PAYPAL IN THE NEXT FIVE YEARS LEADING TO 2024 INTRODUCTION PayPal started as the money transfer services of Confinity

PAYPAL IN THE NEXT FIVE YEARS LEADING TO 2024
INTRODUCTION
PayPal started as the money transfer services of Confinity, a company that was founded by MaxLevchin, Peter Thiel, Luke Nosek and Ken Howrey in 1998. In 2002, E-bay acquired PayPal, and this led to a fundamental change in the PayPal business with expanded missions of providing “simple, affordable, secure and reliable ?nancial services and digital payments that enable the hopes, dreams and ambitions of millions of people around the world” (PayPal, 2018). The marriage between e-Bay and PayPal facilitated the speedy and steadfast growth of PayPal. On 30th September 2014, the eBay CEO John Donahoe announced the company’s decision to “spin off PayPal” due to increase in competition and the high rate of developing innovative products within the markets of the two businesses, which requires more attention for both. He also stated that, “The cooperation which helped the growth of PayPal was decreasing over time” (Fortune, 2014). Dan Schulman, former head of American Express’s online and mobile payment business, was then brought in to prepare and implement the separation of eBay and PayPal. In July 2015, he became the chief executive of PayPal after the split (Telegraph, 2014). This paper examines the performance of PayPal in the years 2015 to 2018 after the split; the attendant risks in the years leading to 2024 and how to mitigate such.

CONCEPTUAL ELEMENTS / THEORY
Technological innovation / changes have brought great transformation to many people’s lives. In recent times the Financial services area is beginning to latch on to this. There still exist many opportunities to greatly improve the financial services in the future through adoption of technological changes (PayPal, 2017). Some people see Technology as negatively affecting peoples’ lives particularly in relation to possible loss of employment and the adapting away from brick and mortal ways that they are already familiar with to adopting new way of working. The reality is that technological changes when appropriately deployed into our day to day activities bring in speed, improvement, ease of use and significant reduction with the cost of operations. PayPal is a business which has a mission and culture of incorporating technology to transform people lives and improve financial inclusiveness. Daniel Schulman, PayPal CEO, highlighted some of the services and technologies employed by the company that brought improvement to people’s lives and form the basis of the company’s 2017 strong business result (PayPal, 2017). Cryptocurrency and blockchain technology are such innovations that will play significant roles in inspiring business-related innovations in the nearest future.

PAYPAL PERFORMANCE POST INDEPENDENCE OF E-BAY
From the data available from 2015 to 2018, PayPal has been able to exploit the potential and available opportunities to become a much more vibrant organisation. It can be boldly affirmed that the decoupling of PayPal from eBay yielded the expected result. PayPal, as a new independent separate company, was able to restructure its operation with a view to optimise process flow and functional alignments. This resulted in all financial indices showing strong performance above expected targets.

After formally cutting ties with eBay, on its first day of trading on Nasdaq, on 20th July 2015, PayPal gained a huge 5.4% (Zack, 2015). Moreover, by October 2017, PayPal was valued at $84.39 billion, this figure is more than 80% higher than what it was on its first trading day (Nasdaq, 2018). An abridged table presented below, which represents the summary of two tables on Part II, pages 29 and 31 of the Combined 2017 PayPal Holdings Annual Report and 2018 Proxy Statement shows the huge and steadfast increase of some key financial indices like the net revenues, net incomes, active customer accounts, number of payment transactions and total payment volume recorded by the company between 2013 and 2017.
Key Financial Indices
2013 2014 2015 2016 2017
Net Revenues (in millions) 6,727 8,025 9,248 10,842 13,094
Net Income (in millions) 955 419 1228 1401 1,795
Active Customer Accounts (in millions)     179 197 227
Number of payment transactions (in millions)     4,928 6,129 7,606
Total Payment Volume (in $billions)     281 354 451
The Q2 2018 Results also show tremendous improvement in Service and Financial performances as shown below (PayPal, 2018).

SUCCESSES AND FAILURES IN IMPLEMENTING THE ‘NEW VISION’
Schulman believed that the new PayPal had to accomplish two goals to succeed in the long term: “First, PayPal needed to be an everyday part of consumers’ financial lives; and second, PayPal had to serve as a comprehensive commerce partner for merchants” (PayPal, 2015). PayPal has greatly extended their services to capture more consumers and merchants thereby improving the financial inclusiveness. Many places in the world can now transfer money at cheaper rates and faster than before due to the availability of PayPal services in their countries. Many small businesses, which wouldn’t have had access to funds have been empowered by PayPal’s processes. The company has been able to serve and connect both major participants, the consumers and the merchants, in the financial space together thereby boosting the confidence within the ePayment process. The company’s promotion of financial inclusiveness through the use of Mobile is progressing well with about 39% of the overall payment capacity in Q2 2018 carried out via the mobile. As shown in the graph below the percentage has being increasing every year. The company has grown steadily from being mainly a web-based organisation with strong check out to a more mobile technology service company. The mobile share of PayPal’s overall payment capacity has nearly doubled from about 20% during the separation in 2015 to 39% by Q2 2018.

Mobile share of PayPal’s overall payment volume from Q3 2014 to Q1 2018 (Statista, 2018).

PayPal strategy of growing the business organically through acquisition of innovative companies that add values to their bottom line, increases the speed and ease of use while attracting more people to their services really paid off. It helped the company to keep abreast of competitors, maintain customer loyalty and improve on financial inclusiveness. The numbers of accounts that are active and registered have been increasing quarterly with every quarter accounting for the addition of new accounts in their millions as shown below:

Number of PayPal’s overall active registered user accounts from Q1 2010 to Q2 2018 (in millions) (Statista, 2018).

The process Financial Payment network is now highly competitive with big and financially strong companies coming in to fight for a share of the market. They use their obvious advantage to carve out substantial part of the market for themselves. Thus, the plan to make PayPal like an operation system of finance did not actually materialise. Though PayPal is still referred to as the topmost amongst companies offering mobile payment, its widely acclaimed P2P application, Venmo, had a 50% payment capacity growth in 2017, but its $10.4billion in payments for the Q4 2017 is small compared to the overall payment volume of $48b for the market. Zelle, a P2P application developed by Early Warning Services LLC, a consortium of seven of the largest US banks is obviously doing much higher business (Noto, 2018).

PAYPAL GREATEST RISKS IN THE NEXT FIVE YEARS LEADING TO 2024
PayPal’s operations are internationally generating about one-half of its net revenues in recent years. Business done internationally has a lot of inherent risks that happen within the country of operation or that has to do with the cross-border activities. In the next 5years, this perhaps is the greatest risk the company will be exposed to as it continues to expand the overseas businesses and increase the percentage contribution of international business revenue to the overall company revenue. Some of the risks involved with business being done internationally are:
foreign currency and cross-border trade risks, government regulation related risks, data, product and services localization, trade barrier, and competition regulation, compliance with foreign laws prohibiting corrupt payments to government officials, compliance with laws design to combat money laundering and financing of terrorist activities, etc.

Technology Risk – A major risk which could greatly affect the company’s fortune in the future is technology. Technology affects the way we do things and people generally are resistant to changes. However, for the revenues of PayPal not to decline in the next 5 years, PayPal will need to keep abreast of the technology developments to develop new products and services. Though it may not be easy to know the outcome of technological changes on a business, however, the ability to develop and incorporate new technologies and adapt to evolving industry standards is a must to maintain the lead. Such changes may occur in these areas among others: tokenization, mobile payments, electronic funds transfer networks, cross-border access to payment networks, social commerce, NFC etc (PayPal, 2018 p.13). 
Another risk is the competition from other businesses. PayPal operates in a highly competitive environment against a wide range of businesses comprising of various roles in all forms of payments. Schulman D. in PayPal’s 2017 Annual Report acknowledged that some businesses have larger data bases, resources, and market than PayPal, which could provide significant competitive advantages. Zelle process more payment volume than Venmo already (Noto, 2018). Zell partners with 60 other banks and credit unions that are using the services. Competition will continue to be fierce with various alignments evolving.

DIFFERENCES BETWEEN FUTURE RISKS AND THE PAST RISKS
Are these risks evolving or are the same as identified in the days when PayPal was still with eBay? This is a relevant question to ask. The risks have been in existence all the time; thus, the past identified risks are not materially different from the future ones. However, the depth and occurrence of these risks will continuously be intensified increasingly with time. More resources will be required to eliminate them as the days pass by. The scope and effect of future technology developments cannot be identified now and thus PayPal should be structured as to be ready to keep abreast and adapt them as they are emerging.
Also, of importance is the fact that the rate of spreading abroad will continuously expose the company to many risks that might continuously escalate with the depth of operation in the country.

PAYPAL RESPONDS TO THE EMERGING PAYMENT PLATFORMS
There are some payment platforms that are emerging and are getting stronger in offering or promise to offer some competing products and services as PayPal. This section considers the impact of cryptocurrencies on the services PayPal offers and proposes how PayPal should respond to the launch.

The blockchain technology is a framework for cryptocurrencies. A blockchain is a framework of data that represents a financial ledger entry, or a record of a transaction. Each transaction is digitally signed to ensure its authenticity and high integrity. The concept of blockchain works really well at tracking how assets move through a supply chain, through certain vendors and factories to transmission and transportation lines and into their final sites (Hassell, 2016).

Cryptocurrency is a channel of exchange, which is generated and saved in a blockchain electronically, using encryption to influence the creation of finance while verifying circulation of funds. After many failed attempts in the 90s by the various inventors to create digital money, Satoshi Nakamoto in 2009 announced, Bitcoin’s 1st release which was a new electronic cash system that uses a peer-to-peer network to prevent double-spending, it’s completely decentralized with no server or central authority” (Nakamoto, 2009). Amongst all the cryptocurrencies created, bitcoin remains the biggest and first of its kind. Some of the other ones are Etherium, Ripple, EOS, Stellar, Litecoin etc among over a thousand others.

Cryptocurrency represents a concept which fits into the mission of PayPal of democratization of money or financial inclusiveness and secondly of movement of money without border. As depicted in the diagram below, it works as a decentralised digital cash system. There is no central server or authority that keeps the updated record after applying a transaction but rather all the peers in that network are entrusted with the role of checking the validity of any transaction while keeping records same balances. It means that all the nodes in the Peer to Peer (P2P) network will at all-time have the same information and thus eliminating possibility of falsification thereby attesting to the sincerity of the currency.

Diagram showing how crypto works (BlockGeeks, 2018).

In an interview with the Wall Street Journal in February 2018, John Rainey, the CFO of PayPal, noticed that the Cryptocurrency (virtual currency), the application of the Blockchain technology to the Payment process, is presently very volatile and unreliable as a currency for transaction (Rainey, 2018), that customers and merchants will still prefer to pay a little premium for the stability of services enjoyed via PayPal of present. He however acknowledged that bitcoin will eventually mature in the future have full acceptance of becoming a daily payment.

In an interview with CNBC on January 23, 2018, Dan Schulman, sees Cryptocurrency as more of a ground experiment right now without a clear direction. He thinks if the block chain technology succeeds, it could be a great shift in how we think about transfer of value and distributed trust. However, the volatility of the Cryptocurrency makes it unacceptable to the business right now, though as an individual he has some Cryptocurrencies which he said he bought much earlier.

There is no doubt that PayPal has being analysing Cryptocurrency to determine the response of the company to this emerging payment processing platform. The following steps are recommendations for PayPal to take to ensure that it becomes highly successful, PayPal will be part of the success and it will not swallow up the company. If eventually it is not successful, the loss will be immaterial as to adversely affect the company revenue nor its leadership position in the Peer to Peer payment world. It is a known fact that one of the strategies of PayPal is to grow organically by acquiring companies of interest that would add value to PayPal. Cryptocurrency should be seen from this angle. Block chain technology is not a threat to PayPal but a means to retain the number one position of the worldwide payment provider. PayPal should invest in Cryptocurrency in one or combination of the following;
PayPal should continue its partnership with Coinbase, to ensure that the exchange users can buy and sell bitcoins using their PayPal accounts
PayPal can buy Coinbase over as a strategic investment
PayPal to start its own cryptocurrency
PayPal to support an existing cryptocurrency e.g. bitcoin, in their product suite.

CONFRONTING THE CHALLENGES
In 2015, as PayPal started a new era as an independent company, one of the questions at the lips of the observers was, “will PayPal lead the global effort to improve financial inclusion?” This has since become a foundational strategy of PayPal. One of the flaunted PayPal achievements is in financial inclusiveness, how the company has been able to affect many lives positively through her innovative processes and products. However, there is still much that can be achieved in this area. In the message of the PayPal’s President and CEO address to shareholders curled from the 2017 Annual Report, Daniel Schulman stated that, “Around the world, two billion people lack access to basic banking services” (Idowu, 2018). This problem is even more pronounced in Nigeria with only 58 million Nigerians having access to financial services (Onyeaka, 2018). Nigerians that are bank account holders are less than 40% thus about 4% of the world unbanked are resident in Nigeria (Adesanya, 2017). In July 2017, Adesanya O. stated in his paper presented in Morocco on Financial Inclusion that “Nigeria has the most populated and the biggest economic in the African continent with a population of over 176 million people but with about 64% of the adult population being un(der)banked.
In October 2012, a financial inclusion national strategy was launched by the Central Bank of Nigeria with the aim of reducing the exclusion rate to 20% by 2020 (CBN, 2012). Although some level of progress is being made to reduce the financial exclusion, it is obvious that the target will not be met unless with the strong commitments of the stakeholders. Shallow financial literacy, inefficient and inadequate technological facilities from the financial institutions are some of the significant challenges obstructing the countries goal achievement as well as Inadequate infrastructure (Kama and Adigun, 2013). All these indicate the existence of many great opportunities to improve financial inclusion in Nigeria. PayPal can greatly improve the scope of her financial inclusion by expanding her services in Nigeria. Presently PayPal services are limited in Nigeria. PayPal accounts can be opened in the country with a limited capability which restricts its services to purchasing of goods and services or transferring money with no means of receiving money in their wallets (Adesanya, 2017). There is an urgent need for PayPal to resolve this with the Nigerian Government to increase its usage amongst Nigerians.

PayPal can also assist in meeting some of the challenges already identified like low financial literacy and inadequate infrastructure. Though this will be huge financial outlay in the beginning, the obvious advantage with time is the increase in customer base, increase loyalty and huge monetary benefit when the company finally begins to tap into his abundant potentials. The knowledge of Block chain technology and Cryptocurrency is very low in Nigeria. PayPal can drive awareness and have incentives to encourage natives to trade in cryptocurrency, thereby increasing the number of people using mobile payment in Nigeria.

CONCLUSION
The spinning off PayPal Inc from eBay Inc created much wealth for the shareholders of the company. PayPal growth as an independent company has been tremendous since the separation with all key performance indices going north every quarter.  A basic reason among others for this accomplishment is due to the visionary leadership that was able to restructure the company and the separate Board that focused on PayPal business alone.

One of the strengths of PayPal was ability to innovate or partner with companies that offer services and products that are valuable to their customers and merchants. The use of technology has been a great differentiator in the operation of PayPal. The initial targets set by PayPal at the point of separation have all been surpassed.

PayPal’s desire to democratise money, to improve financial inclusiveness globally and give financial freedom to individual to manage the flow of their money have being realised but there is still a lot to be done. About 2 billion people in the world still don’t have access to basic banking system.

The company’s strategy to innovate and to grow organically by acquiring companies that add value has allowed PayPal to maintain healthy lead in the sector.

With the growth comes many attendant risks which the company needs to pay attention to, analyse and apply resources, including money and men, to mitigate. More than half of the revenue of PayPal comes from the abroad. The cross-border trading risks and the local risks within the country are always there to grapple with. Also, the competition is becoming more intense with some companies with much power and finances competing at various levels. Development in mobile technology is increasing and opening more opportunities for mobile payment operations with inherent security risks.

Cryptocurrency is here to stay. The earlier PayPal takes an investment stand in Cryptocurrency, the better for the company. Cryptos have the potential to fulfil the original objective of PayPal and thus the company should see it as a platform to maintain their leadership in the Mobile Payment Services. Neglecting this emerging block chain technology and the Cryptocurrency payment system could prove too costly for PayPal. Like most other new technologies, the Cryptocurrency is very unstable now and may be discouraging to the businesses, however, PayPal’s more than 200 million consumer users and millions of merchant customers, could be a great asset in taking a lead in the Cryptocurrency’s world. There are couples of steps that PayPal can take to accomplish this. Among them are: PayPal to create own cryptocurrency or promote or buy an existing one, or even buy a Cryptocurrency ETF like Coinbase.

PayPal Financial inclusiveness strategy will have a big boost if the company can make Nigeria a focus area. Nigeria has a big potential market with less than 40 percent of Nigerians who are Bank account holders. PayPal can run awareness on Mobile Payment System and Cryptocurrency. It can support with building infrastructure for mobile banking as requested by the Central Bank of Nigeria.

In conclusion, PayPal has the resources and structure to continue to lead the Mobile Payment Industry for years to come but needs to be aware and ready to adapt new technological innovation early.References
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