And for the most part on that second question, we are not – PayPal as part of the eBay, Inc. is not being constrained by its prospects for growth because it’s part of a bigger company. On the contrary, we are increasingly – PayPal has accepted on increasingly all the top internet retailers in the world. We are not quite there yet, but increasingly, so, we’re not constraining growth.
On the contrary, we see the ability to accelerate PayPal’s rate of growth within – within the enterprise. And it essentially comes in three primary ways; one is, innovations that PayPal makes, get launched on eBay. Those innovations get a flywheel going, that flywheel drives consumer adoption, that consumer adoption we take off of eBay, and we grow new businesses with PayPal.
The second is, PayPal leverages all of the eBay, Inc., data to the extent our user agreements allow to drive more growth for its merchants at, by managing fraud more effectively. And the more data PayPal has, the better off they can manage fraud and make credit decisions that are effective.
And the third thing that PayPal gets as part of the ecosystem, is it gets access to relatively low cost of capital, a significant user base from eBay, that is a real good foundation for its growth and for its organic growth in credit, because it’s funded by eBay Inc.’s cash flows, and by using eBay Inc.’s cash flows to accelerate its growth through inorganic things like the acquisition of Braintree.
So, when we step back and think about, what’s the most, what makes the most sense for this business, it’s how do we pull this set of capabilities together, capitalize on the natural synergies that exist within and across the portfolio to help merchants grow and how do we monetize that more effectively. And we look at the next couple of years and we feel great about how we can leverage these capabilities in a world where payments and commerce are converging and online and offline are blurring then we feel like we’ve got the right set of capabilities to capitalize on that.”
Question: “Okay. And just digging into this topic a little bit and then we’ll take a step back and then look more broadly at the marketplace of business in PayPal. One of the components that you’ve highlighted in terms of driving the success of the eBay platform has been the introduction of trust features, most notably buyer protection in terms of you buy something on eBay, you know that you can trust. And one thing you’ve highlighted is the low PayPal penetration in Germany, and the way that the inability to actually offer eBay buyer protection affects the growth in that market. Can you talk about that a little bit more in terms of both the way that it benefits the business in the markets where you can do it and some of the constraints that exist in a market like Germany where PayPal penetration is low?”
Answer - Robert Holmes Swan: “Yeah. I mean, firstly at the most macro level, it’s one of the ways that we leverage data across the enterprise to drive growth on a particular platform. And over time with PayPal’s risk management capabilities, if a merchant accepts PayPal with PayPal’s underwriting, we learn a lot more about the inherent risk of the merchant and the consumer that they’re transacting with. For us, it’s the trade-off that we make on how do you grow the business while keeping fraud losses relatively low. That’s been a constant.
In each market around the globe, the higher the PayPal penetration on eBay, the more comfort we take in expanding our protections, PayPal protections, for the merchant and the consumer on eBay in a particular market. That’s always been the case. Over the years, because two things about Germany, it’s a fairly efficient payment system that consumers are used to and they like it and, therefore, PayPal penetration in that market was slower than it’s been in a lot of other markets. Secondly, in terms of eBay, it’s a large C2C business versus B2C business. So, the inherent trust and the protections have got to be better and better. So, that’s a dynamic that we’ve solved around the world by leveraging eBay and PayPal to provide more and more protections. In Germany, it’s been tougher.
All that being said, we started at close to zero penetration of PayPal on eBay five years or six years ago, and today we’re well over 50%. And it’s gotten better every quarter for a long period of time as we continue to innovate on PayPal – on eBay with PayPal in the German market. And the higher that penetration gets, the more protections we provide. So, it’s one of those natural data-oriented synergistic things that we can do to leverage the power of commerce and payments to drive – power of commerce, payments, and risk management to drive more frequency and activity on the platform.
Germany has been one of the – it’s one of our biggest markets. Obviously, it’s been one of the toughest challenges to drive that penetration, but we’ve made quite a bit of progress. We still have ways to go because, as you know, in our developed markets penetration of PayPal and eBay is north of 80% for the most part. So we’ve made some progress but still a ways to go in Germany.”
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Question: “So cross border is a big driver of both the eBay Marketplace and PayPal, it’s a highly profitable component of PayPal’s business. Talk about the integration there and how that you’re benefited as a company with PayPal attach rate on cross border. Extend that conversation to markets like say Russia where eBay doesn’t – historically has not had a physical presence, if you will, but consumers are buying goods and then attaching PayPal, giving PayPal the opportunity to build the business in that market. And, third – and this is the related piece for keeping it as one question – Bill Me Later is a business that you bought that seems to potentially highly benefit from being integrated into the eBay ecosystem given the way that you can acquire customers. Can you touch on that a bit? And then we’ll move on.”
Answer - Robert Holmes Swan: “If in the unlikely event that I don’t cover that very rational thought of related questions, please come back to me. But I think first cross-border trade is a huge component of our business overall. On PayPal, roughly 25% of PayPal’s volume is merchants reaching consumers in markets outside their domestic market. And a little less than 20% of eBay’s volume is that same dynamic. The inter relationship is penetration of PayPal on eBay for cross-border trades, for cross-border trade is very high and penetration – share of checkout of PayPal on other merchant services, PayPal’s share of checkout is higher than just the average. And the reason is rather simple, when consumers are making an online purchasing decision with a merchant in a different part of the world, they want to know that somebody standing between them and that merchant and if they have a problem, they know that somebody’s protecting their data, their financial information in a very safe and secure way. That’s what PayPal means to consumers around the world. So, the level of comfort on eBay and with merchant services for cross-border transactions goes up and in turn our share of checkout for merchant services or eBay with PayPal is higher.
the world => So, consumers trust PayPal and they trust them more when they’re dealing with a merchant that they don’t know that might be on the other side, might be on the other side of the world, because they know that PayPal has already wedded that merchant in some way shape or form, and they won’t be giving their financial information to somebody on the other side of the world that they don’t know.
So, the way – so, that’s why PayPal’s cross-border trade business is so large because it started on eBay, it facilitated cross-border trade on eBay, we leveraged that relationship to expanding the merchant services.
In new markets like for the most part when we enter a market, is a company, we lead with eBay and we call PayPal through. And PayPal grows on eBay in that market and the growth of eBay in that market. That’s a little bit of what we’re doing now in Russia .
So, we launched a new market with eBay. We’ve gotten the license for PayPal in Russia. PayPal is the way to pay and we pay it on the eBay platform. And PayPal will grow in the emerging market like Russia on eBay.
And that flywheel will be the enabler to have PayPal grow in Russia off of the eBay. Bill Me Later in your – related but unrelated question, is the same dynamic. And the dynamic is this; when we innovate things for PayPal, that will drive more volume between merchants and consumers, we take those innovations first, and we launch them on the eBay platform. Because, it’s big. Because it processes $75 billion of volume. So, innovations of PayPal on eBay get a flywheel of merchants and consumers trying new products and new ideas.
Cross-border trade, paying with PayPal, Bill Me Later, mobile checkout, we launched PayPal innovations on the eBay platform, like Bill Me Later, and drive adoption. Then it drives, because it’s a large platform with 130 million users almost, PayPal gets acquisition of new consumers for their new innovations, in essence for free. It drives up penetration of Bill Me Later, on eBay, which in turn will help us accelerate Bill Me Later off of eBay.
So, I think in all the markets we’re in, whether they’re developed markets like Germany, whether they’re emerging markets like Russia, we try to take PayPal innovations, deploy them on those platforms on eBay to drive a relatively efficient consumer acquisition channel and adoption of the products on eBay that we can expand off of eBay, and you’ve touched on essentially three really important ones, penetration, PayPal, Bill Me Later, cross-border trade, PayPal’s Mobile Express Checkout was built on its innovation that it did within eBay mobile app. So, those are how we leverage PayPal technology and get rapid adoption across the ecosystem. It’s really powerful for PayPal’s growth to have a huge commerce platform that it can innovate on to drive relatively cheap and efficient acquisition of customers for its product launches.”