PayPal: A Marketing Strategy for the Future

Marketing for High Tech Entrepreneurs UC Berkeley Fall 2008

Chris Anderson, Vera Dadok, Aby Galsky, Samuel Lin, Camilo Mendez, Bonnie Zhu 12/8/2008

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Table of Contents 
Executive Summary ........................................................................................................................ 1  Introduction ..................................................................................................................................... 2  Background ..................................................................................................................................... 2  PayPal and eBay ......................................................................................................................... 2  Value Propositions .......................................................................................................................... 3  Buyers ......................................................................................................................................... 3  Sellers.......................................................................................................................................... 3  Operations ....................................................................................................................................... 4  Product and Services ................................................................................................................... 4  Revenue Sources ......................................................................................................................... 4  Performance ................................................................................................................................ 5  Current growth strategy .................................................................................................................. 5  Growth in Established Markets................................................................................................... 5  Expanding to Emerging Markets ................................................................................................ 6  Failure in China and Lessons Learned ........................................................................................ 6  New Product Development ......................................................................................................... 7  Critique of growth strategy ............................................................................................................. 7  New opportunities / strategies for growth....................................................................................... 8  Non-Retail Payments Opportunities ........................................................................................... 8  Incentives for New Contracting Payment Solutions ................................................................... 9  Incentives for New Attorney Payment Solutions.................................................................... 9  Incentives for new rental payment solutions .......................................................................... 9  1

Recommendations for new payment solutions ..................................................................... 10  A new revenue model ........................................................................................................... 10  Targeted marketing ............................................................................................................... 11  Remittances ............................................................................................................................... 11  Matches Core Competencies and Goals ............................................................................... 11  Factors that Facilitate Entry into Market .............................................................................. 12  Market Size ........................................................................................................................... 12  Recommendation to PayPal Regarding Remittance ............................................................. 13  Mobile Payment in Emerging Markets ..................................................................................... 14  Conclusions ................................................................................................................................... 17  Appendix ....................................................................................................................................... 19  Non-retail Payment Calculations .............................................................................................. 19  Contractor payments US market ........................................................................................... 19  Attorney payments US market .............................................................................................. 19  Tax preparation payments US market................................................................................... 20  PayPal’s Potential Revenue Sensitivity to Market Conditions in the Remittance Market ....... 20  Exhibits ......................................................................................................................................... 22 

 

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PayPal. Non-retail payments including rent.3% of $600B global e-commerce market. a subsidiary of eBay. processes 8. Due to the unique payment structure in these segments. browser add-ons and more. Remittances services are currently expensive and PayPal is in a unique position to leverage their existing online fund transfer infrastructure to offer a lower cost to customers. In the future as PayPal saturates its established markets and encounters competition in emerging markets. PayPal will need to conduct extensive marketing research and test acceptance levels in addition to building partnership with local institutions. For example. PayPal could address lawyers and contractors by developing payment solutions that enable incremental payments and up front advancements in a single invoice. it has made it difficult for several of its newest offerings to gain traction. PayPal can offer a very compelling value proposition in this payment space.Executive Summary  As a dominant player in online payment business. Jamaica and Guyana have been identified as penetrable markets due to their large volume of both remittance fees and banking populations. PayPal should conduct extensive market research to be sure they understand the culture and buying behavior in India. PayPal has presence in 190 markets and accepts 19 currencies with 44% of its revenue from outside of US. We have identified three new opportunities for PayPal: non-retail payments in US and remittance and mobile payments in emerging markets. In order to break cultural and consumer behavioral barriers. In addition. PayPal has begun developing additional payment services via mobile phones. thereby matching the needs of these industries payment methods. we believe PayPal should devote more resources into advertising the sophistication and novelty of these new services. Due to PayPal’s history of new product offerings not gaining traction as a result of ineffective promotion. The mobile payments industry has a substantial first mover advantage. Mobile payment platforms are leapfrogging traditional payment methods in emerging markets with a high proportion of unbanked population. While this has worked very well for traditional products. These recommendations will help PayPal to achieve its goal of being the global standard for online payment solutions. Similarly. In addition to its simple. attorney fees. All opportunities we’ve identified leverage PayPal’s existing infrastructure. and contractor payments are an untapped market where millions of transactions take place. The Dominican Republic. India has been identified as a compelling mobile payment market due to the regulatory environment and high acceptance potential. PayPal’s revenue has been growing steadily at over 30% for the past three years. PayPal can set up a system tailored for renters that uses a larger flat fee and requires funding by debiting bank or PayPal accounts (for highest PayPal profit margins). PayPal will face difficulties if additional expansion is not pursued. core competencies. PayPal often relies on brand recognition and word of mouth advertising to promote its new products. and current value offerings. quick and secure online payment services. we believe PayPal should move quickly to align mobile operators and banks in this region. 1 . Through new partnerships and its tie with eBay.

2007 3 http://news. and more. PayPal grew rapidly. developing new offerings.. pulling in 49% of their Total Payment Volume (TPV) from non-eBay sources in Q2 2007 5 . when more than 50% of the eBay users preferred PayPal as a payment method 3 . is in the business of online payment solutions. created PayPal in 2000.Introduction   PayPal Inc. PayPal currently has an 8..com. Background  The merger of two companies. eBay also increases the power of PayPal’s brand. PayPal and eBay  PayPal has achieved a significant amount of its success due to its relationship with eBay. a subsidiary of eBay Inc. and expanding existing services to new markets. supporting transactions in 19 currencies and with 44% of revenue from outside of the US 1 . Confinity and X.com/documentdisplay.5B in 2002. prompting eBay to acquire PayPal for $1. browser add-ons.paypal-media. However PayPal has expanded beyond eBay and provides services for many other online merchants.com/2100-1017-941964. offers a free avenue for advertising PayPal. In addition to basic online payment services it has begun developing additional payment services via mobile phones.cfm?DocumentID=2260 eBay Annual Report.html 4 eBay Annual Report. PayPal is aiming to become the “online payment network of choice around the world” 2 .cfm?DocumentID=2260 2 . 2007 5 https://www.3% share of global ecommerce and plans to gain an increasing share of global ecommerce payments in the next decade by increasing the frequency of use of current services. It is an international company. and access to eBay’s adjacent Marketplaces 4 . eBay provides PayPal with a large. acting as a secure middleman for transactions in ecommerce between online merchants or sellers and customers or buyers.com/documentdisplay.paypal-media. protected market that plays a key role in building PayPal’s huge user base.cnet. Growth for PayPal depends on 1 2 www.

increased growth in ecommerce outside of eBay. the PayPal platform is a financial gateway that allows simple. accepts 19 currencies in 190 markets. Value Propositions  Buyers  For buyers who want to make payments online. paying with PayPal does not require sharing sensitive information such as credit card numbers on merchants’ websites and simplifies payment information entry to only an email address and password. processes over $64B per year and has revenues of over $600M per quarter. 6 7 https://www.paypal-media. Unlike paying directly with credit cards online. and secure payments on a large number of websites. Today PayPal has over 63M active accounts. but eBay’s exclusive use of PayPal continues to provide an important barrier against PayPal competitors. private. Unlike online solutions provided by traditional merchant accounts. Sellers  For vendors who want to sell products online and collect payments electronically. PayPal’s TPV was approximately 9% of global e-commerce in 2007 6 .com/documentdisplay. 2007 3 . the PayPal platform is a payment processing solution that allows them to accept secure online payments from customers in over 190 markets and in 19 currencies.cfm?DocumentID=2260 eBay Annual Report. PayPal’s product can be set up quickly and easily and has a low cost transaction fee structure 7 .

Revenue Sources  The overwhelming majority of PayPal’s revenue is from transaction fees paid by online merchants. Approximately 60% of transactions are processed with credit cards. 2007 4 . among others.30 flat rate on top of 1. Toys R’ Us. transaction fees are a $0. when customers use money directly from PayPal accounts or bank accounts 8 . Blockbuster. Many companies carry PayPal as a payment option.9 to 2. 8 eBay Annual Report. Delta Air Lines. among others. When transactions are processed with a credit card. PayPal’s profit varies depending on the base source a customer chooses to fund the payment. However. For example. the majority of the transaction fee received by PayPal goes straight to the credit card company. send request money and buy products online by using a mobile phone. the transaction fee is nominally profit. The company offers an online payment platform for eBay and off-eBay accounts and merchants. PayPal also has other financial products such as the PayPal ATM/Debit Card.Operations  Product and Services  PayPal’s principal product is their online global payments platform. PayPal Pay Later. Southwest Airlines. including Barnes & Noble. PayPal Money Market Fund.9 percent of the payment amount. PayPal Plus Credit Card. PayPal Plug-In is another product that allows the user to use PayPal on the Internet anywhere that MasterCard is accepted. Typically. PayPal Mobile is a way to check your PayPal balance. PayPal offers other services to facilitate payments and money transfers.

Nov.8 billion in 2007 (see Exhibit 1). PayPal’s general strategy is to keep operating costs low by spending very few resources on advertising. Instead PayPal relies on word-of-mouth. such as the U. and several other large retailers in the US. and merchant customers 11 (with the PayPal button on websites) to maintain and increase awareness of PayPal’s primary product. Little advertising effort is put into attracting small online merchants 10 . Last year. tech blogs. the percentage of off eBay revenue has improved from 35% to 42% in the past two years. and Australia. PayPal enjoys excellent brand recognition and a large user-account base.Performance  PayPal’s revenue is almost directly related to the dollar amount of payments or TPV. PayPal partnered with Barnes and Noble. PayPal’s revenue has been growing steadily at over 30% for the past three years to $1. online news. In addition.S. Current growth strategy  PayPal’s growth strategies can be divided into three categories—strategies within established markets. expansion to new geographies. 10 5 . PayPal’s goal is to increase customer usage. Growth in Established Markets  In established markets. PayPal Strategy Group conducted by the group. Toys R’ Us. and development of new services. By 9 eBay Source Interview with Jeff Lowman. PayPal is partnering with large corporations and exploring strategies to increase PayPal’s share of eBay transactions.2008 11 Add more stuff: web developers. To achieve this. indicating that PayPal is successfully improving revenue from merchant services and other off eBay offerings. but PayPal’s brand and simple solutions for integrating one-click payments and shopping carts on these websites continues to draw new businesses. eBay. PayPal also has a substantial international offering: over 44% of its revenues are from non-US sources 9 . In these markets. etc.

13 12 6 . eBay Eachnet provided no phone support and discouraged buyer-seller contact that could lead to haggling. and user accounts. In contrast to Taobao. not all of PayPal’s endeavors to enter foreign markets have been successful.targeting big merchant customers like Barnes and Noble. consumers’ continued preference for cash payments. market penetration. low credit card usage. In the end. South America. Yet despite significant effort. by mid-2007. and online payment restrictions for debit card users. The setback was largely attributed to nuances and challenges of online payments in China market.6%. the lessons from China will likely prompt extensive market research so that a platform tailored to the unique needs of the market can be implemented. PayPal’s share of China’s third payment market was only 1. The experience in China harshly reminded PayPal that a successful rollout requires two things: the technical infrastructure and an understanding of users’ buying behavior in that local market. and southern Africa. PayPal rolled out PayPal. PayPal further increases visibility. Failure in China and Lessons Learned  In attempts to capture some of the 220 million potential online shoppers in the China’s ecommerce market. If and when PayPal expands into Asia. These include ambiguous governmental regulations. PayPal’s failure in China boiled down to their inability to understand the local market and culture 13 . However. Its transactional revenue growth rate within US dropped from 36% in FY2006 to 22% in FY2007 while that of international maintained 46%. Interview with Jeff Lowman Taobao has a layout that is similar to a Chinese department store with separate sections for women’s and men’s department. Expanding to Emerging Markets  Expanding to new geographical territories is one of PayPal’s core focuses 12 .cn in 2005.

it seems that these products are developed and then left unused by the majority of PayPal users. Critique of growth strategy  PayPal relies too heavily on brand recognition and word of mouth advertising to market and sell its new product offerings.blogs. however this company image and branding does not extend to new services that are significantly different from PayPal’s typical offerings. PayPal Plug-In (November 2007) 15 Bill Me Later 16 .asp?id=22340 19 Interview with Jeff Lowman 20 http://www.hoovers. PayPal’s association with eBay and strong brand recognition were effective marketing tools for their well-known online payment platform. PayPal needs to put more effort into marketing and promoting their new products or stop wasting resources developing them.reuters. 14 15 http://www. an iPhone application has recently been produced 18 and continues to be under development 19 .techcrunch. This December PayPal is beta testing PayPal Student Account.americanbanker. a service that is similar to an online allowance 17 .com/2008/12/01/paypal-brings-the-weekly-allowance-into-the-21st-century/ 18 http://www.multicellphone. Some of their recent offerings have been PayPal Mobile in 2006 14 .com/subscribe/co/overview.New Product Development  PayPal is currently acquiring and developing several new products and services.com/obopay-mastercard-partnership-for-mobile-payment-service/ 7 . Finally.html?id=20080324AZ23ATWO 21 http://www. and they even have plans to add a credit product to their offerings.nytimes.com/fullpr. Although many of their new products sound promising.com/2006/03/22/paypal-mobile-launches-and-its-awesome/ http://www.com/article.xhtml?ID=ffffjrytrrxyjcrhxy 17 http://bits. their track record for promoting many of their previous products has been poor. The president of PayPal recently admitted that the mobile platform has not succeeded in the US 20 even as mobile financial transactions are attracting new competitors and expanding as a market in the US and abroad 21 .finextra. While new products and services are continually being bought and developed.com/article/technologyNews/idUSN1840572920071119 16 http://premium.

contractors. lawyers). etcetera. core competence. Independent contractors and lawyers share a similar and unique payment structure that is based off of an advancement of initial start up funds and incremental payments throughout the clientcustomer relationship.e. 8 . These areas include: Non-retail payments As PayPal expands to more financial services. they have the opportunity to simplify remittances for users. 22 See Appendix-Non-retail Payment Calculation for details of market sizing.New opportunities / strategies for growth  Three areas have been identified as large markets that will integrate well into PayPal’s existing infrastructure. Mobile payments in emerging markets PayPal can use its mobile payment technology to become established in new geographies where mobile phone penetration is high and non-cash financial solutions are needed. The total payment volume for contractor and attorney payments is $300B and $240B respectively (see Exhibit 2) 22 . Due to the uniqueness of this payment structure. independent contracting payments. and value offering.. professional services paymentscharity payments. tenants typically pay rent on a monthly basis after an initial larger security deposit. we believe PayPal can offer a very compelling value proposition in the contractor and lawyer payment space. Non­Retail Payments Opportunities  The identified non-retail opportunity for PayPal is the creation of payment platforms tailored for rental payments. professional service fees (i. Remittances As PayPal is globally available. specific solutions and fee rates should be considered to draw in new types of transactions such as rent. Similarly. and more.

creating many opportunities for checks to bounce. For smaller firms and independent lawyers that only accept check.or even worse. the nature of the attorney-client interaction lends itself to a payment structure where clients are forced to make small payments throughout the interaction. dealing with bounced checks . would alleviating hassles with checks and in addition would likely increase the perceived level of sophistication and image that the client has for the attorney. or money order. there are many incentives to switch to instant electronic payments: eliminate the need to place liens on property while waiting for checks to clear. A professional payment / billing solution (that accepts credit card).” Nolo. The automatic debiting requires the tenant to give out sensitive bank account information to the landlord or other party conducting the We define independent contractor payments as fees paid whenever someone comes to a residence or business to make repairs (i. 23 9 . cash. eliminate weekly bank runs to finance operations. eliminate carrying large sums of cash for materials purchases. however. enabling electronic payment of employees and subcontractors. 2007.e. Incentives for new rental payment solutions  Rent is most frequently paid by check. waiting for checks to clear . In addition. 24 Stewart. Marcia. remodeling. electrical) or modifications (i.e.hampers business. painting). and increasing accountability and documentation of contractor operations.. plumbing. Obviously credit card payment solutions would mitigate most of this hassle. “Every Tenant’s Legal Guide. Incentives for New Attorney Payment Solutions  Today.Incentives for New Contracting Payment Solutions 23  Today. both inconvenient for the tenant.. although some landlords now offer credit card payments in person each month or automatic debiting of the tenant’s bank account 24 . contracting payments are predominantly made by check. Most of these methods either involve the tenant mailing the payment to the landlord or walking to the rental office. however many small firms have not adopted this payment method due to infrequency of use. we estimate that over 40% of lawyer payments and money transfers are via check.

when dealing with large payments of over $500 per month 27 as in a typical rent or lawyer payment (see Exhibit 4 for rental costs breakdown by amount). In March 2008. start-up costs. For example.census. 82% of households had Internet access 25 . For tenants with Internet access or home or work. for the contractor this may be advancing payments for materials purchases. A new revenue model  These offerings would be different enough from their current products that they may require a new revenue model tailored to suit the needs of the new customers.gov/population/socdemo/hh-fam/cps2007/tabH1-all. paying the rent via the Internet in a secure and optionally automatic way would simplify life. Therefore. Additionally. For the lawyer. For example. this may be retainer fees.transactions.gov/servlet/DTTable 10 . et-cetera.census. billing for services. PayPal’s current fee structure of taking a percentage of the transaction may not be feasible. However.webpronews.com/topnews/2008/05/14/18-of-us-households-have-no-internet-access http://www. PayPal could set up a system that uses a larger flat fee and required funding by debiting bank or PayPal accounts (for highest PayPal profit 25 26 http://www. 69% households were owned and 31% rented (see Exhibit 3) 26 . approximately 35 million households pay rent. filing fees. lawyers and contractors might both value a platform that can store detailed records of accomplishments at each payment step so the customer can view them in an online invoice and for record keeping. Recommendations for new payment solutions  Because contractors and lawyers share a similar payment structure. several payment solution characteristics will be compelling to both customers. or weekly payments. both lawyers and contractors would value a payment architecture with an invoice that could grow throughout the interaction and be paid off intermittently as various fees are addressed. Partnerships with shopping cart providers should ease PayPal’s burden of developing these solutions.xls 27 http://factfinder. Of the 116 million households in the US in 2007.

Remittances from the U. 2008. in the contractor industry. the service could be marketed in lawyer magazines. respectively. Remittances  PayPal should enter the remittance services market from the U. The World Bank: April 8.S. Also. Additionally. marketing would probably be most effective in Home Depot catalogs and other places where contractors are likely to look. for lawyers or renters. Likewise. reference-based vertical marketing should be used for each identified market segment. builders. For example. etc. to LAC were approximately $50 Billion in 2007 28 and experienced a positive growth rate of 6% from 2006 to 2007 29 (see Exhibit 5). 11 . architects. traditional lawyer channels and home owner magazines. 28 29 International Fund for Agricultural Development (IFAD) and the World Bank Paulina Ibarra. plumbers. PayPal already has extensive knowledge and technical skills needed to deal with currency exchanges and money transfers across different countries.margins). Matches Core Competencies and Goals  Providing remittance service to LAC opens the door for PayPal to provide other services (such as e-commerce) to LAC. US Slowdown Affects Remittances in LAC. Following the early adopter phase. handling remittance to LAC should pose no trouble for PayPal. PayPal can use remittances to enter new global markets without additional product development. contractors.S. With these abilities. the payment solution will work for electricians. This is a straightforward way to be a first-mover in these markets. Targeted marketing  For contractors. and the added convenience for both parties would be well worth a few dollars to customers. to Latin America and Caribbean countries (LAC). This would be easy to implement with PayPal’s current infrastructure.

there is a rise in the number of remittances performed through banks. the average number of transactions remitted through banks is about 11% 33 USD 2. Vigo. Market Size  PayPal’s potential market size in remittances from the U. Competition and Remittances in Latin America: Lower Prices and More Efficient Markets. Second. Countries such as Mexico and the Dominican Republic have remittance through formal channels at a rate of 85% and above . Georgetown University: June 2004. The Remittance Marketplace: Prices. the market for remittance to LAC is growing in three fronts: amount. even after being affected by the U. many governments promote the sending of remittance through banks.4B in remittance. 2007 32 Of the $50 billion in remittance. MoneyGram. channel.Factors that Facilitate Entry into Market  30 The remittance market is highly fragmented. approximately 43% is actually performed through formal channels32.) have less than 20% of the market. 35 Lenora Suki. see Exhibit 9) 34 Manuel Orozco.9% in El Salvador 33 ) 34 . and banks. There are no mature markets in LAC . Remittance market. Inter-America Dialogue: June 2008. economic downturn. Additionally. Remittances play an increasingly large role in the economies of LAC. Inter-American Dialogue: March 14. 30 12 . contributing to economic growth.6M. Within this 43%.66% in Barbados (with an average of 8.9% in El Salvador to about 11. Lastly. 31 Conference Report: Research on Remittances to Latin America and the Caribbean. reduce poverty 31 and social inequality . Due to these benefits. Estimating that PayPal will gain a 15% market share and charge a 3% fee (lower than the lowest average fee on remittances at 3. to LAC is approximately $2.25%. the revenue to PayPal would be $10. Besides Mexico. the average cost of remittance ranges from as low as 3. Columbia University: February 2007.4 billion after filtering out the red herring information (Exhibit 6) 32 . the major MTOs (such as Western Union. and etc. (1% of PayPal’s profits now). which corresponds to increasing 35 Manuel Orozco.S.S. Remittances receivers help increase banking. the switch form informal channel to formal is increasing in many of the LAC countries. still shows positive growth of 6% between 2006 and 2007. Policy and Financial Institutions. The Local Economy and Local Governments’ Responses to Remittances in Latin America ad the Caribbean.

36 United States Government Accountability Office. PayPal’s market penetration and fees is shown in Appendix . A 1% increase in bank usage will result in a 9% increase in revenue or $6. It is surprising to see that PayPal’s potential revenue is most sensitive to changes in number of remittance through banks. Recommendation to PayPal Regarding Remittance  In order for PayPal to successfully enter this market. enter countries with high remittance fees and a high percentage of population with bank accounts (mainly because PayPal will only consider markets where the financial institutions are already in place 37 ). more than 60% of recipients of remittances have bank accounts. especially banking channels. Senate: November 2005. These help expand the part of remittance market that PayPal can enter.S. a global strategist working at PayPal Nov 2008  13 . to educate. 36 Moreover. Guyana.number of receivers who own bank accounts. All these programs work to both encourage the migrant workers to send money through formal channels and increase their enrollment in bank accounts. Costs. We have analyzed the sensitivity of PayPal’s potential revenues to factors such as changing in overall remittance market size.S. First. formal channels usage. new identification cards have issued by the LAC countries. to solve the problem faced by the migrant workers related to inaccessible to formal channels due to the lack of accepted identification documents. and Consumer Disclosures. we have two recommendations. As shown in exhibit 9. U. bank usage.7M for PayPal. 37 Interview with Jeff Loman. in countries such as Dominican Republic. Programs such as the New Alliance Task Force (NATF) have been created in the US to increase the amount of immigrants with bank accounts and promote financial education among these communities. This is very good for PayPal because many governments of LAC countries are working together with the U. International Remittances: Information on Products. Housing. and Urban Affairs. Table below is a list of countries that PayPal should consider based on these two criteria. facilitate. and Haiti. Report to the Committee on Banking. and improve remittance channels.

According to a study made by Gartner there is still huge growth expected – Mobile payment is a service at an early stage with an expected 32.4 8. 86% of the remittances that are distributed in LAC region are cash payment picked up at office. in order to succeed in these developing countries. Therefore..In developed markets banks should be aware of alternative services from nonbanking institutions. 2006-2011" 14 .2 10. Only 4% is direct credit to an account.9 million users worldwide in 2008.. Mobile Payment in Emerging Markets  The slow adoption of PayPal Mobile in the US market does not imply that the mobile payments business is not promising.651 270 985 Recipients with Bank Account (%) 66 65 62 68.14 6.4 Moreover PayPal needs to develop relationships with banks and credit unions in the developing countries through revenue sharing. where many people are unbanked or underbanked. such as PayPal and Obopay.Dominican Republic Jamaica Guyana Haiti Remittance Fees (%) 6.00 179.00 123. branch.7 Average Transfer (USD) 176. and there are few payment options. and/or partnership. PayPal would require the financial institution to serve as a distribution channel. "Dataquest Insight: Mobile Payment. growing to 103. we believe that PayPal should consider launching its mobile payment proposal in a market that embraces this technology and that has a higher need for this service than the US. that can compete on lower fees and faster transactions and that are more proactive on the mobile front” Therefore. technology transfer.00 Annual Volume (USD in M) 2. Gartner also notes that: "The service [mobile payments] is easier to justify in emerging markets. 38 Gartner.410 1. In this same study.9 million users in 2011 38 .00 209. or other distribution points (see Exhibit 11).

There are 4 different segments of countries in the Asia/Pacific region 40 : The leaders: Japan and Korea The mobile tigers: Hong Kong. The technology is advanced but its business model is relatively complex to implement because it requires the alignment of different players. India. 2007 40 15 . These are mature markets where there are strong established players and where NFC is highly 39 http://takemetoyourleader. buying entertainment content and some mobile banking services. There are basically two different technologies to make mobile payments 39 . Near Field Communications (NFC) and SMS. Mobile Payments in Asia Pacific. Singapore and Taiwan The mid-market: Thailand and Malaysia The giants: China. An SMS-based service is simpler to deploy because it does not require a special handset it only requires the negotiation of usage of mobile operator’s network. 2008.Asia/pacific accounts for 85% of the total mobile payment users in the world and will be the highest growing region in the next years. NFC is a technology based in RFID that requires implants in the handset and the merchant’s POS to make the transaction and it is usually used for retail and transportation payments.Present and Future of Mobile Payments. To determine which market to enter is important to consider the technology they use and the need of a P2P service.com. Rob Gonda KPMG. SMS PayPal’s technology is SMS based which is also the leading technology for P2P payments. August 29. Philippines and Indonesia Japan and Korea were early adopters of mobile technology and similarly of mobile payments. Every participant that wants to be a relevant player in mobile payments should be in Asia that is why we recommend that PayPal focus in this market.

Philippines is already doing a lot of use of SMS payments but it has rooted players in the business and therefore is difficult for a new entrant to gain market share. their size represents a huge opportunity – China has around 600 million mobile users while India accounts for 315 million. There is a growing opportunity for Person-to-Person payments and content distribution but these markets are small and there would not be much scale to put some effort in developing the mobile payments business. India has 25 16 . Both China and India represent the most attractive markets. These are also mature markets that have demonstrated little interest in mobile payments and where users are not looking for new payment methods besides the traditional ones. There is little room for PayPal in this market because the incumbents are very strong. most of the transactions are cash-based and there is huge commerce activity between people in far away regions – China has 73 ATMs per million people. The mid markets are starting to adopt NFC technology and are focusing more on bill payments and mobile banking. the market adopts cutting edge technologies and P2P transactions don’t have much traction. Philippines and Indonesia have a large number of users of SMS. there is a real need for person to person mobile services because both countries have low banking adoption. India and China have a large number of mobile subscribers and therefore a large potential for mobile payments. In this segment is where the opportunity for PayPal resides.implemented and dominated by a few operators. just NFC for transportation services and for some retail stores. Indonesia represents a large opportunity because there is interest in moving further in mobile payments adoption but this country is highly risky because it has the largest number of fraudulent electronic transactions in the world. The mobile tigers are the most highly mobile penetrated countries in the world but have little adoption of mobile payments. specifically in China and India. Second. First.

17 . we believe that PayPal should move fast into aligning Indian mobile operators and banks to have a sound start. PayPal can lower the cost of remittance for end users. Emerging market mobile payments: as emerging markets leapfrog traditional payment methods and embrace the convergence of applications into the phone. which we also think is a good sign. not only can act as a bridge to this goal. lawyers. Remittance: PayPal’s end goal is to have a presence in the Latin America and Caribbean countries and to serve the e-commerce in these locations. given the failure that PayPal already had in China with its online payments attempt. but also it can be a significant source of revenue at the present time. Conclusions  PayPal is in an excellent position to develop compelling electronic payment solutions for several large and growing markets.353 – China has 457 Point of Sale Systems per million people. Building from PayPal’s existing electronic fund transfer infrastructure. Non-retail payments: interactions where large amounts of money are transferred in a unique billing/payment structure (for example. contractors. the strong positioning of the local players and the difficult regulatory environment of the country. India has 270 and the US has 8. However. rent) are opportunities where PayPal has the ability to develop extremely attractive payment solutions and leverage its trusted brand name to help with product launch and marketing. India represents a larger opportunity of people outside of the banking system with less payment options and it is a good fit for PayPal because it can leverage its brand since it is already a player in the online payments business. we would recommend that PayPal enters the Indian market. Remittance. But for this same reason and the fact that this business relies in building a huge network of users in a timely manner. Obopay. PayPal can leverage its brand as a trusted player in the online payments business to help align the mobile operators and banks that will be required for these initiatives to be successful. an American player in this arena already entered the Indian market this year.compared with the US that has 1.647. there will be a huge opportunity to spread a mobile payments solution around the world.

In the past. PayPal’s non-traditional offerings have had difficulty gaining traction. PayPal will have to re-think its practice of relying mostly on branding and word of mouth advertising to launch and market its new offerings. the company must be poised for market research due diligence. as PayPal moves into international markets. the mistakes from the China expansion showed firsthand the value of understanding the culture and buying behavior in the markets they wish to penetrate. To succeed in the future. 18 . In addition.

gov/qfd/states/06000.1M active lawyers in US 44 2k billable hours per year (40x50) Estimate 60% occupancy $300 per hour average bill rate 45 1. the answer is 2.5M.5M licensed contractors $60k average contractor salary 43 (labor costs) Estimate that labor and material costs are equal (conservative) 2.census. therefore approximately 1 in 120 CA residents is a licensed contractor.5M*$60k*2 = $300B US market for contractor payments.simplyhired.6 = $400B US market for attorney payments Assume 60% of lawyers’ services are monetized by hourly billing $240B market for client to lawyer payments with check/credit card. Attorney payments US market   • Approximately 1.cslb.abanet.wikipedia.ca.org/wiki/Laffey_Matrix 19 . • • • • • • 41 42 43 44 45 http://www.+CA http://www. Estimate of number of contractor market size (US): There are currently 316k licensed contractors in CA 41 .html http://www. Estimate of contractor payment market size (US): • • • • 2.com/a/salary/search/q-Independent+Contractors/l-Anaheim. we can use the above 1/120 ratio to approximate the number of independent contractors in the US.gov/ http://quickfacts.1M*2k*$300*0. Assuming 300M people live the US 42 . II.org/ Laffey Matrix: http://en. The population of CA is estimated at 37M.Appendix  Non­retail Payment Calculations  Contractor payments US market  I.

html.id=188359. 30M out of 155M are e-filed from the home with software like "TurboTax".id=188359.Tax preparation payments US market  • • • 155M individual Federal returns filed in 2008 46 80% returns done professionally (125M) 47 $300 average filing fee 48 125M*$300 = $37B market 40% of TPV is channeled through ''check only" firms $15B market size for "check only" based tax preparers $22B market size for "check + credit card" based tax preparers • • • • PayPal’s Potential Revenue Sensitivity to Market Conditions in the  Remittance Market  46 http://www. 30M out of 155M are e-filed from the home with software like "TurboTax".00. CA 94949 20 . 48 Bruce Moeller. CPA.00.html. 47 http://www...gov/newsroom/article/0.irs. J.irs. Suite 1. Novato.gov/newsroom/article/0.D 394 Bell Marin Keys Blvd.

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Exhibits  Exhibit 1. U. Households breakdown by Tenure for 2007. (All assumptions used to generate these data are listed in the Non-retail Payment Calculation in Appendix)     Exhibit 3. Market Size of non-retail payment in the US. US Households by Tenure 2007 1% 30% Own/Buying Rent No Cash Rent 69% 22 . 2005 – 2008Q3 PayPal Performance     Exhibit 2.S.

$500 $500-$1000 $1000-$1500 $1.S.Exhibit 4. Households by Rental Costs Per Month 2005 6% 15% 7% 18% Below $250 $250. households breakdown by Rental Costs per Month for 2005. 23 . The figure is taken from Inter-American Development Bank’s Multilateral Investment Fund (IDB-MIF).S. U. to Latin America and the Caribbean in (US$ Million) in 2007.500 or more 54% Exhibit 5: Remittance from the U.

Picture taken from Remittances Ebb and Flow with the Immigration Tide by Federico S. Policy and Financial Institutions by Dr. Picture taken from The Remittance Marketplace: Prices. Mandelman. ECON South: Volume 10.S. Exhibit 7: Process steps for remittance through formal channel from U. Manuel Orozco at George Town University: June 7. Third Quarter 2008. to Latin countries. to LAC countries.S.Exhibit 6: The growth and the nominal amount of remittance from the U. Number 3. 2004. 24 .

Inter-America Dialogue: June 2008. 25 . The Local Economy and Local Governments’ Responses to Remittances in Latin America and the Caribbean.Exhibit 8: Survey of Latinos remitting to Latin America in July 2007. Inter-American Dialogue: February 2008. Data collected by Central Banks of each country and World Bank Development Indicators (* 2005. Table taken from Toward the mainstream: current trends and dynamics of remittances to Latin America and the Caribbean by Manuel Orozco. ** 2003 data). Exhibit 9: Remittance transfers details broken down for each LAC countries.

Exhibit 10: Table showing remittance and other indicator. Picture taken from Competition and Remittances in Latin America: Lower Prices and More Efficient Markets by Lenora Suki. Exhibit 11: Remittance distribution in LAC region. Inter-American Dialogue: February 2008. Columbia University: February 2007. Table taken from Toward the mainstream: current trends and dynamics of remittances to Latin America and the Caribbean by Manuel Orozco.     26 .

Values take from Gartner.Exhibit 12: Mobile payment users share . Europe Others 85% 27 . 2006-2011" World Mobile Payment Users Share ‐ 2008 3% 1% 11% Asia/Pacific U.worldwide estimated for 2008.S. W. "Dataquest Insight: Mobile Payment.

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