PayPal Thrives in Spite of Pandemic, Raises $4 Billion Debt Deal
Tue, April 20, 2021

PayPal Thrives in Spite of Pandemic, Raises $4 Billion Debt Deal

 

PayPal Holdings Inc. has raised $4 billion in the corporate bond market, highlighting how other firms can also borrow cheaply. / Photo by ymgerman via Shutterstock

 

PayPal Holdings Inc. has raised $4 billion in the corporate bond market, highlighting how other firms can also borrow cheaply. A corporate bond is a type of debt security issued by a company and sold to investors. The firm gets its capital and, in return, the investor is paid a pre-established interest payment at a variable or fixed interest rate.

 

Bond financing

A person with direct knowledge of the matter told stock market news platform MarketWatch that PayPal Holdings Inc.’s 10-year bonds priced at 160 points over Treasury security will yield at about 2.3%. A basis point is the smallest measurement of quoting changes to yields on bonds.

PayPal has been around since 1998. Its existence came long before other payment gateways the public now uses. More than 100 million people and 7 million businesses worldwide are using it as a third-party platform, connecting them directly to their bank accounts or credit cards.

 

 

Why is PayPal popular?

Customers feel safe using their bank accounts or cards online but this information will only be visible to PayPal and not to other businesses they are dealing with. This is because PayPal acts as the third-party gateway between their transactions.

When a user makes a payment through PayPal, the money will be transferred from the savings or checking account into the digital payment platform. In the same manner, if someone pays through PayPal, the money is transferrable to a bank account. The idea behind using the platform is to make transactions easier and quicker. PayPal likewise allows its customers to use the system using a mobile app and without the need to go online.

 

 

May 1: PayPal’s largest transaction day in history

May 1, 2020, marked PayPal’s highest volume transaction in its history. A total of $191 billion in payment volume was processed by PayPal during the first quarter and they posted a net income of $84 million in the same period. Although its adjusted earnings per share came flat at 66 cents, PayPal said the number also includes the 17-cent negative impact from the Current Expected Credit Losses (CECL).

Its stock also increased by 33%. New York-based financial consultant PeerIQ’s analysts noted that PayPal has become a direct beneficiary of the pandemic in so many ways.  After stores and restaurants were closed in some countries and travel came to a halt, consumers shifted to online shopping. The company’s reach likewise includes the increased P2P payments or the transfer of funds between two parties.

The digital payments pioneer also sold three-, five-, and 30-year bonds, the latter’s price at a yield of about 3.25%. The proceeds of these have been designated to pay the $3 billion revolver – a fund used by corporations to fund continuing operations – and for general corporate purposes. As such, the S&P market index said that the new $4 billion debt raise is “leverage neutral,” which means the cost of borrowed funds is equal to the yield provided by the investment, for PayPal. In effect, the digital payment platform will experience a much lower impact from the pandemic than its peers in the market.

Both PayPal and its subsidiary online payment system Venmo are allowing US customers a direct deposit of their government relief aid from the CARES Act instead of waiting for the paper check. The Coronavirus Relief Fund authorizes federal stimulus funds to combat the health crisis.

Under the said program, PayPal has moreover been distributing small business aid. The company’s chief executive Daniel Schulman highlighted last week on their firm’s earnings call that it had distributed over $1 billion in funds.

 

 

PayPal’s total active user accounts

In the Q4 of 2019, PayPal had a total of 305 million total active user accounts from 267 million in Q4 2018, according to database company Statista. The global online payment business has made great gains in online popularity and visibility since it was acquired by eBay. Many retailers, including Home Depot and BestBuy, and digital content sellers, such as Valve or Humble Bundle, use PayPal either for digital wallet top-up or in-store payment. Usually, online payment providers earn through transaction fees.

If PayPal were a bank, it would have been the 21st largest bank in the United States. In the first quarter of 2014, PayPal processed $918 million in payments. The number grew to 1.12 billion (Q1 2015), $1. 41 billion (Q1 2016), $1.71 billion (Q1 2017), $2.21 billion (Q1 2018), $2.83 billion (Q1 2019), and $3.26 billion (Q1 2020). The average PayPal user has $485 in their account.

A majority (43.86%) of PayPal users come from the US and others are from Germany (17.61%) and the UK (14.39%). As for the age of users, digital marketing agency Ewebmarketing data shows that 87% of millennials in the US use PayPal for their online payment transactions and only 15% of generation, X, Y, and Baby Boomers use the platform.

Although Visa Checkout is the most preferred payment option, 45.6% online buyers use other options, including PayPal. Year in and year out, the market share of PayPal continues to increase. They find it a reliable source of getting paid, especially for remote workers and freelancers. The company also introduced the PayPal One Touch service to help users do their transactions faster. An account using the One Touch service is still logged in until the user decides to log-out. The service gained popularity with more than 70 million people using it.

 

 

Meanwhile, one of the world’s largest payment card network processor Mastercard pledged to bring 1 billion people and 50 million micro and small businesses into the digital economy by 2025. Its strategy includes providing 25 million women entrepreneurs with solutions so they can grow their businesses. Mastercard’s chief executive officer Ajay Banga said that if they are going to recover for the long-term and in a sustainable way, it is important to make sure that everyone is included.

Just like any economic crisis, there are winners and losers. It appears that PayPal is among those who thrive amid the pandemic as digitization is being accelerated by the crisis. Compared to Square, Mastercard, and Visa, which have not yet recovered from its March sell-off, PayPal is at an all-time high.