With PayPal looking to enter the growing retail investment market, which saw 10 million new investors in the first half of 2021, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, discusses why this move could be successful for the company even if it may attract regulatory scrutiny from the SEC.
The regulatory approval process
“The US Securities and Exchange Commission (SEC) has expressed concern about the growing popularity of securities markets accompanying the explosion in retail investing via applications. These reservations could slow the approval process if PayPal decides to partner with an existing brokerage firm. Meanwhile, SEC Chairman Gary Gensler has stated that his agency is considering a ban on payment for order flow (PFOF), which is the primary source of revenue for Robinhood and many of its competitors. PFOF enables these brokers to eliminate visible transaction fees, which they use as their key marketing tool.”
“However, keep in mind that the company’s main business is doing well. PayPal witnessed record payments last year, and the company has other growth accelerators besides the trading platform. Total PayPal or TPV payments increased by roughly a third on an annual basis in 2020. PayPal’s net payments in the second quarter of 2021 were almost $311 billion, up 41% year over year, thanks to more than 3.74 billion transactions processed during that time.
“Based on these figures, PayPal shows no signs of slowing down as a result of the post-Covid-19 economy. The payment processor anticipates an increase in active users of approximately 50 million in 2021 and annual revenue of approximately $25.5 billion, which is significantly higher than the $21.4 billion estimated by analysts. When the pandemic hit, isolated consumers had no choice but to shop online.”
Post pandemic environment
“Today, the vast majority of consumers say that even after the pandemic, they will continue to shop online because it is more convenient, easier, and saves time. It is also worth noting that the acquisition of Paidly, a “Buy Now, Pay Later” (BNPL) platform is a reliable strategic step. BNPL is important both as a convenient payment method and a steppingstone to developing a bilateral payment platform. PayPal is also expanding its presence in Europe in two ways.
“Its business debit partnership with Mastercard has expanded to four more European countries: Belgium, Finland, the Netherlands, and Portugal, and Euronet Worldwide epay will use the PayPal QR code as a selling solution at its points of sale. The PayPal Business Debit Mastercard, introduced in the United States in 2003, is now available in 11 European countries. According to the company, PayPal business customers can now spend money in their PayPal accounts at over 52 million Mastercard locations worldwide. These criteria indicate that if it enters the retail investment market, it will be rewarded with a more extensive user base.”