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Check-out is called the “last few feet” of e-commerce. Good reason: Online retailers have long struggled with shoppers dumping their carts while checking out. The longer you pay, the more likely your shopper will be to change your mind.
PayPal was one of the first to address the issue with the introduction of a “button” that can be installed on merchant websites for quick one click payments. After that, the checkout button became a large company. PayPal’s “brand checkout” unit accounts for around 30% of payments, but generates around 80% of net transaction profits. This is, according to Mizho, a proxy for gross profit.
That set the Button War scene. New startups like Apple, Google, Shopify and Bolt are all muscular. The PayPal checkout button losing ground to rivals has helped cause a 13% slide in the payment group’s stock price since it published its results on February 4th.
PayPal’s transaction payments in branded businesses increased by 6% last year. The global e-commerce boom, step-ups in marketing spending, and deployment of new checkout solutions have not been able to accelerate the growth of the department.
The problem with PayPal is that e-commerce on mobile devices favors Apple using iPhone. Both PayPal users and those who choose to click or tap their phones tend to be younger.
At the same time, Shopify, a Canadian company that helps small businesses build and maintain online shops, is pinching Paypal’s heels with Shop Pay. This one-click checkout allows users to pay in installments and track orders after purchase. We processed $27 billion in goods volume in the fourth quarter. This is a 50% jump from the previous year.
PayPal’s brand checkout business processed approximately $131 billion in payments in the last quarter, but it could grow. However, Shopify’s fierce pace of growth has earned a massive premium among investors. The stock trades with 81x advance revenue. Since 2021, PayPal has reduced its value by 75%, and is a multiple of 15 times.
One source of help could be an internal diversity merger. PayPal allows you to bring together the peer-to-peer payment app Venmo into your brand business. Venmo is widely used by US millennials and Gen Z, but competes with the free bank-backed service Zelle. And the goal of PayPal’s press is to get a bigger slice of mobile e-commerce by getting on more young people’s phones. Buckle up – or risk button down.
pan.yuk@ft.com
