Pandemic Payment Habits Are Looking Sticky -- Heard on the Street
May 06 2021 - 6:29AM
Dow Jones News
By Telis Demos
After a blockbuster 2020, the biggest question mark surrounding
PayPal Holdings and other digital payment companies was whether
things would return to normal in 2021. So far, there is little sign
of that.
On Wednesday, PayPal said it is now expecting total payment
volume to grow by about 30% this year, up from its prior guidance
of the high-20% range. That means the company's volume growth would
keep pace with what it experienced during an explosion of digital
commerce during the pandemic. Last year's record volume growth rate
was 31%. PayPal is now predicting it will add as many as 55 million
net new active users in 2021, up from a previous forecast of 50
million.
Whatever happens to people's desire to spend in the months
ahead, it does seem like they will be doing it more digitally. For
one, debit cards' surge within digital wallets doesn't seem to be
slowing. Many consumers are doing more of their spending digitally
on everyday purchases like groceries or sundries, for which they
might have previously used cash or an old-fashioned card swipe to
pay instead of a digital wallet. People are also paying more often
with debit cards as their bank accounts are flush. According to
Visa's recent quarterly report, for the month of April through the
21st, U.S. debit-card volume was up 67% from a year earlier and
credit card volume was up 61%.
"We believe the shift in consumer digital behavior will remain
essentially unchanged in a post-Covid world," Chief Executive Dan
Schulman told analysts. He observed that physical cash spending is
"moving predominantly to debit, which obviously is also great from
a funding perspective."
For PayPal, debit cards are a cheaper funding source for
customers' payments via their PayPal wallets than credit cards.
PayPal's transaction expenses were at a record-low 0.8% of total
payment volume, helped both by more volume and that funding mix
shift. This is one factor driving expanding profitability even as
PayPal gets bigger and invests in many new features. PayPal's
adjusted operating margin was almost 28% in the first quarter, up
from about 25% in the fourth.
Other digital payment forms offered by PayPal also are
continuing to boom, like its buy now, pay later products including
"Pay in 4" in the U.S., used to split purchases into multiple
payments. PayPal handled more than $1 billion worth of those
payments globally in the first quarter, up 36% from the fourth.
Notably, the percentage of those payments made via debit cards also
grew to 82% from 78%. That translated into a 16% decline in
PayPal's cost-per-transaction for these payments.
PayPal's key in-store effort is also still progressing. It grew
from more than 600,000 merchants offering its QR codes in store to
nearly 1 million over the course of the quarter. The company said
that even in markets with some reopening, food and grocery--usually
a place where old-fashioned card swipes and cash are
pre-eminent--remained the fastest-growing year-over-year spending
category for PayPal.
This all gets to the potential stickiness of habits developed
during the pandemic. Even when people are back in stores or
restaurants, they now have far more opportunity to use a digital
wallet like PayPal. So even if in the future PayPal doesn't win as
often at the physical checkout counter as it does in the virtual
one, there has still been an expansion of its opportunities.
Investors have cooled slightly on PayPal, as they have lately on
many high-growth pandemic tech stocks. Its forward
price-to-earnings multiple has drifted back to around 50 times,
down from its peak of around 65 times earlier this year, according
to FactSet.
Certainly that doesn't make it a cheap stock. But from a
business standpoint, there is no reason for investors to expect
less today out of PayPal's future than they might have at any point
thus far.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
May 06, 2021 06:14 ET (10:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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