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Checkout has been referred to as the “last few feet” of ecommerce. For good reason: online retailers have long struggled with shoppers who ditch their carts during checkout, fed up at fumbling for a card and entering a string of 16 digit numbers. The longer payment takes, the more likely a shopper is to change their mind.
PayPal was one of the first to address the problem with the introduction of a “button” that could be installed on merchant websites for quick one-click payment. Checkout buttons have since become big business. PayPal’s “branded checkout” unit accounts for about 30 per cent of its payment volume but generates about 80 per cent of net transaction profit — a proxy for gross profit, according to Mizuho.
That has set the scene for a button war. Apple, Google and Shopify and new start-ups such as Bolt are all muscling in. Worries that PayPal’s checkout button is losing ground to rivals helped trigger a 13 per cent slide in the payment group’s share price since it published results on February 4.
Transaction payment volume at PayPal’s branded business grew 6 per cent last year, a little less than Wall Street expected. A global ecommerce boom, a step-up in marketing spending and the rollout of new checkout solutions failed to accelerate the division’s growth.
The problem for PayPal is that ecommerce on mobile devices favours Apple, by way of the iPhone. Those who are opting to pay with a click or a tap of their phones also tend to be younger, while those who use PayPal skew older.
At the same time, Shopify, a Canadian company that helps small businesses build and maintain their online shops, is nipping at PayPal’s heels with Shop Pay. This one-click checkout lets users pay in instalments and track their orders after buying. It processed $27bn in gross merchandise volume during the fourth quarter — a 50 per cent year-on-year jump.
PayPal’s branded checkout business, which handled around $131bn of payment volume last quarter, may be bigger. But Shopify’s blistering pace of growth has earned it a hefty premium among investors. The stock trades on 81 times forward earnings. PayPal, which has shed 75 per cent of its value since 2021, is on a multiple of 15 times.
One source of help could be a merger — of the in-house variety. PayPal could crunch its peer-to-peer payment app Venmo into its branded business. Venmo is widely used by millennials and Gen Z in the US, but competes with the bank-backed free service Zelle. And PayPal’s pressing goal should be to get on more youngsters’ phones, to win a bigger slice of mobile ecommerce. Buckle up — or risk getting buttoned down.
pan.yuk@ft.com
