PayPal's solution for AI scalability? Partners

David Paul Morris/Bloomberg

PayPal has responded to what new CEO Alex Chriss has called an "unclear focus" by streamlining payments technology through artificial intelligence. A second phase of that strategy is getting the new tools in front of consumers as quickly as possible, a plan that needs help from the outside.

A new collaboration with checkout technology company Bold Commerce aims to bring PayPal's Fastlane checkout system to retailers that use Adobe Commerce's Magento e-commerce platform. It's part of a series of deals PayPal is making to grow the streamlined checkout product, which serves as an alternative to online payment systems from the card networks and other fintechs. 

"Partnerships are the only real way that we can truly scale," said David Bruce, vice president and head of channel partnerships at PayPal. 

The PayPal/Bold Commerce partnership will enable Magento retailers to add PayPal's Fastlane in about 30 minutes without having to upgrade to new technology, reaching an addressable market of about 137,000 merchants.

Fastlane, which PayPal launched earlier this year, is an online checkout system that consumers use to make payments with a one-time passcode in a few taps, drawing on consumers' past payment choices to recommend a checkout option via AI-powered analysis. Fastlane is key to boosting checkout conversion rates as PayPal refocuses on its core payments businesses to reverse a stock and earnings slump that mirrored broader declines in the payments fintech industry in 2022 and 2023.

In a September research note on Fastlane, Jeffries said some of the payments volume from clients of Braintree, PayPal's online payments technology subsidiary, may be inaccessible due to a high number of payments that come through stored payment credentials, which could limit Fastlane's addressable market through existing Braintree merchants. PayPal did not comment on the Jeffries report.

While PayPal has a customer base with nearly 400 million active accounts, it is relying on relationships with other merchant-facing firms to get Fastlane and other new products into the market quickly. Earlier this year, PayPal partnered with payment company BVNK to reach corporate users for PayPal's stablecoin, part of PayPal's growing crypto strategy that allows consumers, and more recently merchants, to buy, sell and hold crypto. 

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In addition to Bold Commerce, PayPal has also integrated Fastland with e-commerce firm BigCommerce, which sells a software-as-a-service platform that powers digital payments, online stores, search engine optimization, hosting, marketing and security. BigCommerce also supports online functions that are adjacent to payments for financial institutions that are looking to sell merchant services, such as marketing and data analysis. BigCommerce's partners include Walmart, which has used BigCommerce to expedite the big box retailer's online commerce strategy.

In early usage of Fastlane, BigCommerce reports conversion rates for online seller clients increased to 70% from 45% in about a half year of testing.

"If merchants want to come to us directly, of course we can do that. But even with our size and scale we need help to reach a large base of consumers," Bruce said. "We're selective with the partners that we work with but we are getting a lot of interest from third parties." 

Other Fastlane partnerships include Fiserv and Adyen, which make PayPal's technology available to international networks that include thousands of merchants. 

Conversion, or the rate of consumers who act on a purchase while shopping online, has become a touchpoint in the payments technology race in the belief that making payments easy will help lure consumers to complete a transaction.  

"Conversion is the top priority for online merchants. But still, too many shopping carts are abandoned during checkout, partly due to friction in the payment process," said Ron van Wezel, a strategic advisor at Datos Insights, noting Datos' research found that more than 60% of U.S. merchants report cart abandonment rate (during checkout) is higher than 14%, and 20% see abandonment higher than 25%.

"This means that providers are looking for ways to streamline the checkout process, in particular for 'guest checkout,' when the consumer does not want to register/create an account with the merchant," van Wezel said.

PayPal's Fastlane is one solution that addresses conversion challenges, but there are strong competitors, van Wezel said, adding, Apple Pay and Google Pay which work very well on the mobile channel; and Click to Pay which is championed by the card networks Visa, Mastercard, American Express and Discover. Click to Pay enables consumers to enroll payment credentials to an email address that works with any merchant that supports the technology. 

Providing an alternative to these payment options is central to PayPal's relevance. PayPal's recovery strategy, which includes de-emphasizing services that the company views as noncore to payments — such as logistics technology — is showing signs of progress. PayPal's stock, which fell from a high of more than $300 per share to a low of about $50 in 2023, has since rebounded to about $80. In PayPal's most recent earnings, the company reported revenue and earnings per share that beat analysts' projections.

Analysts at Seeking Alpha said PayPal's new management is "effectively executing its strategies, and the turnaround seems to be in its early stages."