PayPal has managed a feat that few brands accomplish: establishing itself as a verb. “I’ll Venmo you” is now synonymous with paying someone. Venmo, PayPal’s peer-to-peer (P2P) payment product, has emerged as a popular and convenient mobile payment solution in the rapidly evolving world of digital payments. With its user-friendly interface and social sharing features, Venmo has gained significant traction among millennials and Gen Z users.
Thanks to its business-focused features and initiatives, Venmo is positioning itself as not just a P2P payment app but also as a viable payment solution for merchants. Venmo’s continued efforts to adapt to the needs of businesses help it provide efficient and convenient payment options, ultimately driving growth and strengthening its market position.
In recent months, PayPal (NASDAQ: PYPL) has become somewhat of a Wall Street darling, with major institutional investors doubling (or sometimes more) their holdings in the company. That trend was enough for me to take a closer look at what the company is doing in the payments space, particularly concerning its own darling—Venmo.
Venmo lets teens have legit accounts (heart hand emoji)
Earlier this year, Paypal launched a Venmo Teen Account, allowing parents to open accounts for their children aged 13 to 17, enabling teens to conveniently send and receive money through the Venmo app and obtain a Venmo Teen Debit Card. With an estimated 25 million potential new customers in this age group, PayPal aims to educate teens about money management using the Venmo app while providing parental oversight. Parents can monitor transactions, manage privacy settings and educate teens about responsible financial habits. And the Venmo Teen Account will likely cultivate future independent customers as its users age out and become eligible for standard accounts.
The company has estimated that before the new Teen Account was launched, 9 million teenagers were using Venmo through their parents, although that was (and is) against the terms of service. I like the teen account concept: kids get the empowerment of having their own card/account, but parents can use the parental controls to manage everything. The Venmo Teen Account has already started rolling out and will become widely available soon.
Venmo now lets you tap to pay in the U.S.
PayPal has introduced a tap-to-pay feature for merchants using the Venmo and Zettle (PayPal’s flexible POS system) apps on Android phones in the United States. The functionality, which allows businesses to accept payments by tapping cards or digital wallets, was launched in the U.K. last November. Tap-to-pay is already available for U.S.-based merchants using the Zettle app, while it will have a phased rollout for Venmo for Business users in the coming months. Merchants can request early access to the feature. PayPal also plans to roll out support for tap-to-pay on iPhone. PayPal’s move to expand its tap-to-pay offerings comes after rival Stripe introduced a similar feature for Android phones in multiple countries.
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The tap-to-pay feature enables sellers to accept payments without additional hardware; PayPal charges 2.29% plus 9 cents for each sale made using this method. The company aims to leverage Venmo’s large user base of 90 million in the U.S. and provide them with a seamless payment experience.
De-risking BNPL, funding buy-back
In addition to PayPal’s Venmo moves, something that likely impressed Wall Street analysts was the de-risking of PayPal’s buy now, pay later (BNPL) loans. In June, PayPal announced the intention of private equity firm Kohlberg Kravis Roberts (KKR) to acquire a significant portion, potentially up to €40 billion ($43.71), of PayPal’s BNPL loans in Europe. Through this transaction, private credit funds and accounts managed by KKR will acquire loan receivables originated by PayPal in France, Germany, Italy, Spain and the United Kingdom.
The popularity of BNPL services soared among millennials and Gen Z customers during the pandemic. However, the sector has faced challenges as increasing interest rates and inflation have eroded consumer purchasing power. The KKR agreement transfers credit risk away from PayPal and mitigates potential uncertainties surrounding the performance of BNPL offerings.
Following the deal news, PayPal’s shares rose by 1.7%. The transaction is expected to generate approximately $1.8 billion in gross proceeds, with a planned closure in the second half of 2023. PayPal reportedly intends to allocate around $1 billion of the deal’s proceeds toward share repurchases in 2023, for a total of approximately $5 billion in share repurchases for the year.
I do not give financial advice, but following the money shows me an apparent rise in confidence in PayPal’s future from the investors that are increasing their position in the company. The company is doing a lot with Venmo, taking advantage of its brand-as-a-verb status and popularity amongst a generation that stands to inherit the largest transfer of wealth in history. What started as a bill-splitting, emoji-sharing social payments app has become a secure business transaction tool with increasing utility while remaining cool with the hard-to-please generations. No wonder Wall Street is impressed.