Tag: Unbranded processing

Weekly readings

Weekly reading – 20th May 2023

by MQDuongLeave a Comment on Weekly reading – 20th May 2023

What I wrote last week

Three Good Books On Life

Concerns With PayPal’s New Plan – Unbranded Processing

Business

Online-Only Startups Adopt a Bold New Strategy: Opening Actual Shops. What is old is now new. Online-only startups thought they could do away with physical stores, but now pivot to a hybrid model and establish physical presence. Online-only retailers realized there were two problems with their business model. The first is that it’s increasingly expensive to acquire customers online. Competition gets fiercer. Factors such as Apple’s changes are also a contributor. The second problem is consumer behavior. Folks want to shop in stores and it’s exceedingly difficult to change that. Digital-native retailers would rather change their philosophy than stick to their guns and go bankrupt.

Google staffers praise engineers for I/O, poke fun at execs because they ‘just kept saying A.I.’ While it’s not easy to manage a company like Google, Sundar Pichai, as CEO of Google, has not delivered a stellar performance in my opinion. He did appoint Kurian as Google Cloud CEO, which adds much needed capabilities and leadership. Besides that, there is not much else that gives me the same confidence as what Satya Nadella or Tim Cook has done. Mr Pichai’s employees don’t seem happy with him. He doesn’t show leadership by example when he had a raise after dismissing thousands of employees. As a company supposed to be the leader in AI, Google let ChatGPT and Microsoft take the lead and had an embarrassing launch of Bard, its high-profile rival of ChatGPT. All under Pichai’s watch.

Fast, the easy checkout startup, shuts down after burning through investors’ money. I wonder how much due diligence investors did when they poured $120 million into a startup that generated $600,000 in annual revenue. The cheap money led to recklessness and so did the arrogance.

Amazon Overhauls Delivery Network to Dispatch Packages Faster. Amazon used to ship items across the country to the hands of shoppers. they replaced that model with one that enabled shipping by region. The end results are lower costs, shorter delivery times and higher customer satisfaction. This is an advantage that is difficult and expensive for rivals to copy. In other words, a real competitive advantage.

Marie Schulte-Bockum – FC Bayern Munich: The Best Run Club in Football. I am no fan of Bayern Munich, but it’s admittedly a very well-run club. This Business Breakdown episode discusses how the club makes money and what it does right to be in a position of strength every year.

Target wants shoppers to think of it for groceries as retailer braces for leaner spending. Costco and Walmart are the leaders in low-cost everything. Aldi and Lidl have the lowest prices in groceries. Trader Joe’s brings quirkiness, uniqueness in inventory and a cult. What does Target have that can compete in the grocery world? What draws consumers to Target are several chic-styled goods and convenience. But the retail chain needs to deliver to consumers a reason why they should shop groceries at its stores. Especially when the freshness is disappointing, the uniqueness is lacking and prices are higher than rivals’.

Other stuff I find interesting

How to Become a Morning Exercise Person. “Despite the challenge of waking up early enough for a workout, Dr. Friel said, mornings are better for most people because they have more control over their time before the commitments of the day kick in. In one study, Dr. Youngstedt and his team instructed 101 adults to do an hour of moderate exercise at eight different times for three days. As expected, those who hit the treadmills in the morning shifted their circadian cycles forward, meaning their bodies were ready to sleep and wake up earlier.“

($) The Surprisingly Effective Strategy for Buying on eBay. A study that investigated more than 25 million eBay transactions revealed that offering round percentages in discount resulted in higher conversion rates. That makes sense to me from a psychological perspective. Consumers don’t like to do mental maths when shopping. Anything that can make them arrive at the conclusion faster will aid the conversion.

Vicious Traps. “Or curiosity and boldness. They are wonderful on their own, but combined can easily create impulsiveness. How about humility and ambition? Excellent traits, but together they can create successfully disguised arrogance.”

Japan’s sleepy tech scene is ready for a comeback. Bullish signs for Japan’s economy and human capital.

Russia Has a Vodka Addiction. So Does Vladimir Putin – But Not the Same Way. A fascinating tale on how Putin consolidated the vodka production in Russia

Stats

More than 81% of Nevada’s state land belongs to the state and the federal government

Americans are keeping cars longer. The average age of passenger cars reached 13.6

App Store stopped more than $2 billion in fraudulent transactions in 2022

Netflix’s ads-supported plan has five million monthly active users

US Podcast Advertising Revenue reached $1.8 billion in 2022

Business

Concerns Over PayPal’s New Plan – Unbranded Processing

by MQDuong2 Comments on Concerns Over PayPal’s New Plan – Unbranded Processing

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

 Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022Q4 2022Q1 2023
Mention of Braintree2003315112111
Mention of “Unbranded”02000241038

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.