How does PayPal work? Axing staff, and focusing on users’ data

• How does PayPal work its stock price back up to 2022 levels?
• Company’s new CEO announces raft of new features.
• Hyper-personalization from its own and 3rd-party sources.

Four months into his tenure as CEO of PayPal, Alex Chriss has announced a continuation of job losses from the company. The latest round of cuts will see the company’s workforce decrease by 9%, which will result in around 2,500 redundancies. These will come from a relative freeze on new recruitment as well as from existing positions.

In an all-staff memo dated January 30 and published on the PayPal website, Chriss stated that “we must execute faster and ensure we are focused on solving our customers’ most critical needs and problems. Specifically, across our organization, we need to drive more focus and efficiency, deploy automation, and consolidate our technology to reduce complexity and duplication.”

Chriss also said that “these decisions were not easy to make,” and that consultations about job losses with staff would take place where local laws make doing so inescapable.

PayPal joins the AI bandwagon

In his first major announcement since taking up the reins at the end of September last year, the CEO showcased several new products, including a “one-click guest checkout experience,” Fastlane, which lets customers to pay for goods online without registering with the merchant. Customers with their details stored in the Fastlane service are identified at the point of purchase by email address, confirm their identity (by 2FA), and then tap once to pay [image]. According to PayPal, Fastlane can recognize 70% of guests who are purchasing from sellers’ sites.

A further feature slated for the near future is ‘Smart Receipts,’ electronic receipts emailed to shoppers that contain recommendations from the merchant they’ve just used, appropriate to their recent purchases. That means merchants can allow PayPal’s algorithm access to their SKUs’ details, enabling the AI to make ‘smart recommendations.’ Nearly half (45%) of PayPal’s customers open their email receipts after a purchase, making the medium a perfect vehicle for further commercial messages.

The “AI-powered suggestions” will also be based on information on a shopper’s behavior, drawn from third-party data sources, in addition to the data PayPal has access to. The same technology behind ‘Smart Receipts’ will also be used in the ‘Advanced Offers Platform,’ which will grant any merchant “the ability to reach customers based on what they have actually bought […], down to the stock keeping unit (SKU) and the individual product,” to present them with offers specific to each customer. Merchants will pay PayPal for each purchase from a customer who takes up an offer rather than for impressions or abandoned click-throughs. If shoppers don’t want the data PayPal holds on their choices to be shared with merchants, they may opt out.

PayPal’s market position

So how does PayPal work outside its core markets? It currently processes transactions for around a quarter of the world’s online transactions and has 35 million active merchant accounts. It’s worth noting that online payments tend to go through other payment processors in the four major markets of China, Japan, South Korea, and India. With a good portion of potentially fertile ground already occupied by local providers (AliPay, Paytm, Mobikwik, Rakuten, Jkopay, et al.) that are able to offer services more attuned to local cultural practices (buy-now-pay-later, cash on delivery, etc.), how does PayPal find the space – and the demand – to work its techno-commercial magic?

Simple. Not original in any sense, but simple. PayPal is looking to the trove of payment data to which it already has access from its existing users to bring value for its stockholders.

In addition to charging merchants and shoppers varying fees for the use of Paypal as a payment platform, it also gains access to an increasing amount of users’ data, including shopping patterns, preferences, and other markers, which it can amalgamate with other information available on the open data markets.

From its unique position of trust created when online payments were in their nascent phase, and its now near-ubiquity, PayPal can use the information to which it is party and monetize it, taking revenue from end-users keen to present or take up, for example, special offers. With access to highly detailed information (“down to the stock keeping unit […] and the individual product”), PayPal can present an amazingly attractive offering to the data markets.

Losing 9% of its workforce will enable the company to streamline its balance sheet in the short- to mid-term as it builds on exploiting its digital reserves. Losing staff could, therefore, be seen as part of a transition to a changing business model. That’s little solace to those clearing their desks, of course, and PayPal has also paid a short-term price: its stock value has fallen by 20% in recent months.

But investors will likely see a bounce-back in the next few years as the company settles into a more prominent role as a data broker that also happens to process online payments.