The Benefits of Cannibalization

19. March 2018.

Over the last couple of years, PayPal’s transaction expense as a percentage of total payment volume has increased. It started at 0.93% in 2015, climbed to 0.95% in 2016, and reached 0.98% last year.

A big part of that increase stems from the additional options PayPal is offering to its users. Users no longer have to draw from their PayPal balance before other payment methods, and the company is no longer pushing users to link their bank accounts instead of using credit cards.

Venmo users are significantly more likely to pay from their balance or use a bank ACH (automated clearing house) than to pay with a card. Using the balance costs PayPal absolutely nothing, and ACH fees are significantly lower than card payments.

Because users are sending payments with Venmo more often, they’re more apt to leave a balance in the app since their next use is imminent. That’s great for PayPal: It helps reduce the losses taken on Venmo’s free peer-to-peer service. As Venmo’s merchant services scale, they should start to have a positive impact on transaction expenses as a percentage of total payment volume.

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