Investor evaluations often confuse me, this one especially so. The headline states blockchain but the entire article is focused on PayPal’s crypto implementation.
The article argues that “the company’s crypto strategy is needed as some underestimate blockchain’s ability to transform the digital payment industry” but PayPal has only integrated to a crypto exchange, it hasn’t implemented crypto or blockchain. The author gets around that small problem by suggesting PayPal should acquire a company in the crypto space:
“Now, the approval rate is the percentage of a merchant’s transactions that successfully pass through the authorization process. Higher is this value, more is the number of successful payment approvals out of the total number of transactions attempted. This in turn means higher revenues for both merchants and PayPal as the payment processor.
Thus, for merchants, in addition to fees, selecting the right payment partner is key to increasing sales, and according to the executives, PayPal offers approval rates higher than the industry average.
In this respect, PayPal has improved approval rates by leveraging on its vast data sets and network of partners consisting of more than 350 million consumers spanning across 200 countries, 29 million merchants, as well as global banks, card networks and regulators.
Its approach also centers on robust risk solutions with artificial intelligence and real-time decision-making algorithms helping to approve high-quality consumers while aiding to block out fraudsters.
Third, in addition to organic growth, there is a need for the acquisition of digital assets, which currently carry inflated valuations due to the pandemic. In this case, the company exercises a tremendous amount of discipline in overall capital allocation and looks at inorganic opportunities only to complement what is achieved organically.
Still, I foresee some expensive acquisitions in the crypto space but I am comforted by the somewhat unique FinTech ecosystem, where in addition to out-sized growth rates, companies tend to be highly profitable with significant free cash flows.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group