Hyperwallet adds an avenue for PayPal to make Venmo profitable

Ever since PayPal took control of Venmo as part of its 2013 purchase of Braintree, it has woven Venmo into more and more of its products. Even other acquisitions aren't immune to the spread of Venmo.

The goal of these integrations is to bring Venmo something that has long eluded it: profitability. Venmo draws revenue from card fees, its API and Venmo Touch, but has yet to be profitable.

The next target for a Venmo integration is PayPal's Hyperwallet, the payout platform provider that PayPal bought last year. Hyperwallet helps organizations manage payments and deliver funds through marketplaces or to freelancers in the booming gig economy.

Andrew Harrer/Bloomberg

"If you are a freelancer and Hyperwallet loads $1,000 into your wallet, we absolutely want a seamless way for you to be able to load your Venmo account through a single click from your stored value account," said Brent Warrington, general manager at Hyperwallet. "This is the Venmo generation."

To combine Hyperwallet's industry reputation with the growing 40 million Venmo user base, creates "a sticky" service offering for clients, Warrington said. "And along those lines, to bring in Venmo is an opportunity and way to monetize it over time."

In the same manner, Warrington is expecting PayPal's Xoom money transfer service to become part of a combined financial service with Hyperwallet and Venmo at some point in the near future.

PayPal acquired global money transfer provider Xoom in 2015, at about the same time PayPal broke off from eBay, seeking to bring mobile and digital facets of the money transfer service into play when competitors were still scuffling to do so.

"The verticals for Hyperwallet are growing and we continue to add payment types," Warrington said. "It has been interesting to see marketplaces grow and add countries, and for us to be able to build a platform for things like music royalties payouts, which was always a check-dominated market and archaic business that is now moving to digital money."

In addition, Hyperwallet is testing with an airline company to deliver payments in real-time, so that a customer could be paid right away if luggage is lost or an airline is canceled. "It would be a payment that comes right to the mobile wallet through the airline app," Warrington said.

In many ways, Hyperwallet has simply been waiting for the marketplaces and gig economy, as well as integrations to P2P and other services, to come to it.

"The gig economy and our type of service began years ago with payments for the Mary Kay direct sales of women's products," he added. "That's how Hyperwallet cut its teeth; and online marketplaces have been growing ever since."

Earlier this month, Hyperwallet landed a deal with scooter rental platform Lime to set up a network to pay the "juicers" in the system, freelancers who operate charging stations for the scooters.

PayPal's acquisition of Hyperwallet ties into the digital money movement trend, especially with Visa and Mastercard, which announced more partnerships this week to address gig economy payments.

Various other companies such as FIS and Green Dot have also established ways to move payroll or freelance pay to mobile or payment card products.

Years before this activity, Hyperwallet showed it could operate in a mass payments playing field in partnering with Western Union in 2015 to offer inexpensive options in a growing international payments market.

The company also was supporting direct-to-bank transfers in India, using local currency.

Increasingly, companies and financial institutions are evaluating their bill payment processes and how they interact with P2P applications, said Maria Arminio, president of Avenue B Consulting Inc., a Redondo Beach, Calif.-based payments management consulting firm.

"It is important for organizations to integrate bill payment services with these P2P solutions so that, from a consumer's perspective, there is a more cohesive strategy in place for bill paying options," Arminio said.

"If you are a single payer and you have to log in each time and remember passwords and take other steps, a consumer shouldn't have to worry about stuff like that," she added. "It is incumbent upon the supplier to build those integrated capabilities, and if that is where PayPal is headed, then kudos to them for getting ahead of the game on this."

Vancouver-based Hyperwallet moved its U.S. headquarters from San Francisco to Austin, Texas, two years ago. It's a city where Warrington had experience with two other companies. He was previously the CEO of SecureNet Payment Systems Inc., which was acquired by Worldpay in 2014, and was CEO of FundsXpress Inc., which First Data purchased in 2007.