The new service, which PayPal has nicknamed PPCP, is an attempt to bring small and mid-sized merchants the processing muscle of PayPal’s unbranded Braintree unit, which caters to larger global merchants. While Braintree can provide the customization that larger clients want, PPCP will be a simpler off-the-shelf offering. 

The company’s unbranded processing overall, for all company sizes, accounted for about a third of PayPal’s volume last year, the company said.

While larger merchants can typically negotiate lower processing pricing because their transaction volumes are higher, smaller merchants often have less wherewithal to access those lower rates. “For small merchants, it’s because they don’t have the pricing power of the very largest merchants,” Peggy Alford, PayPal’s EVP of global sales and merchant services, said during the presentation. That allows PayPal to achieve higher profit margins.

PayPal launched the new PPCP service in the U.S. in the first quarter, and will expand it into other markets, including outside the U.S., as the year progresses, Gabrielle Rabinovitch, the company’s acting CFO, said at a Barclays investor conference last month.

The predecessor product, PayPal Pro, “has been in our portfolio for about 15 years and it really does not represent best in class, so it’s suboptimal in terms of what an SMB would need today and what we would even view as competitive in the market,” Rabinovitch said at the Barclays event. “The unit economics of that business are just far more attractive” than with larger enterprise merchants, she added.

The SMB market is valued at about $750 billion, analysts at the financial firm William Blair said in a note Thursday to clients. They expect PayPal to begin marketing the service as the year progresses.

In addition to the SMB strategy, the company is also planning to increase its margins by expanding the unbranded business generally in Europe, Asia and Latin America, specifically Brazil, with cross-selling of its value-added services, including sending money to multiple recipients and risk management, Alford said at the event Thursday.

“We believe Complete Payments offers more attractive take rates and gross margins than PayPal’s enterprise-focused Braintree offering, which could over time offset some of PayPal’s transaction margin pressure,” the William Blair analysts said in their note.

While PayPal told analysts during the presentation that it’s taking payments processing share from some competitors, that’s probably mainly with respect to larger merchant clients, and not as much with respect to smaller merchants, RBC Capital markets analyst Daniel Perlin said in a note to investment clients Thursday.

Winning new SMB business may not be a sure thing though, in light of reports of weakness in that market. At the mega-processor Fidelity National Information Services, known as FIS, the company’s SMB demand in e-commerce at its Worldpay merchant unit has been “challenged this year,” with headwinds from “attrition and compression,” according to a Wednesday note from Baird Equity Research, the research arm of the financial firm Robert W. Baird.

Aside from an introduction to the hour-plus-long presentation, outgoing PayPal CEO Dan Schulman mainly let other members of PayPal’s executive suite do the talking. He noted in his preamble that it might be his last time meeting with the analysts. Other than that, the company didn’t provide new details on the date of his exit.

Last month, calls for the company to accelerate Schulman’s retirement surfaced, suggesting that waiting until the end of the year for the CEO to exit was too long.

By Lynne Marek on June 9, 2023
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