PayPal Holdings Inc. (PYPL) operates one of the best-known digital payments platforms, enabling both merchants and consumers to make digital and mobile payments worldwide. The company's platform is comprised of payment solutions, including core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet. It generates revenue through charging fees on payment transactions it completes for its customers and through other services.
PayPal operates in the highly competitive global payments industry in which it faces both larger, more dominant companies and smaller, agile competitors. The industry is rapidly changing and faces increasing scrutiny and oversight from regulators. The company competes with a broad range of payment solution providers, including Visa Inc. (V), Mastercard Inc. (MA), Alphabet Inc.'s (GOOGL) Google Pay, JPMorgan Chase & Co.'s (JPM) WePay, Square Inc. (SQ), and Stripe.
- PayPal provides digital and mobile payment solutions worldwide.
- Most revenue is generated through fees on payment transactions.
- The company is developing a more versatile payments platform that better meets the needs of its customers.
- PayPal recently launched a new service enabling users to buy, hold, and sell cryptocurrency.
PayPal posted net income of $4.2 billion on revenue of $21.5 billion in its 2020 fiscal year (FY), which ended December 31, 2020. Net income rose 70.9% while revenue grew 20.7% compared to FY 2019. Net income was primarily boosted by a significant increase in gains on strategic investments during the year, which are categorized under other income on PayPal's income statement.
More than half (51%) of revenue during the year was generated in the U.S., while 11% was generated in the U.K., and the other 38% was generated in other countries throughout the world. PayPal said that it added 72.7 million net new active accounts during FY 2020. Total active accounts rose 24% to a total of 377 million. Total payment volume (TPV) rose 31% to $936 billion.
PayPal's Business Segments
PayPal operates as one segment and does not break out its financial performance data into separate reportable segments. However, the company does provide a breakdown of revenue into two separate types: transaction revenues; and revenues from other value added services. Transaction revenues comprise the majority of PayPal's total revenue. We look at these separate revenue streams in more detail below.
PayPal charges net transaction fees to merchants and consumers for each transaction completed on its payments platform. The magnitude of the fee is based on the volume of activity, or TPV. Fees are also charged on currency conversions, cross-border transactions, fund transfers from customers' PayPal or Venmo accounts to their debit cards or bank accounts, and other miscellaneous fees. PayPal's transaction revenues rose 23.7% to $19.9 billion in FY 2020. The category accounts for nearly 93% of the company's total revenues.
Revenues from Other Value Added Services
PayPal also generates revenues through partnerships, referral fees, subscription fees, gateway fees, and services offered to merchants and consumers. The company also earns interest and fees on its portfolio of loan receivables, as well as interest on certain assets underlying customer balances. PayPal's revenue from other value added services fell 8.2% to $1.5 billion in FY 2020, comprising 7% of total revenue.
PayPal's Recent Developments
On October 21, 2020, PayPal announced the launch of a new service that allows users to buy, hold, and sell cryptocurrency directly from their PayPal account. The company also said that it planned to increase the utility of cryptocurrency by making it available to merchants as a funding source for purchases. Cryptocurrencies have rallied over the past twelve months, with Bitcoin, the most popular and largest cryptocurrency by market value, up more than 312%, as of February 6, 2021.