Since the beginning of 2019, shares of PayPal (NASDAQ:PYPL) have grown nearly 30%. And PayPal stock is expected to go even higher after it reports earnings next week.
Recently, my InvestorPlace colleague Josh Enomoto commented about PayPal’s impressive habit of continuing to achieve double-digit growth in its total payment volume (TPV). Enomoto commented that investors don’t typically see this kind of growth from a company that has already had substantial expansion.
In simple terms, PayPal continues to behave like a start-up company. But as I see it, it shouldn’t be that surprising that PayPal remains the cool kid on the playground.
PayPal Is Garnering Loyalty from an Important Niche
I believe the secret to PayPal’s success isn’t really a secret at all. It came on the scene as an alternative to the middleman role that traditional banks were playing. However, as PayPal was moving past the early adopter stage, the company made an interesting pivot. Rather than moving closer to traditional banking, they moved further away. PayPal aggressively and purposefully targeted the unbanked.
There are some individuals who stay away from traditional banks out of concern for privacy and/or security. But many of the unbanked are not that way by choice. Circumstances have typically put them in a precarious place financially. Unfortunately, this leaves them with options like payday loans and other predatory options.
This is not to sermonize. It’s just to point out what PayPal did right. Whether by design or by happy accident, PayPal saw an opportunity. The unbanked not only did not have access to the digital economy. They were at risk of falling behind even further.
PayPal’s efforts started out simply enough. They allowed customers to deposit cash and paychecks into their PayPal accounts. But now by partnering with smaller banks, PayPal has introduced debit cards and mobile check deposits.
Small Business Boost for PayPal Stock
And don’t forget that PayPal has become one of the leading payment methods for small businesses. And for small business customers, they offer PayPal Working Capital as a way for these businesses to receive loans that would otherwise be unavailable to them.
Since many of these companies are of the e-commerce variety, the approval for the loan is based on sales volume, which is easily tracked by an algorithm. The application can literally be completed in minutes: there’s no credit check and once approved the loans are funded immediately.
Granted, traditional banks can provide a business with more funds, but for businesses just looking for a small bridge loan, this is a simple, discreet alternative.
PayPal’s Efforts Are Paying Off
Now think about this. Two of the major advantages to a traditional bank are the fact that your deposits are FDIC insured and that depositors can receive interest on the money they keep in the bank. PayPal can’t do anything about insuring their customer’s funds. However, with interest rates so low, the act of saving is more important than where the money is kept.
So why would customers need to go anywhere else? PayPal recently created Venmo as a peer-to-peer transaction service. While the company has yet to successfully monetize Venmo, there’s little doubt in my mind that it is the predominant way that teenagers and young adults are choosing to move money.
Betting on a Blockchain Future
And there’s another thing to consider. PayPal is already looking for the next new thing.
In early 2019, the company made their first investment in a blockchain technology company, Cambridge Blockchain. While blockchain is not new, it has yet to become the standard for e-commerce and banking.
But with many of the big banks including JPMorgan Chase (NYSE:JPM) beginning to make investments in the technology, it won’t be long before the technology becomes prevalent. And PayPal’s investment is an effort to ensure it won’t be left behind.
As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.
