s citizens don’t own a credit card card and therefore don’t have a traditional credit score. ZestFinance’s scoring methodology, which uses unique data points outside of a credit score, could help these non-traditional borrowers receive real-time loans. In fact, ZestFinance already runs e-commerce marketplace JD.com’s new loan instalment program in China.
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