PayPal taps JPMorgan Chase to take AI checkout global

PayPal is leaning on artificial intelligence to counter competition from mobile wallets and card networks, a strategy that requires a distribution boost from large partnerships.

The payment company on Wednesday said J.P. Morgan Payments will offer PayPal's flagship Fastlane checkout system to the bank's merchant clients in the U.K. and Europe. It was one of several moves PayPal announced on Wednesday, including the reorganization of its payment brands and an expanded collaboration with merchant technology firm Verifone to combine in-person and e-commerce checkout.

PayPal is entering the third year of a turnaround strategy under CEO Alex Chriss, which has focused on improving its ability to sell products to merchants and consumers while de-emphasizing adjacent business lines such as logistics to reverse a stock slump in 2022 and 2023.

PayPal faces threats from rivals such as Square; mobile wallets like Apple Pay and Google Pay; and the traditional card networks. These firms have improved their ability to offer multi-channel payments and non-payment services such as security and artificial intelligence-powered marketing and customer service.

"We are transforming from a payments company into a commerce company," said Chriss during an investor presentation on Tuesday. The company has a "goldmine" of data and more than 100 artificial intelligence algorithms that it can use to better inform how it develops products and engages merchants and consumers in a more tailored manner, PayPal's CEO said. "There are technology shifts that are creating opportunities for PayPal," Chriss said.

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Fastlane is a major part of PayPal's plan. Fastlane draws on consumers' past payment activities, including channels, apps, use of marketing incentives, and other factors, to recommend a payment option that uses PayPal's internally-developed AI technology.

Fastlane is designed to act as a payment facilitator for consumers, or a way to route transactions to the fastest, smoothest or most economically sound option possible. PayPal also uses Fastlane to boost customer engagement by using its data trove and AI to tailor product recommendations and other information that aids shopping.

While PayPal has nearly 400 million consumer accounts and 40 million merchant accounts, it turns to other companies to provide scale to distribute new tools. PayPal's Fastlane partners at launch included the e-commerce firm BigCommerce, with other partnerships including Bold Commerce, a digital e-commerce marketing platform, among other firms.

J.P. Morgan Payments combines treasury services, trade and working capital, card and merchant services capabilities to help clients pay customers or employees in different currencies, around the world. It processes nearly $10 trillion payments daily, operating in over 160 countries and over 120 currencies. JPMorgan did not answer questions about the size of PayPal partnerships.

In addition to scaling Fastlane, PayPal is also attempting to streamline its menu of products to make them easier to find and access. PayPal has reorganized most of its existing businesses under a single brand called PayPal Open.

Open includes services for businesses, developers, AI-powered analysis, fraud protection, buy now/pay later and other products in more than 140 countries and currencies. PayPal has kept its Venmo transfer app, which it views as a popular recognizable consumer product, as a standalone brand. PayPal Open will be introduced globally over the next year.

"We have to think about the end-to-end commerce journey," Chriss said during the investors presentation, stressing PayPal's need to work as a single platform.

In another move announced Tuesday, PayPal expanded its partnership with payments technology company Verifone to combine Verifone's in-store payment technology with PayPal's payment processing and e-commerce technology. This is designed to offer merchants a "flexible and scalable" omnichannel payments product, according to PayPal.

These moves attempt to address PayPal's challenges, such as boosting the company's branded checkout volume. PayPal in its fourth quarter earnings said branded payments volume rose only slightly over the fourth quarter of 2023, including a decline in volume outside of the U.S. Analysts suggested any progress will be slow

."Any benefits from ongoing efforts to improve the branded checkout experience and bringing the latest integrations to a wider swath of merchants is likely longer dated," Morgan Stanley said in a research note. On Tuesday, Chriss said PayPal is on track to double digital transaction growth next year. PayPal's stock slid about one percent Tuesday.

"Disappointing branded checkout growth in the fourth quarter makes it unlikely that [PayPal Open] gets upfront credit [from investors]," Jeffries analysts said in a research note.

During recent earnings calls, Chriss frequently has called for "patience" while the company's changes show tangible results.

"We don't expect this product to contribute meaningfully to gross profit in the next couple years, especially as we think monetization will take time as PayPal looks to drive adoption, and also believe the economics from incremental conversion uplift and pricing will be limited," said Morgan Stanley analysts in a research note.

Morgan Stanley also suggested PayPal may have challenges in using AI and related technology due to merchant concerns about the innovation's impact on marketing and privacy.

"We generally don't expect to be positive on any commentary related to leveraging AI and PayPal's consumer data breadth to optimize promotional activity and demand generation on PayPal's apps, as we think merchants historically have been adversely sensitive to payment providers and partners that use transaction data to drive promotions, particularly for a company of PayPal's reach," Morgan Stanley said.