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What’s Propelling PayPal?

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The child is bigger than the parent

PayPal (PYPL) has eclipsed its parent eBay (EBAY) in size (market capitalization) and growth rate. In the recent quarters, PayPal has been adding new customers including merchants and consumers at a fairly strong pace, defying growing competition from Square (SQ) and other digital payment rivals. What’s propelling PayPal?

A lot of factors are in play in PayPal’s growth story and at the center of them all seems to be a change in strategy.

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Converting rivals into allies

There was a time not long ago when PayPal had more enemies than friends in the financial services sector. A lot of banks and card networks were wary of its motives, usually fearing that PayPal was more interested in stealing market share. That perception has changed rapidly. Banks and card networks now view PayPal as a partner, not a rabble rouser, which is evident in the way PayPal has continued to make allies out of rivals.

Just recently PayPal inked a deal with Bank of America (BAC) to bring its transaction service to more physical locations. It has also forged ties with the likes of JPMorgan Chase (JPM) and Visa (V). Outside traditional financial institutions, PayPal has also added Apple (AAPL) and Baidu (BIDU) to its expanding network of payments associates.

The impact of deal making

These deals are having a real and meaningful impact on PayPal’s business. For example, the company said it gained a record 6.5 million accounts in 2Q17 to raise its customer base to 210 million as shown in the chart. PayPal also said it is on track to add 25 million new accounts in 2017.

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