PayPal ($PYPL) – Adyen and Fastlane – August 17, 2024
Adyen ($ADYEY)
Adyen and Stripe are the market share leaders in white label payment processing. Braintree is the third largest player here. Under new CEO Alex Chriss, PayPal has aggressively pivoted Braintree’s focus away from growth at any cost, to profitable expansion. It has cut cash burning contracts, renegotiated other deals, pushed to layer on software products to enhance value and worked to drive awareness of its best-in-class authorization rates.
Braintree is no longer indiscriminately adding business regardless of margin, which catalyzed transaction margin dollar growth last quarter for the first time in years. Still, if Stripe and Adyen want to race to the bottom on pricing, there’s little PayPal can do to overcome that. Luckily, Adyen isn’t playing this game. On the firm’s earnings call this past week, it spoke positively about PayPal’s change and how it continues to “price-to-value.” It’s not trying to undercut anyone… and that’s great news for the overall white label processing sector margin and PayPal’s too.
Fastlane Event
We got a bit more information on the PayPal Fastlane product launch currently in process. As a reminder, Fastlane is PayPal’s guest checkout profile that allows customers to enjoy the convenience of checkout accelerators. PayPal’s vast database allows it to identify a large proportion of online shoppers and expedite sign in and check out. That’s the luxury of having 400+ million accounts. Once a customer opts into a Fastlane profile, they can enjoy lightning-fast checkout at any opted-in PayPal merchant. It doesn’t matter if a consumer shops with that merchant weekly or hasn’t even entered its site – Fastlane delivers the same seamless checkout experience. Considering 80%+ of consumers at some point have abandoned a cart due to checkout friction and that guest checkout struggles to check a 50% shopper conversion rate, this is a massive issue… and a massive opportunity. That’s all review. So what did we learn this past week?
Fastlane is yielding a conversion rate between 75% and 90% for several highlighted merchants and is powering 32% faster guest checkout. PayPal is orienting Fastlane to focus on the merchant. It isn’t trying to build this product into some ubiquitous brand like PayPal or Venmo. It’s merely using the product to support its merchant base’s success. That, in turn, drives more transaction volume and PayPal growth. It’s carrying out this aim in two ways. First, it’s not showcasing the Fastlane profile option up-steam (before checkout) across a merchant’s site. Secondly, it is not charging any incremental service fees for Fastlane access through the end of this year. It will still profit from any incremental volume the product delivers and it sounds like PayPal will eventually treat this as an upcharge, like it does for Hyperwallet.
I am excited by the prospects of this product bending the growth curve upward for PayPal. The impact won’t be immediate, but it can be powerful heading into 2025. Between this, Braintree’s profitable growth, Venmo monetization, fixing Xoom and now tap-to-pay on iPhone opening up in Europe… there are tailwinds galore here.
