After a blockbuster 2020, the biggest question mark surrounding PayPal Holdings and other digital payment companies was whether things would return to normal in 2021. So far, there is little sign of that.
On Wednesday, PayPal said it is now expecting total payment volume to grow by about 30% this year, up from its prior guidance of the high-20% range. That means the company’s volume growth would keep pace with what it experienced during an explosion of digital commerce during the pandemic. Last year’s record volume growth rate was 31%. PayPal is now predicting it will add as many as 55 million net new active users in 2021, up from a previous forecast of 50 million.
Whatever happens to people’s desire to spend in the months ahead, it does seem like they will be doing it more digitally. For one, debit cards’ surge within digital wallets doesn’t seem to be slowing. Many consumers are doing more of their spending digitally on everyday purchases like groceries or sundries, for which they might have previously used cash or an old-fashioned card swipe to pay instead of a digital wallet. People are also paying more often with debit cards as their bank accounts are flush. According to Visa ’s recent quarterly report, for the month of April through the 21st, U.S. debit-card volume was up 67% from a year earlier and credit card volume was up 61%.
“We believe the shift in consumer digital behavior will remain essentially unchanged in a post-Covid world,” Chief Executive Dan Schulman told analysts. He observed that physical cash spending is “moving predominantly to debit, which obviously is also great from a funding perspective.”
For PayPal, debit cards are a cheaper funding source for customers’ payments via their PayPal wallets than credit cards. PayPal’s transaction expenses were at a record-low 0.8% of total payment volume, helped both by more volume and that funding mix shift. This is one factor driving expanding profitability even as PayPal gets bigger and invests in many new features. PayPal’s adjusted operating margin was almost 28% in the first quarter, up from about 25% in the fourth.
