In Q1 FY2022, there were 3 mentions of Braintree and none of “Unbranded”. One year later, “Unbranded” was uttered 38 times.

PayPal’s executives tried their hardest to push a narrative around unbranded processing. Here is what the soon-to-retire CEO, Dan Schulman, had to say:

First, unbranded processing is a strategic imperative for us. Enabling our merchants with our unbranded service helps ensure that we have a deep relationship with our most important merchants. It enables us to bring our latest and most technologically sophisticated checkout integration across PayPal and Venmo and our Buy Now, Pay Later service to our merchant base. Going forward, we will primarily focus on enabling unbranded processing and our latest branded checkout experiences through Braintree and PayPal Complete Payments.

Second, we will continue to invest to help ensure our unbranded platforms are best-in-class, enabling our merchants to reduce fraud and increase their sales conversion rates. We will do this while providing a comprehensive orchestration layer that enables our merchants to have a single point of contact and integration in a multi-PSP environment.

Third, we are focused on substantially improving the margin structure of our unbranded business. Our PayPal Complete Payments platform opens a new $750 billion TAM in the small and midsized business market, with a significantly enhanced margin structure compared with our largest enterprise customers.

Finally, enabling merchants with our unbranded services will provide a constant stream of incremental data to feed our AI engines and fuel our next-generation checkout platform. We believe no other company will be able to replicate the unique nature and scale of our data set. And in the future, our AI engines will use that data to drive differentiated capabilities to improve the entire checkout experience for our merchants.

On the surface, what Dan said makes sense. Digging a bit deeper, I had a few problems with such a narrative.

First, PayPal acquired Braintree ten long years ago. Hence, I found it strange and concerning that the company’s executives seemed to only recognize this asset just recently. Unbranded received little attention prior to the last eighteen months, yet suddenly became a “strategic imperative”. Confidence in a management team’s ability to create a vision and execute is critical to investors. How can we be confident in this new plan when it should have been thought of and executed a long time ago?

Second, will this newly found focus on unbranded last? With the retirement of Dan Schulman, PayPal is going to have a new CEO next year. When appointed, the new CFO will be the company’s third in the last two years. The turnover in the leadership ranks is troubling, but not as much as the change in strategy. During Covid, being a Super App was the dominant theme backed by a host of new products and numerous incentive-driven campaigns The explosion in online shopping, driven by Covid, inflated PayPal’s growths and led its executives to make wildly ambitious projections. Targets shared on Investor Day 2021 were soon embarrassingly abandoned. Only then did the management team pivot and try selling investors on cost savings and now the power of unbranded solutions. It’s entirely possible that there will be another strategy 12 months from now. And when a company changes strategy that often, investors have the right to question its growth and competitive advantages.

Third, PayPal claimed that data from unbranded processing would help improve its branded checkout solutions. I don’t doubt the basis of the claim. I question the extent to which it is true. Gains from machine learning are not linear. Applying twice the amount of data to a model will not guarantee the outcome will be twice as good. Braintree already powers some high-volume merchants. How much could additional data from unbranded enhance its sibling branded checkout? Yes, there will be improvements, but the connection between branded and unbranded is not as strong as PayPal makes it out to be.

Fourth, there is a significant threat to the company’s branded checkout. The future of payments lies on the phone. The likes of Apple and Google have a sizable advantage of preinstalled their wallet apps on devices. PayPal must convince users to download its app. The task involves only a few clicks, but it’s a daunting challenge to overcome. The plan is to use unbranded processing as a growth catalyst for branded solutions which, in turn, will help generate margin. But if that margin engine were under threat, where would profitability come from for PayPal?

Last but not least, what’s the time horizon on this plan? Three biggest contributors to PayPal’s Total Payment Volume are branded checkout (30%), Braintree (30%) and Person-to-Person (P2P) (28%). The new service, PayPal Commerce Platform (PPCP), is slated to improve the company’s margin and drive growth. In the next two years, what I expect from the management team is plenty of meaningless word salad touting impressive growth and no concrete figures. That’s because PPCP will start from a tiny base and as a result, it won’t move a needle much.

On the flip side, we can’t completely discount the possibility that PayPal will make good on their word this time and their plan will actually work. The thesis is 1/ use Braintree to drive volume growth as it works with biggest merchants; 2/ improve margin with PPCP and value-added services; 3/ increase efficiency by overhauling the infrastructure; 4/ continue to push branded checkouts which keep consumers in the ecosystem and bring the highest margin among services. Could it work? Entirely possible.

In short, I am NOT saying that PayPal is a doomed company. It still has a trusted and popular brand, along millions of active users. The problem stems from the turbulence in the leadership ranks, competitive threats on every front and recent track record. The new narrative has me at 70% bearish and 30% bullish. I’d be more confident had the company announced the new leadership. In the past, I used to buy in what the management sold. I was wrong. I’d wait for at least 1-2 more quarters and especially the upcoming in-person Investor Day before I make any decision. The time to be disciplined and ruthlessly execute for PayPal is now.