The idea that the US market is so massive that everyone can play and that all this PayPal stuff will be fine is ridiculous - none of this will begin to materialise probably till Q3/Q4 next year, but again comes down to whether PayPal plan to just throw themselves into this overall market, or do they want to dominate it because they've seen what APT/Klarna have done to their transaction volumes in their home markets. Despite what the group of CEOs all said yesterday, this has nothing to do with market size and everything to do with superior/inferior models and sheer force. PayPal's strategy could well be extremely simple - they've stated they're launching probably in October in preparation for the holiday sales period. Their main focus needs only be on choking off the supply of merchants, particularly enterprise merchants, to the new comers:
1) Reach out to the tens of millions of merchants already integrated with plenty of quality comms material about this new feature, already integrated, materially better pricing than comparable products etc etc.
2) Specifically targeted comms to the SMEs promoting the fact they'll never have to pay 6% again. This is my reasoning for why SZL and the other small players that rely on the SME sector will struggle first.
3) Individual engagement with the top 100 US retailers, of which they're already integrated with 80% of them, to promote new solution and highlight differences with competitors.
4) Discount pricing for the really big customers - making it even harder for APT/Klarna to match. Perhaps even exclusivity agreements to lock them out for the foreseeable future.
5) Aggressive user metrics - e.g. 10m active users having transacted on the platform by 31 December, with say 15m by March 31, 25m by 30 June. Pick whatever number you want in there, you have a base of about 200m to choose from.
6) Leverage existing large-scale profitable payments business to subsidise this strategy for say 2 years, until it's clear that competitors' growth rates are levelling off.
And the list could go on and on. Basically PayPal can say to any business we can enhance your already integrated PayPal solution with BNPL for a significantly cheaper price and offer millions upon millions more active users. The argument that APT offer their referral platform is probably the weakest reason for any retailer to continue to pay 4-6% - also of course, if it transpires this is the primary foundation of the APT product, PayPal could easily design their own app with all the stores under the sun in there - so long as they get the marketing/branding/messaging right, it is a total substitute.
What investors are seeing here is more akin to Facebook introducing Insta Stories to suck the oxygen out of Snapchat's growth, which worked like a charm. It's basically copying the same service, but deploying it more efficiently to an exponentially larger base, with near unlimited firepower to make sure you get the job done. When I hear/read any of the execs from the existing players explain what their actual strategies are to address a new industry benchmark pricing of 2.9%, I'll take note. But bs about "oh it's a big pie, plenty for all" is just politician speak to deflect. As said this all comes down to execution - PayPal could easily stuff it up, but if their objective is to stop APT/Klarna dead in their tracks, and they're smart about their strategy, particularly in starving the new comers of enterprise accounts, it will simply be a matter of time. At the very least all players can kiss their 4-6% fees goodbye in the US, which will cause a unit economics nightmare for many of them. There's still some value here, but at well below current prices.
Expand
