The future of online commerce has a new shape. Payment giant PayPal has reached an agreement with Amazon, marking a new era for digital transactions. The pact won’t allow shoppers to use PayPal to settle purchases on Amazon, but it will set up the next best thing. Amazon will soon accept Venmo as payment for items on the site, opening the vendor up to even more avenues for commerce.
This agreement comes after PayPal spent over a decade as a subsidiary of Amazon’s rival, eBay. The auction site bought PayPal in 2002, and the company quickly became the de facto method for settling online payments. The partnership saw PayPal listed above credit and debit cards on eBay’s site, propelling the standard to the forefront of shoppers’ minds.
In 2015, PayPal spun off from eBay to resume business as an independent, publicly-traded entity. The company has performed well in the interim. In 2013, PayPal purchased the payment app Venmo, a popular service for exchanging money digitally among peers.
PayPal and Amazon
PayPal announced the agreement during its third-quarter earnings call on Monday. The company’s CEO, Dan Schulman, told investors that the arrangement was possible because the company is free from eBay. “This is obviously a very significant moment in our Venmo monetization efforts,” he noted.
This agreement “marks the beginning of an exciting journey with Amazon, now that we’re no longer constrained by the contractual obligations of the eBay operating agreement.”
Accordingly, Schulman added, Venmo will “probably be PayPal’s biggest revenue source going forward.”
“Over the last year, we have focused on giving our Venmo community more ways to use Venmo in their daily lives, including the ability to pay with QR Codes and providing more shopping features like purchase protections,” Senior Vice President and GM of Venmo Darrell Esch said in an official press release. “We’re thrilled to make it possible for our users and Amazon customers to pay with Venmo starting next year.”
Details regarding the partnership are still scarce. However, both PayPal and Amazon have confirmed that Venmo payments will be coming in 2022.
Stock Price Tumbles
Despite this optimistic news, PayPal’s stock price still stumbled Tuesday morning. In early trading Tuesday, the stock fell to just over $209 per share, owing to the company’s stock guidance for 2022. During the earnings call, PayPal projected revenue around $30 billion for next year. This prediction is short of the $31.6 billion figure analysts expected, leading to hesitation among investors.
PayPal’s concerns for next year are well-founded. Supply lines are straining under global issues that are out of any single entity’s control. Shipping costs continue to surge past all-time highs, and manufacturing bottlenecks abound. These shipping concerns coincide with inflation fears to color a bearish outlook for the economy next year.
Shulman also told investors during the call that PayPal believes consumer confidence has weakened over the past year. He pointed to declining online sales and better-than-expected retail returns in physical stores in the third quarter of 2021.
Notably, PayPal’s market share has started shrinking as eBay funnels users into a new payment system. Sales from eBay now make up less than four percent of PayPal’s revenue, making its agreement with Amazon a necessary move for its future. The payment company’s stock also wavered last month when investors heard reports that PayPal was in talks to purchase Pinterest. This acquisition never materialized, though, perhaps owing to the market’s adverse reaction to these rumors.
Amazon’s stock opened slightly higher on Tuesday, trading over $3,500 per share. The news doesn’t seem to have made much of an impact on the digital retailer, though investors might change their tune if the agreement means that Amazon will start accepting cryptocurrency as a form of payment.
PayPal has positioned itself as one of the biggest competitors to crypto exchanges like Coinbase. The Venmo app started supporting crypto purchases in April 2021, allowing users to buy and sell digital currency. As such, some enthusiasts are excited by the possibility that this partnership will allow users to settle Amazon transactions with crypto.
Earlier this year, Amazon posted a job listing for a head of digital currency and blockchain, stoking speculation that the company could begin accepting crypto as payment. Crypto investors can’t agree on the standard’s future. Should digital currency be used for settling payments? Or should it be used as a store of value?
A future in which Amazon accepts crypto as payment would push currencies like Bitcoin and Ether firmly into the “alternative payment” camp. Meanwhile, Bitcoin is surging, and Ether recently surpassed its all-time high price per coin. Crypto excitement is at a fever pitch right now, with the industry soaring past $3 trillion in market capitalization.
Amazon and PayPal could reshape the face of digital commerce if their partnership makes Bitcoin payments possible on the world’s biggest online retailer.