PYPL PayPal Holdings Inc

By Telis Demos 

Locked-down consumers are figuring out how to buy things online that they used to get in stores. The question for the digital-payments industry is how permanent that shift will be.

PayPal Holdings, the online payments giant, wasn't immune from the slowdown seen across the consumer economy in March. Total payment volume for the quarter grew 19% overall from a year earlier in constant currency, slowing from a 26% pace through February to 7% in March, the company reported on Wednesday.

However, volumes are quickly rebounding: In April payment volume was up 22%, and PayPal is seeing a record surge in net new active user growth. Drivers of that rebound ranged from a jump in online shopping to celebrities like Ellen DeGeneres making gifts to fans through PayPal's Venmo platform.

PayPal is for now expecting the volume growth trend to slow in May and June. For one thing, travel and events -- two categories of spending that are unlikely to rebound anytime soon -- make up a high-single-digit proportion of PayPal's transaction portfolio.

But there are some indications the shift to behaviors like online grocery buying won't fully reverse. In Germany, where there is some reopening, PayPal said it hasn't seen a meaningful change in online behavior, with relevant activity still running at two to three times the pre-virus level. PayPal also said it would accelerate efforts to make itself an in-store player, as well as a broader financial tool for direct deposit and things like paying bills.

For example, Chief Executive Dan Schulman noted to analysts that PayPal is speaking to the largest supermarket in France about doing more contactless payments, and finding ways to mix the digital and physical channels. Even if they are going to stores, consumers "don't want to touch cash, they don't want to touch screens," Mr. Schulman said. "There's going to be a new normal that emerges from that."

In a poor economy, such efforts will be key to achieving the level of growth assumed by PayPal's stock, which at over 36 times forward earnings is near its highs as a public company, according to FactSet.

Square, meanwhile, is suffering from having a base of in-store terminals. Gross payment volume for its sellers was down 39% in the last two weeks of the first quarter, a pace that continued through April.

The company says it is beginning to find some offsets. Weekly payment volume via Square's online store tool was up fivefold in late April after launching new features like curbside pickup. It is also seeing a jump in use of its consumer Cash App, a Venmo competitor. Notably, as government stimulus payments went out, April direct-deposit volumes into the Cash App were up threefold from March. Direct deposit-eligible customers grew from 3 million in February to 14 million by mid-April.

That's excellent for Square's long-term vision for digital banking, a key support for its big multiple. After plunging in March, the stock is now back to a sky-high 97 times forward earnings, despite what is happening in stores.

This is potentially an epic moment for the emergence of digital payments, but it's too soon for either of the biggest players to declare victory.

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

May 07, 2020 06:14 ET (10:14 GMT)

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