The Motley Fool is predicting big things for the recently announced partnership between tech giants PayPal and Amazon. Beginning this year, PayPal’s nearly 80 million Venmo users in the U.S. will be able to check out at Amazon with their checking account details linked to a Venmo account or with a Venmo balance. Amazon is reportedly responsible for over 40% of e-commerce purchases, so this could have a material impact on card-not-present debit and credit card volumes. Of course, this would require consumers to add another payment credential to their cards-on-file with Amazon, not care about earning rewards with existing credit cards they use to make purchases, and not be concerned about the extra consumer protections that are offered by global network cards.
Here’s The Fool’s take on the partnership:
Prior to this partnership, Venmo was already a booming personal finance tool with about 75 million active customers as of June 30, 2021. People can use the mobile app to send and receive money, spend and shop, and invest in cryptocurrencies. But now, with the ability to check out at Amazon, from the user’s perspective, the value proposition of having a Venmo account just became more obvious.
If you wanted to buy something from Amazon, the only way to pay was with a debit or credit card. Venmo is the first third-party payments service integrated in the checkout experience. This puts PayPal, whose flagship payments network isn’t even available on Amazon, in a class of its own that can benefit from the online retailer‘s tremendous growth.
While the specific details of the partnership aren’t known, PayPal’s management team admits that a massive merchant like Amazon will have favorable pricing thanks to its scale. But at the end of the day, it’s about being a payment option that’s in more places. “Ubiquity of acceptance is really important for us,” PayPal CFO John Rainey mentioned on the third-quarter earnings call.
Venmo generates revenue from its Venmo Debit Card and Credit Card products, merchant fees, and transfer fees, and from its Uber partnership. In the most recent quarter, total payment volume (TPV) on the Venmo platform stood at $60 billion, up 36% year over year. While this was 19% of PayPal’s overall TPV, Venmo is forecasted to only account for 3.6% of the company’s revenue in 2021. Therefore, there is a big opportunity to monetize the popular consumer app.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group