Paypal opens its ecosystem to Apple payments

PayPal and Apple have reached an agreement to begin accepting each other's payment products within their separate ecosystems. A marriage of convenience that illustrates a fallback strategy in a more difficult economic environment.

FACTS

• PayPal will accept Apple's payment products in its ecosystem:

  • Offering the popular Apple Tap to Pay on iPhone to PayPal and Venmo apps.

  • It will also add Apple Pay as a payment option on its own merchant platform, PayPal Commerce Platform.

• Starting next year, US customers will be able to add PayPal and Venmo branded credit and debit cards to Apple Wallet and use them anywhere Apple Pay is accepted.

•  For now, these features will only be available in the US from 2023.

CHALLENGES

• Compensating for the economic downturn: Digital payments pioneer PayPal is adapting to the e-commerce downturn and preparing for a potential recession, in part by aligning itself with high-profile partners, including technology giant Apple and marketplace giant Amazon. The company is counting on increased ties with Amazon and Apple to boost the volume of consumer transactions flowing through its digital payment system. The new partnership with Apple Pay gives it access to the technology company's huge user base, which is expected to reach 48.7 million next year.

• A reasonable alliance: For PayPal, and its subsidiary Venmo, the objective is to rely on the service offered by Apple to offer businesses and merchants new ways to receive their payments. Given the current competition on the payment terminal market, Apple is relying on partnerships to try to take market share from its competitors such as Square or Sumup, which are already well established among merchants. For its part, Paypal, which aims to broaden the uses of its Venmo digital wallet so that it becomes a truly essential means of payment for physical payment as well, needs to enrich its offer around Tapu to Pay to remain competitive.

• A service under regulatory control: Although Apple Pay seems to be a very efficient mobile payment service and is of interest to many people, both consumers and merchants, it has often been in the sights of the authorities. The European Commission was already concerned about unfair competition from Apple Pay in 2019, and two years later opened an investigation, noting that the features linked to the NFC chip in iPhones were only linked to Apple Pay.

• MARKET PERSPECTIVE

• In October, Amazon added Venmo as a payment option for US customers ahead of the Black Friday sales.

• In its earnings report, PayPal announced revenue of $6.85 billion and 11% year-on-year growth. PayPal's customer base continued to grow in the third quarter, adding 2.9 million net new accounts, a 4% increase, compared to the same period last year.

• PayPal processed nearly $5 billion in BNPL volume in Q3, up 157% year-over-year. More than 25 million consumers use its BNPL product and more than 280,000 merchants display PayPal's BNPL offer on their product pages. CEO Dan Schulman said the company was "one of the largest purchase and post-payment providers in the world".

• PayPal generates a large volume of transactions and has a huge user base for Venmo and its BNPL offering. But neither of them are generating a profit. PayPal wants to cut Venmo's losses with more profitable services beyond P2P payments. And it can attract customers and make an initial profit for its BNPL product by adding features such as allowing users to choose the frequency and size of payments.