The rise of Zelle and State of Paypal!
PayPal has been a controversial platform with a 1.3-star average rating and over 4,500 reviews on consumer affairs and Trust Pilot. The internet has long been rooting for PayPal’s demise, and it seems that the day is finally here as PayPal is getting destroyed. After the 2021 top, PayPal crashed 73%, which is not surprising given that much of the big tech fell by similar amounts. However, since then, most big tech has not only recovered but have gone on to make scorching new highs.
PayPal is almost back to its IPO price of about $35, with an IPO price closer to $45, so a $60 PayPal stock is not that far off. Their fundamentals have been stagnating and even bleeding active accounts for a few years now. Their net income peaked in early 2021 or three years ago, and they have even had a negative quarter in Q2 of 2022 where they lost over $300 million.
The PayPal problem is not just a monopolistic, anti-consumer payment platform with high fees; it seems that they are becoming an authoritarian payment platform that will do anything to maximize profits and push forward their agenda. To understand what’s wrong with PayPal and why the company is doing so badly, one can take a closer look at what customers are complaining about. Users generally have three overarching concerns when it comes to PayPal: nonexistent customer service, scammers, and high fees.
None of these concerns are exaggerated, as thousands of 1-star reviews knock on PayPal’s customer service, often stating that they are greedy, incompetent, and have zero interest in providing decent, honest customer service. The only reason PayPal is incapable of providing decent customer service is that they basically want to be a payment processor, collect their fee, and move on, similar to Visa or MasterCard.
Scammers know how to game PayPal’s policies, such as using the shipping tracking number to ensure product delivery. Many sellers have also been scammed, and PayPal’s customer support is not good and unable to understand nuance, making it difficult to get PayPal to side with them.
High fees are another major concern with PayPal. They charge 3.49% plus a fixed fee for every PayPal checkout, and all other commercial transactions. If the transaction is international, PayPal addson an extra 1.5% fee on top of that. This level of inconvenience and unexpected fees is unacceptable, leaving users feeling incredibly dissatisfied with PayPal’s service.
Unexplainable bans are another issue with PayPal. For example, if a Canadian seller on eBay pulls in $500,000 in sales per year, they would pay PayPal $25,000 to get bad support and service and have PayPal side with the scammers. PayPal is not even a reliable payment processor to begin with.
Due to the frequent random bans, which can be the result of various factors, PayPal is a well-known payment processor. One reason for this is that PayPal is inclined to ban accounts that they consider difficult or expensive, such as those with excessive chargebacks. This is ironic given that PayPal’s entire value proposition is to allow users to pay strangers and get their money back through PayPal if they don’t deliver.
Another reason for PayPal’s bans is political beliefs. A common theme amongst individuals banned from PayPal is controversial political opinions, such as those of journalists, political commentators, and media personalities. In October 2022, PayPal updated its policy to prohibit the sending, posting, or publication of any messages, content, or materials that “present a risk to user safety or wellbeing” or contain “misinformation.” Violating the policy will allow PayPal to deduct $2,500 from the offending user’s account for each infraction.
Despite these concerns, PayPal has remained popular because it is the only widely accepted and convenient payment solution. However, this has been rapidly changing due to the rise of big banks like Chase, Wells Fargo, and Citi. In 2016, all the big banks decided to take down PayPal, creating Zelle. Zelle is essentially a clone of PayPal that is directly integrated into these banks’ online portals or offers a standalone Zelle app. Users can send payments to anyone else who’s also enrolled using just their phone number or email, and the money will be directly transferred from their bank account to their bank account, usually within seconds.
Zelle is free and processes nearly $200 billion worth of transactions every quarter, or just under $800 billion per year. PayPal processes roughly double that amount but is only available in the US. Other countries are coming out with similar solutions, such as India’s Repay, which processes billions of transactions per year.
The rise of Zelle has yet to really hit PayPal’s bottom-line, but with terrible consumer sentiment, its own founders turning on the company, a stalling user base, and the rise of such alternatives, it’s only a matter of time until PayPal finally decides to make its services better.