PayPal will utilize its pricing power to grow margin for its unbranded checkout solution for businesses, otherwise known as Braintree, CFO Jamie Miller told investors at the UBS Global Technology Conference in Scottsdale, Arizona on Wednesday.
Braintree, which was acquired by PayPal in 2013, is a customizable payment solution used by large companies, including Uber, Spotify and Adobe. The company plans to grow margin through a new pricing strategy for Braintree, an initiative launched by CEO Alex Chriss in April, with a focus on optimizing the value exchange through added services.
“For these really large merchants where we have intentionally gone after very, very significant percentages of their revenue processing, we're going back to them and having just much more strategic and holistic conversations around this value exchange,” including payment orchestration and risk services, said Miller, who took the CFO seat last year.
“[It’s about] having a different kind of relationship with them, and not needing to process all of their revenue, but being willing to pull back and take lower percentages of revenues…in exchange for having a much healthier margin profile on the overall relationship,” she said.
Early conversations with customers are going well, she added.
PayPal initially built out its Braintree customer base by offering lower prices: The product line was less profitable than its branded payment solutions business, Payments Dive reported in April. Now, PayPal is looking to further grow its margins in the space by renegotiating contracts with large customers, Miller said.
“They’re not just trying to take in any volume at any cost. They believe they have a better value to provide and, therefore they can charge more,” Wolfe Research analyst Darrin Peller told Payments Dive regarding the proposed pricing shifts.
Revenue growth and processing for PayPal’s unbranded business is expected to go down starting in the fourth quarter, and will continue to decline for the next couple of quarters until the company resets its baseline in late 2025, Miller said during the conference.
“The third quarter was the second quarter in a row where we've had Braintree contributing meaningfully to transaction margin dollar growth,” she said. “These are deliberate actions we're undertaking. It's healthy for the business.”
PayPal accepted a lower near-term Braintree revenue profile in exchange for those better margins as it renegotiated agreements with customers, Miller said during the company’s Q3 earnings call. Payments volume for PayPal’s unbranded segment grew 11% year over year during the third quarter.
The company is also optimistic about uptake for its Fastlane guest checkout, another unbranded payment offering it launched in August, which simplifies online payments by storing customer names, email addresses, phone numbers, shipping addresses and payment details. The service results in a 50 basis point conversion uplift, Miller said.
The growth of PayPal’s branded payment business is also a priority, Miller said, including experiential improvements for merchants and consumers. Key initiatives include Pay with Venmo, PayPal Everywhere and a buy now, pay later offering.
