Businessmodel of PayPal

Customer Segments

PayPal has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate:

• Consumers: This segment consists of individuals. They can make purchases; send and receive money; set up recurring payments; and make donations to charities and other nonprofits.
• Merchants: This segment consists of businesses. The service allows them to accept web, mobile, and in-store payments from consumers, as well as conduct online invoicing. ### Value Proposition

PayPal offers two primary value propositions: convenience and security. The company’s platform enables consumers and merchants to carry out simple digital and mobile payment transactions through a third party. At the same time, it offers a risk management system that prevents illegal, fraudulent, or high-risk transactions, giving customers a sense of confidence.

Other minor value propositions offered by the brand are as follows:

• Brand: PayPal maintains a highly-recognized and trusted brand in the online payments industry.
• Scale: PayPal’s global scale gives it significant reach. As of the end of 2015 it had 179 million active customer accounts that included 13 million merchants, and had processed $282 billion of total payment volume in over 200 markets around the world. ### Channels

PayPal’s main channel is its website, through which its customers conduct the majority of their transactions.

That said, it also operates through the mobile channel. Customers can utilize its mobile app, as well as the services of its two mobile payment subsidiaries, Venmo and Xoom.

Customer Relationships

PayPal’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the main website without interaction with employees.

Despite the nature of this relationship, PayPal makes a significant effort to ensure the satisfaction of its users. The company employs over 8,000 people in its customer service organization, who work in operation centers around the world and speak more than 20 languages.

PayPal has also developed trust and security programs to give customers a sense of comfort. Its Buyer Protection Program provides additional protection to consumers for eligible purchases by reimbursing them for the full amount of the purchase if the item does not arrive or is significantly different than the seller’s description.

Its Seller Protection Program offers additional protection to merchants.  Specifically, in cases where buyers claim a purchase was not authorized or that an item was never sent, it covers the seller for the payment on qualifying sales. Offering such programs to both parties helps to ensure confidence on both sides.

Key Activities

PayPal’s key activities focus on platform management. The company’s business model entails maintaining a common platform between three parties: consumers, merchants, and banks. The platform includes its website and mobile apps.

Key Partners

PayPal does not directly access payment card networks, such as MasterCard and Visa, that enable its acceptance of debit and credit cards. Instead, it relies on banks or other payment processors to process transactions.

As for its mobile apps, it relies on third-party developers to create the systems, providing application programming interfaces, software development kits, and other tools.

Key Resources

PayPal has a proprietary global technology platform that it uses to connect millions of consumers and merchants around the world (more than 200 markets). The company has historically had its capital requirements satisfied by the corporate-wide cash management policies of eBay.

However, as it spun off as an independent company in 2015, it will depend more on bank financing in the future. In addition, PayPal is heavily investing into its human talent pool in order to stay competitive.

Cost Structure

PayPal has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions. As part of eBay for over a decade, it shared economies of scale and scope in employees, costs, and customer and vendor relationships.  It still maintains some relevant agreements with eBay; however, charges for certain services may rise as a result of its separation.

PayPal’s biggest cost driver is transaction expenses, which largely consist of the costs incurred to accept a customer’s funding source of payment. Other major expense drivers are in the areas of customer support and operations, sales and marketing, and product development.

Revenue Streams

PayPal has two main revenue streams, which are as follows:

• Transaction Revenues: Revenues generated from net transaction fees charged to consumers and merchants based on the volume of activity processed through its platform, including the PayPal, PayPal Credit, Venmo, Braintree, and Xoom products.
• Other Value-Added Services: Revenues generated from subscription fees, gateway fees, interest/fees earned on the PayPal Credit loans receivable portfolio, gain on sale of participation interest in certain consumer loans receivable, revenue share earned through partnerships, interest earned on certain PayPal customer account balances, fees earned through Paydiant products, and other services provided to consumers and merchants.