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To: Intelim who wrote (82)4/24/2017 5:35:48 PM
From: Glenn Petersen
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How Peer-To-Peer Payment Pioneer Venmo Grew Up And Got Serious

Under parent company PayPal, the millennial-focused payments app is finally ready to make some money.

By Ruth Reader

Fast Company

04.18.17 | 5:00 pm

It started with a simple dare: All Mike Linshi had to do was buy a certain shirt from a store nearby and wear it.

The bet was offered up in the easy evening hours after a music and innovation festival in Brooklyn two years ago. There was just something so funny about the thought of Linshi in that particular shirt that Iqram Magdon-Ismail and Andrew Kortina, cofounders of the New York–based peer-to-peer payment app Venmo, bet their colleague $50,000 he wouldn’t wear it. The sum was set high “just to shock him a little bit,” Magdon-Ismail recalls. And anyway, they had the cash: Venmo had been acquired for $26 million three years earlier by the payment processor Braintree, which was then bought by PayPal for $800 million.

Of course the shirt was obtained and worn, and Magdon-Ismail and Kortina were good as their word. They transferred the money on the spot, with an extra $50,000 going to the Venmo engineer who raised their account limits to make it possible. The next day, after the haze of the previous night wore off, the money was returned.

This kind of story may waft around barstools in San Francisco, where young founders can be more flush with cash than with a sense of what to do with it. The newfound wealth was unreal to Magdon-Ismail, an immigrant from Zimbabwe who spent his high school years in Fairfax, Virginia. “This is what happens when you make a little money,” he says, shrugging off the bet. “You want to spend it.”

But to Venmo parent company PayPal, the incident was grounds for an investigation. Three months after the festival, Magdon-Ismail, the then-president of Venmo, was sitting in front of PayPal’s compliance team, trying to explain why he was exchanging tens of thousands of dollars with employees. PayPal eventually closed the case (the recipients never actually accepted the money, after all), but Venmo’s growing pains lingered.

Magdon-Ismail and Kortina, who met at the University of Pennsylvania, launched Venmo in 2009 as a fee-free, digital way to ferry money between friends. The app pioneered the idea of social payments by publishing users’ transactions and memos in an emoji-filled conversational stream—catnip for millennials. Former Braintree CEO and now PayPal COO Bill Ready says it was the “crazy genius” of this stream—where you can see friends paying one another for pretzels and beer, roommates exchanging money for utilities and rent, and couples divvying up date-night expenses—that drew him to the app in 2012, despite the fact that it had only 3,000 users.

Ready knew that mobile money would eventually be huge. Prior to Braintree, he led a white label online payments and money management service for banks. Looking at consumer traffic behavior, he noticed people increasingly trying to access their bank accounts from their phones’ mobile browsers. This was in the early days of smartphones—before web pages were optimized for mobile—and typing in a username and password was a fairly irksome experience. But people were trying anyway.

This insight stuck with him and became a focus at Braintree, a payment processor that provided mobile services for Uber and Airbnb early on. While there was little competition in this nascent field, Ready realized he was missing the opportunity to create a consumer-facing product that would let people make single-tap payments. That’s when he came across Venmo, which had a payment app poised to capture the market.

Today, Venmo is the service to beat in the growing peer-to-peer payments space. It shuttled nearly $18 billion between people last year—$5.6 billion in the final quarter alone, up 126% from the previous year. (Though Venmo doesn’t release user figures, Verto Analytics estimates it has more than 7 million active monthly users, which still pales next to PayPal’s 197 million accounts.) The app’s growth is all the more remarkable for the fact that the product itself has remained relatively unchanged since joining the PayPal fold in 2013. For although Venmo’s founders had a prescient understanding of the millennial mind-set, they knew little about the financial regulations that applied to their product. For the past few years, Venmo has been consumed with turning itself from a move-fast-and-break-things kind of company into something more upstanding—and substantial.

As a payments service, Venmo is legally required to prevent money laundering and fraud, but the service launched with virtually no regulatory compliance built into it. It didn’t even verify users initially. Before its acquisition by Braintree, Venmo found itself playing whack-a-mole against fraud. People would hook up stolen credit cards to the app and cash out entire lines of credit. Others hacked legitimate accounts. Another ploy was to use Venmo to pay for purchases, and then pull the money back right after the item shipped. It was so easy for people to close out accounts that, Magdon-Ismail recalls, “we saw $200,000 disappear in one night.”

Once it became part of PayPal, Venmo got to work, with chief operating officer Mike Vaughan taking on the additional role of general manager in 2014. By plugging into PayPal’s compliance infrastructure, the app began tracking and flagging potentially fraudulent settlements. It added two-factor authentication, and, over the past three years, has created its own technology to ensure that the platform isn’t being used for illicit activities. “We have a unique challenge that you might not have with normal bank transfers or writing a check,” says Vaughan. In particular, the team at Venmo figured out how to understand the relationship between the sender and receiver. For instance, if a user is transacting with someone for the first time, Venmo can look at whether they have overlapping sets of friends to help determine if the relationship is legitimate.

While Venmo has largely laid low in the last couple of years, there have been glimmers of its compliance efforts in the news. Last year, in an essay for Vice, one user detailed how a $12.66 payment to his roommate for Thai food was held in financial purgatory for eight months because he captioned the payment “ISIS.” In another article, The Verge cautioned readers to avoid the phrase “ idek,” which in millennial parlance stands for “I don’t even know.” Those payments were stalled for 96 hours. Such disruptions in service—caused by particular strings of letters and words—are evidence of Venmo’s new security infrastructure.

Further proof that Venmo’s house is finally in order: Eight years after launching, it’s finally getting back to more creative endeavors and looking for ways to generate revenue. Last July, PayPal launched Pay With Venmo, which allows users to shop with merchants via their accounts (the app takes a transaction fee)—a function that Ready foresaw five years earlier. Right now, the service appears as a simple tap-to-pay button inside 12 branded apps, including those of Munchery, White Castle, and Venmo hopes to expand to more businesses in the coming months.

But Venmo’s trajectory isn’t likely to be limited to a buy button. PayPal has also signaled that it’s thinking about how to leverage Venmo’s social stream for shopping. A take-home test from last August for a designer position at the company asked job candidates for ideas around connecting users with businesses, citing research that “Venmo users are more open to purchasing at new businesses (i.e. new apps, sites, and stores) that they learn about from friends on Venmo.” Another indication: Four members of Braintree’s product team who had been working on making social sites like Twitter and Pinterest shoppable moved over to Venmo in the last year. More recently, the company launched a set of custom emojis for its platform. These initial emojis are generically festival-themed, but it’s easy to imagine Venmo’s emoji library one day containing branded images.

If Venmo’s passionate users are already talking about companies and products on the social feed, why not use that to facilitate more direct interactions? “We’re trying to figure out ways to bring consumers to their favorite brands, apps, merchants,” says Vaughan. “Whether it’s [for] loyalty, customer interaction, or rewards, or just brand engagement.” What he won’t be doing, he says, is putting ads in the Venmo feed.

Company management is wary of screwing up a good thing. Venmo’s growth has been driven in part by its millennial audience, known for spurning products that make inauthentic attempts at embodying the zeitgeist. In building out other capabilities for Venmo, Ready says he’s being very choosy about exactly what and how he implements new features into the app. “We think people will use mobile to pay for everything,” says Ready. “It’s just what are the right first experiences to get people there.”

Such ambitions put Venmo—comfortably niche for so many years—in territory similar to Facebook, which has been building out its own payments capabilities on Messenger. Indeed, if Venmo is to grow up, it may find itself standing alongside the big boys. Those include not only the tech darlings like Square, Facebook, and Apple, all of which are trying to strike the right balance between social and commerce, but also banks.

Bank of America, U.S. Bancorp, Wells Fargo, Chase, and Capital One are putting their money behind a recently launched product called Zelle, which lets people send cash to each other’s bank accounts instantly. The technology was initially baked into ordinary banking apps; later this year, Zelle will be a stand-alone app. Though it’s been hyped as a “Venmo killer” for its huge institutional reach, Zelle will face a formidable competitor. Venmo is bank-agnostic, while Zelle only works with participating ones. And while banks can currently transmit money between accounts more quickly and seamlessly, Venmo isn’t that far behind. It recently inked deals with Mastercard and Visa to let users send money instantly back to their accounts, rather than waiting a day or two for the transfer.

But Venmo’s greatest edge may be its ability to anticipate what users want. After leaving the company to start new ventures, cofounder Maldon-Ismail still uses the app regularly. These days, he is more inclined to turn to Venmo to make a seed investment than to pay off a bet. He’s sent sums ranging from $10,000 to $15,000 to companies like Karmic Labs and couch company Perch. More regularly, he uses it to pay for dinner at Kottu House or Sigiri, two restaurants in New York that accept Venmo as a result of a little experiment the team ran years ago to test the limits of possibility. While the average Venmo user isn’t likely to make investments with the app, she may be inclined to start using it to make larger, more adult purchases. The kind that people with a little more financial flexibility make. As Venmo is making its way out of adolescence, so too are its users, ready for the next thing

Correction: Bill Ready’s title has been updated to former CEO of Braintree. A previous version of this article referred to Bill Ready as a cofounder of Braintree.

A version of this article appeared in the May 2017 issue of Fast Company magazine.

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To: Glenn Petersen who wrote (83)4/25/2017 4:51:51 PM
From: Intelim
   of 118
Millenials already tend to spend more than they earn. There is no stopping them now!

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From: JakeStraw4/26/2017 4:08:38 PM
   of 118
PayPal Reports First Quarter 2017 Results and Raises Financial Guidance for Full Year

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To: JakeStraw who wrote (85)4/30/2017 4:44:59 PM
From: Intelim
   of 118
Stunning quarter for PayPal.

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From: Glenn Petersen6/23/2017 10:50:13 PM
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Instant bank transfers are coming to PayPal and Venmo

Posted 6 hours ago by Sarah Perez
June 20, 2017

PayPal announced this morning a plan to speed up money transfers between its service, Venmo and users’ bank accounts for those with supported MasterCard and Visa debit cards. This new “instant transfers” service will be available at a rate of $0.25 per transaction, and will deliver funds in a matter of minutes, instead of the day or so it typically takes when using PayPal or Venmo.

PayPal has been operating in the peer-to-peer payments business for nearly two decades, but the company has been more recently challenged by a number of newcomers, like Square Cash, for example, whose key advantage has been the ability to “cash out” to your bank account instantly.

Now PayPal and Venmo will offer a similar option for debit card holders with supported cards from Visa and MasterCard. The company says the feature will be available to the vast majority of cardholders, save for a handful of very small institutions.

The feature arrives at a time when PayPal is shifting its focus from being a competitor to Visa and MasterCard, to being more of a partner. For years, PayPal encouraged users to link their bank accounts to its service, as a means of routing around the large payment networks. But last year, things changed.

The company announced it was teaming up with Visa last July, and then unveiled a nearly identical partnership with MasterCard in the fall. In both cases, the idea was largely focused on helping PayPal better establish itself as a checkout option at point-of-sale – a response to the threat of Apple Pay. But the deals netted the company other benefits as well.

For example, PayPal said last year the expanded partnerships would also mean that users could instantly cash out their funds from their PayPal accounts to their supported MasterCard or Visa accounts, and the companies would no longer charge PayPal the digital wallet operator fee. PayPal would also make adding cards from Visa or MasterCard a clearer option on par with adding a bank account.

The instant transfer service is now launching into beta with select PayPal users, as a result of these deals, as well.

In most cases, the funds transferred between PayPal or Venmo and the end user’s bank account (via the supported debit card) will arrive in a matter of minutes. However, some banks may take up to 30 minutes, PayPal notes.

While Square Cash now charges a 1 percent fee for instant transfers, PayPal’s instant service will charge $0.25 per transaction – something that could help users save when performing larger transfers.

The launch of instant transfers is also arriving at a time when PayPal is facing new competition from the banks themselves. Zelle, a real-time Venmo competitor backed by over 30 U.S. banks, is going live this month, promising instant transfers through the banks’ own websites and apps, and soon, in a standalone Zelle app.

Zelle, which is built on the clearXchange Network, is already being used by some banks today. That network saw over 51 million transactions in Q1 2017, totalling over $16 billion – far larger than Venmo, which reported $6.8 billion in total payments volume in its last quarter.

However, PayPal’s combined services of PayPal, Venmo and Xoom processed $64 billion in 2016, and Venmo is the fastest-growing of PayPal’s products. Venmo’s service increased transactions 135% last year to reach $17.6 billion in 2016.

In other words, PayPal is making a smart move to address the Zelle threat by launching an instant option in its app already used by over 200 million users, along with the quickly growing Venmo, which App Annie last year estimated has 9 million users.

The new service is also arriving ahead of iMessage’s support for peer-to-peer payments which hits this fall with iOS 11’s public launch.

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From: JakeStraw7/12/2017 12:13:44 PM
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PayPal expands Apple integration, will become a payment option in 11 new markets

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From: JakeStraw7/17/2017 10:17:37 AM
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PayPal Holdings, Inc. had its price target raised by analysts at Barclays PLC to $63.00. They now have an "overweight" rating on the stock.

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From: Sr K7/30/2017 3:25:21 PM
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Why Can’t Americans Ditch Checks?

In an era of smartphones, online banking, and Venmo transfers, the rest of the world has weaned itself off paper.

By Katie Robertson

July 26, 2017, 4:00 AM EDT


Attempts are being made in the U.S. to modernize the system, but a faster-payments task force the Fed convened in 2015 to investigate how to bring the U.S. banking system in line with the rest of the world has acknowledged formidable hurdles. “Given the breadth and complexity of the U.S. market,” it said in the first installment of its final report, “it is more challenging to implement improvements to the payments infrastructure in a coordinated way.” Last week, it released the second half of that report, setting a goal of implementing platforms to deliver real-time, secure electronic payments everywhere by 2020. That technology already exists—but as the report notes, unlike in other countries, any changes in the U.S. will be market-driven.

And they’ll be a long time coming. Americans haven’t seen any major improvements to checking since a 2003 federal law known as Check 21 first allowed banks to process checks electronically, without having to handle the actual paper checks. These days, practically no paper checks go through the banking system anymore, clearing times have come down to about a day—similar to electronic payments—and you can deposit checks from your phone.

Expats like Jane Searle, an Australian in New York, remain unimpressed. “People sometimes talk about this app that photographs checks and processes them, as if that’s innovative,” she said. “It’s just a bolt-on process to a practice that is shamefully backward.”

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From: JakeStraw8/2/2017 12:19:23 PM
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You can now use PayPal through Skype’s mobile app

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From: Glenn Petersen8/4/2017 11:00:58 PM
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The Accounting Tack That Makes PayPal’s Numbers Look So Good

New York Times
AUG. 4, 2017

Dan Schulman, chief executive of PayPal, taking a selfie after his company’s initial public offering in July 2015. Credit Andrew Gombert/European Pressphoto Agency

Investors liked what they saw in PayPal’s second-quarter financial results, reported by the digital and mobile payments giant on July 26. Revenues grew to $3.14 billion in the quarter that ended in June, an increase of 18 percent over the same period last year. Total payment volume of $106 billion was up 23 percent, year over year.

Even better, PayPal’s favored earnings-per-share measure — which it does not calculate in accordance with generally accepted accounting principles, or GAAP — came in at 46 cents per share, 3 cents more than Wall Street analysts had expected. The company has trained investors to focus on this number, rather than on the less pretty GAAP-compliant numbers most companies are judged by. And focus they did.

Exceeding analysts’ estimates — “beating the number,” in Wall Street parlance — is crucial for any corporate leader interested in keeping his or her stock price aloft. Even the smallest earnings miss can send shares tumbling.

Examining how a company meets or beats analysts’ estimates, therefore, can be illuminating.

PayPal’s stock has been on a tear this year, up almost 50 percent since January. At a recent $59, its shares are trading at over 40 times next year’s earnings estimates. It is clearly an investor darling, providing all the more reason to dig into its numbers.

Naturally, many factors contributed to PayPal’s second-quarter earnings. But one element stands out: the amount the company dispensed to employees in the form of stock-based compensation.

How could stock-based compensation — which is a company expense, after all — have helped PayPal’s performance in the quarter? Simple. The company does not consider stock awards a cost when calculating its favored earnings measure. So when PayPal doles out more stock compensation than it has done historically, all else being equal, its chosen non-GAAP income growth looks better.

Accounting rules have required companies to include stock-based compensation as a cost of doing business for years. That’s as it should be: Stock awards have value, after all, or employees wouldn’t accept them as pay. And that value should be run through a company’s financial statements as an expense.

Consider the practice at Facebook, a company PayPal identifies as a peer. In its most recent quarterly income statement, Facebook broke out the roughly $1 billion in costs associated with share-based compensation that it deducted from its $9.3 billion in revenues.

Back in the 1990s, technology companies argued strenuously against having to run stock compensation costs through their profit-and-loss statements. Who can blame them for wanting to make an expense disappear?

They lost that battle with the accounting rule makers. But then they took a new tack: Technology companies began providing alternative earnings calculations without such costs alongside results that were accounted for under GAAP, essentially offering two sets of numbers every quarter. The non-GAAP statements — called pro forma numbers or adjusted results — often exclude expenses like stock awards and acquisition costs. And the equity analysts who hold such sway on Wall Street seem to be fine with them.

As long as companies also showed their results under generally accepted accounting rules, the Securities and Exchange Commission let them present their favored alternative accounting.

PayPal is by no means the only company that adds back the costs of stock-based compensation to its unconventional earnings calculations. Many technology companies do, contending, as PayPal does, that their own arithmetic “provides investors a consistent basis for assessing the company’s performance and helps to facilitate comparisons across different periods.”

Still, some technology leaders are dumping the practice. In addition to Facebook, Alphabet said this year that it would no longer present results that excluded the costs of stock-based compensation.

Dave Wehner, Facebook’s chief financial officer, told investors on a May conference call that the company would report results that include share-based compensation because it’s a true cost of running the business.

Ruth Porat, chief financial officer of Alphabet, which is Google’s parent company, said the same thing on a conference call in January.

PayPal takes the opposite approach. And look at what it does to its results.

Under generally accepted accounting principles, PayPal reported operating income of $430 million in the second quarter of 2017. That was up almost 16 percent from the $371 million it produced in the same period last year.

But under PayPal’s alternative accounting, its non-GAAP operating income was $659 million in the June quarter, an increase of almost 25 percent from 2016.

So what’s to account for the added $230 million in operating income under PayPal’s preferred calculation? Most of it — $192 million — was stock-based compensation PayPal dispensed to employees in the June quarter and added back to its results as calculated under GAAP.

That was a big jump — 57 percent — from the $122 million PayPal handed out during the second quarter of 2016. And back in 2015, PayPal reported just $89 million in stock awards.

I asked PayPal why it has been ratcheting up its stock-based compensation. Amanda Miller, a PayPal spokeswoman, declined to discuss why the company was raising its stock-based pay, and the role the increase played in the company’s recent results. She provided this statement: “We pay for performance and align our compensation with how shareholders are rewarded. We believe our treatment of stock-based compensation is broadly consistent with our peer group.”

But this isn’t accurate, according to the companies PayPal lists as peers in its proxy filing. At least four of those companies — Alphabet, Facebook, Mastercard and Visa — do not exclude stock-based compensation from their earnings calculations as PayPal does.

Craig Maurer is a partner at Autonomous, an independent investment research firm in New York. He follows payments companies and rates PayPal’s stock an underperformer.

In a telephone interview, Mr. Maurer was critical of how the company accounts for stock-based pay. He said that as a percentage of PayPal’s non-GAAP operating income, stock-based compensation has risen to 29 percent this year from 17 percent in 2015.

“They are literally taking a cost out of their income statement, moving it to a different line and backing it out of results,” Mr. Maurer said in an interview. “And you can see that it’s adding significantly to their ability to meet earnings expectations. If you backed out the difference between what we were expecting on stock-based comp in the quarter versus what they reported, it was 2 cents of earnings.”

In other words, the increase in stock-based compensation made a big contribution to PayPal’s results versus what analysts had been expecting.

PayPal’s stock-based compensation practices have another noteworthy effect: They drive executive pay higher at the company. Here’s how.

The company says it has three main metrics for calculating its managers’ performance pay each year. One of those measures, its proxy shows, is non-GAAP net income. So, as PayPal awards more and more stock to its executives and employees, non-GAAP net income shows better growth. And the greater that growth, the more incentive pay the company awards to its top executives.

For PayPal insiders, at least, that’s one virtuous circle.

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