Digital Inclusion: PayPal’s Approach to Financial EmpowermentBy Andrea Villar | Tue, 08/03/2021 - 05:00
Q: In 1Q21, PayPal added about 15 million new accounts, bringing its total user base to 392 million. Of that figure, what percentage is from Mexico?
A: We do not report quarterly figures for Mexico, only annual data. We now have about 5 million active users, meaning those who have used the platform at least once in the last 12 months. In Latin America, we have 15 million active users.
During the past 18 months, the global economy and the way we work changed completely but 1Q21 was the best first quarter in PayPal's history, thanks in part to the addition of 15 million new accounts. In 2020, Mexico accelerated its use of e-commerce and digital payments. The country achieved in a single year what usually would have taken four. However, many still do not have access to efficient online payment channels, digital platforms and e-commerce.
Q: What are the features that will allow PayPal to stand out from its competitors amid the growth in e-commerce?
A: In 2020, e-commerce grew by over 81 percent compared to 2019, according to the Mexican Association of Online Sales (AMVO). During the past year, 5 million people stopped or reduced the use of cash and 3 million turned to credit and debit cards for digital platforms, according to Mexico’s Central Bank (BANXICO). These data illustrate the large shift that was unleashed by the pandemic. PayPal is the oldest electronic payment platform in existence. In Mexico, we are still spearheading online payments and we are positioned as the leading platform. We are a double-sized network, meaning that on one side are the users and on the other side are the merchants. We have a relationship with both. This is unique to PayPal in Mexico and around the world.
Although we are a payment platform, we are also a risk management company at our core. The actions PayPal takes to minimize risk for those who use our platform are incredible. We have several offices around the world that are focused on fraud prevention and risk containment. We use all kinds of cutting-edge technologies to help ensure that merchants are not attacked and that users do not lose out in a transaction. Additionally, PayPal users have Buyer Protection, which backs them against businesses. If someone buys earrings from an online shop and the wrong product arrives, we support the customer with its claim and, if applicable, refund the money. This benefit is also available to sellers. It is important for us to support SMEs as they are such an essential part of the Mexican economy.
We also reduce risks for users. When users check out from an online store using PayPal, they only have to provide their username and password. They will never have to type their card details and in many cases not even their address. Sellers will never have the financial information in their possession because PayPal protects it.
Q: Beyond strategies to attract new customers, how does PayPal take care of its existing customers?
A: In PayPal’s double-sized network, the user needs the merchant and vice versa. Sometimes, sellers install our platform because their buyers ask for it. We are constantly running education campaigns about PayPal's features and benefits to attract more users to the platform and retain them.
PayPal's user services aim to improve the online shopping experience. The difference between shopping online and shopping in a brick-and-mortar shop is the experience. When someone goes to a physical shop, they get to touch a product and see how it works. At PayPal, we try to make the online experience as smooth as possible. Digital shoppers get frustrated if they have to click 20 times to complete a purchase, especially at check-out.
On the merchant side, we are constantly working with them to offer the best experience. First and foremost, with anti-fraud tools. We are also constantly innovating and creating new products. One of the biggest pain points for e-commerce, apart from chargebacks, is the conversion rate. PayPal's main goal is to achieve the highest possible conversion rate and to avoid as much chargeback fraud as possible. This is done using a large amount of historical data on customer behavior. We can see the speed at which people are typing and whether they are logged in from a smartphone or a computer; we can even see the tilt of the mobile phone to check that the person behind it is who they say they are. This achieves two objectives: preventing fraud and helping businesses gain the highest possible conversion rate. Depending on the industry, we aim to reach between 90-95 percent buy-in. In the case of high-risk industries like consumer electronics, we strive to have an acceptance above 85 percent, which is a very good number for that sector.
Q: Based on the fact that the more payment options, the higher the conversion rate for businesses, has PayPal considered offering credit options to its users?
A: There are countries where we offer credit. In Mexico, we do not have credit, but our merchants have the possibility to turn on our installments interest-free product, so their customers have more options when buying at their online stores. Going forward, we are exploring many possibilities in Mexico and abroad. Another possibility we offer is preferential rates in working capital loan through Mexican fintech Konfío. And, we continue looking for new products.
Q: What are the unique features of the Mexican market that represent a challenge or opportunity for digital financial products?
A: Maintaining engagement with merchants and users is essential to PayPal. First, we try not to fail either of them. We give them all the tools they need to have the best experience. PayPal also strives to be ubiquitous, to be present in every shop. During the past few years, PayPal grew at a rapid pace and we have been able to connect with consumers and businesses. However, in the last few months, people had no choice but to buy online and, fortunately, we already had a solid foundation to provide them the support they needed. The demand is now extremely high, even in verticals that were not on our radar at the time, such as the insurance sector.
Q: What have been the results of PayPal’s partnership with MercadoLibre?
A: It has been a fascinating partnership as both of us are looking for the same thing, which is to provide an excellent experience to consumers. We want them to have access to services and products in the fastest and easiest way possible. In cross-border transactions, we are allowing people to pay at MercadoLibre with their PayPal account. This partnership is still developing but it will result in exciting projects.
Q: What does financial inclusion mean for PayPal?
A: Financial inclusion is an important challenge. PayPal, as a financial institution, has relationships with practically all banks, payment network processors, and brand schemes such as Mastercard, Visa and American Express. As a payment platform, we can help people who already have a bank account go digital. There is a great deal of talk about banking inclusion but there is also much to be done by financial institutions, governments, the private sector and other players to really achieve it.
In Mexico, credit card penetration is much lower than debit card penetration, yet we are seeing a decreasing use of cash. At PayPal, we accept debit card transactions to help these users go digital and use services like ordering food or paying for transport and streaming services.
PayPal is a financial services company that provides a digital payments platform to more than 403 million users worldwide