Business Model Report

Paypal Business Model Report

Name: Khiriah Binte Kairudin (SN: 10084967)
Class Code: L43
Email: khiriahkairudin@gmail.com

PayPal

To examine a business model, it is important to evaluate the firm’s strategies against its competitors considering the micro and macro factors.

1. Business Value Proposition: “build the Web’s most convenient, secure, cost-effective payment solution.” PayPal able to provide both customers and merchant a convenient, secure and cost-effective payment solution. For example, customer may be sceptical when it comes to online payment in the past as they are afraid that their credit card number may be stolen by the merchant and also, merchant may be scared of fraud if the money does not come in. However, PayPal able to solve this problem as it acts as an intermediary between customers and merchant. Customers will key in their credit card information to PayPal, which PayPal will not disclose it to the merchant. PayPal will then inform the merchant about the purchase, merchant will process the purchase, once payment has been received from the customer’s credit card bank, it will credit it to the merchant’s account. PayPal has made customers believe in online payment which proves their business value proposition.
   
   
2. Revenue, pricing and payment policy: PayPal is using 2 revenue models, which is commission fee and transaction fee. If you are a seller and are using PayPal’s service, you have to pay PayPal a percentage of a total transactions amount up to 2.2% - 2.9%, depending on the merchant’s sales volume) additional of $0.30 per transaction. If you are a buyer, you do not need to make payment to PayPal. You only need to pay for the price item that you buy and the shipping, sales tax. This is how PayPal earn their revenue through these pricing strategies.
   
   
3. Market Opportunity: Many merchants have realised the importance of PayPal to boost the customer’s trust on them. This has increased PayPal market opportunities as many merchants have appoint them to be their payment intermediary. Not only Amazon is using PayPal, Alibaba and Hollister is using PayPal too. Hollister click and mortar store is a clothing company that uses PayPal as their intermediary so that they can ship their clothes internationally to example, Singapore as Singapore do not have their retail store currently.
   
   
4. Competitive Environment: There are a lot of rivals in this industry such as Google Wallet, Propay, WePay etc. There is new emerging rival as recently, eBay spinned off PayPal from its business. This shows that eBay is operating independently and not being dependent on PayPal to be their payment intermediary. This split has create a more competitive environment for PayPal.
   
   
5. Competitive Advantage: Despite the competitive environment, PayPal have a competitive advantage due to its established branding. Big companies are using PayPal, so as small companies. Small companies are allowed to put PayPal logo on their website if they are using PayPal so as to boost customer’s trust. PayPal is so established that many customers know them and that they could be trusted. It also allowed buyer to use credit card to pay for small businesses as usually small businesses could not operate to accept credit card payment. Due to that, the likelihood of customer changing into other payment intermediary is low.
   
   
6. Market Strategy: As they are going to split from eBay, this shows that they are changing their market strategy, they have already begun to focus on mobile payments. The split is intended for both businesses to be able to focus on the growth in their respective markets. This has enable PayPal to open up opportunities to eBay strong competitors.
   
   
7. Organisation Development: It is structured around these 4 themes; Customers, Merchant, Partnership and Development. They are now focusing on the development of mobile payments.
   
   
8. Key Management team: Dan Schulman is the president and CEO of designee PayPal as of 2014. Prior to working with PayPal, he was a Group President of Enterprise Growth at American Express where he facilitated the company’s strategy to expand their mobile and online payment services.