An Analysis of the PayPal’s Corporate Strategy for
Success
Shengyi Lu
1,a,*
1
Tongxiang FengMing High School, Jiaxing City, Zhejiang Province, China, 314500
a.19814772856@163.com
*corresponding author
Abstract:
As a popular international trade payment tool, PayPal is loved by the masses around
the world, utilizing its advanced technology, risk management and control, and customer
service capabilities in the field of e-commerce payments. This paper gives information about
PayPal and its current development. On the basis of the existing literature and data, the main
purpose of the essay is to summarize the advantages of PayPal’s corporate strategy by
analyzing its specific profit model and to explore the secrets of PayPal’s success. The analysis
of PayPal’s success can strengthen its competitiveness in the field of online payment
platforms and it also provides a better reference for other companies of the same type.
Through specific theories and data from PayPal, this paper was able to conclude that Paypal’s
greatest corporate strategic advantage is its combination of data insights, the Internet and
technology, using SSL as a security system and expanding user base, gaining consumer trust
and thus targeting consumer and merchant needs to create its own maximum profitability
while having a sustainable competitive advantage.
Keywords:
PayPal, e-commerce, strategy, online payment system, SSL
1.
Introduction
PayPal is a payment tool that is nearing technological maturity and has a large customer base from
all over the world. It has evolved from its early days of paying by email to eBay payments and then
to independence. After going public, PayPal refined its products and expanded its business through
mergers and acquisitions. Many people would like to know how PayPal was able to break through
the difficulties and emerge as an emerging payment platform in the face of the likes of Visa and
Master Card and others. To get a clear and intuitive picture of how PayPal has evolved over the years,
and to get a picture of how PayPal might develop in the future, many articles have analyzed PayPal’s
customer statistics over the years, but few have really explored the reasons why PayPal has flourished
as an emerging company. This paper will examine how PayPal has combined the Internet and
technology to achieve strategic success and what its greatest strategic strengths are. Through PayPal’s
data and specific theoretical analysis, it can help more online payment platforms adjust their corporate
strategies, enhance their corporate dynamics, and accelerate the globalization of online payments. It
can also provide multiple options for PayPal’s future growth and deeper business development, so as
to further expand the scale of users. This paper will be divided into three parts to describe PayPal’s
background information, its successful corporate strategy, including the security system it uses, and
ways to scale up its user base. Finally, it discusses how it uses the combination of the Internet and
Proceedings of the 2023 International Conference on Management Research and Economic Development
DOI: 10.54254/2754-1169/24/20230421
© 2023 The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(https://creativecommons.org/licenses/by/4.0/).
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technology to create advantageous conditions over other similar platforms, and ultimately, through
comparisons and data, what lessons it brings to similar companies, and whether it also draws lessons
from similar companies.
2.
Background of PayPal
P
ayPal is a global online payment platform, and as a successful enterprise in online payment, it has
strategic advantages over other payment platforms. To use PayPal, you must first have a PayPal
account. Upon receipt of the mail, the recipient must open an account; in this case, the money is taken
from the sender’s bank account or credit card and deposited in a new PayPal account, acting almost
as a viral payment system and explaining the amazing growth of PayPal as a viable method of online
payment [1]. After receiving the payment, people can make a withdrawal. Its special feature is that it
allows the transfer of funds between users who use e-mail to identify themselves, avoiding the
traditional methods of sending checks or money transfers. PayPal charges a fee for the transfer of
funds using this payment method, which is made through both C2B and P2P, and includes many
derivative services. Derivative services include credit, investment and consumer tools for consumers
and business loans, inventory management and marketing tools for merchants. These two means
become the main way of profit for PayPal.
PayPal operates by placing a small charge on each online transaction. For customer accounts, the
average amount charged for transactions under $15 USD is $0.30. For premier and business accounts,
the fees vary according to the volume of transactions [2]. PayPal also offers several products for
merchants and consumers — PayPal Working Capital and PayPal Business Loan, as well as Simility,
Honey, and Happy Returns. By providing security solutions that reduce the risk of fraud across major
payment types and payment channels, PayPal remains committed to protecting against fraudulent
activity before it occurs through reform innovation and aggressive investment in industry technology.
It is because of PayPal’s constant adjustments to corporate strategy and convenience for consumers
that it has been able to progress and become the most successful online payment system.
3.
Analysis of the Success of Corporate Strategy
3.1.
Security System
After its launch, PayPal’s main business is to provide users with various payment types or payment
channels, such as online, offline or mobile payment methods, to effectively address the risk of fraud
and ensure the safety of funds. The company minimizes the risk by implementing technological
innovations and investing more money to protect against fraudulent activities before they occur. To
maintain account security, comprehensive information protection is implemented. PayPal makes
reasonable use of anti-fraud technology, combined with 24-hour account monitoring, to ensure
account security. In the process of applying for PayPal payments, personal information as well as
financial information is encrypted with security measures to protect funds and maintain information
security. Protection is put in place through real-time fraud protection, and monitoring is implemented
for all funds received for transactions. Fraud issues are addressed by authentication services. This
process involves knowledge of passwords that only the account owner knows. The repudiation
problem is resolved by the authorization of the payment. As additional security parameter, the
customer receives a notification with the payment details by email [3]. The fraud risk models run by
PayPal and the various analytical tools employed are tailored and targeted to the characteristics of
different businesses and therefore work very well.
A few different protocols are in use for online security nowadays. The most common one, also
used by PayPal, is SSL (Secure Socket Layer). SSL is intended to provide a method that allows two
parties to communicate securely. Nevertheless, one of the party must have a certificate that the other
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trusts to help hold back malicious intrusions. In the first phase, the client sends a signal to the server,
which recognizes the signal by returning it to the client when it receives it. In addition, the server
sends a request to the client for a certificate. The client transmits its certificate and covertly exchanges
messages and certificate check messages. The client and server both send a change password
specification message and then send a finished message. Through this SSL system, PayPal is able to
store users’ information well and keep it from being read or leaked by websites. When users pay with
PayPal, they only need to use their personal information when registering, which means they don’t
need to worry about their personal information being leaked when purchasing online.
According to the PayPal website, PayPal encrypts information sent to their website using SSL.
The encryption key used is 128 bits long, which is currently the most secure level in use today. Before
proceeding, the server checks whether or not the user’s browser uses SSL 3.0 or higher [4]. One of
the outside attacks that it may face is cut-and-paste attack. SSL 3.0 prevents cut-and-paste attacks.
Part of the way to prevent a cut-and-paste attack is to use a separate session key for each distinct part.
This prevents cutting and pasting between different connection directions. SSL has used a separate
key for each direction of each connection. The most comprehensive defense against cut-and-paste
attacks is to use strong authentication on all encrypted packets to prevent enemy modification of the
cipher text data [5]. Thus, the SSL used by PayPal has these two major advantages and they prevent
a range of outside attacks that may be encountered. The SSL system can provide application
developers with guidelines for the level of security their applications require. Not all security systems
provide the same security features, and not all developers have their own security best practices. But
apparently, SSL did it almost perfectly.
3.2.
Expanded User Base
PayPal took payment as the entrance to a huge user base. In the early days, PayPal gradually
accomplished a massive expansion of users through various means of customer fission. At that time,
PayPal gave each referrer a $5 reward to encourage them to invite their friends to sign up for wallet
accounts, and the referee could also get a $5 reward. By relying on such means, Paypal was able to
maintain an exponential growth rate of over 2% per day in the early stage of its business. In 2016,
PayPal hosted 197 million customer accounts, a figure that includes 15 million accounts held by
merchants [6]. The initial period had opened the market with an aggressive user recommendation
program and later relied on the eBay scene to expand the scale of users, and the transaction volume
successfully exceeded trillion dollars in 2021. PayPal has built a financial ecosystem by adopting a
payment network plus derivative services. It provides unique solutions to the core demands of
consumers and merchants. By continuing to grow its user base, PayPal combines data insights with
technology to deliver a sustainable competitive advantage. About 392 million consumers and 34
million merchants are the foundation of user insights. Payment authorization rates continue to
improve, and fraud risk is effectively reduced through machine learning.
When Paypal was founded in 1998, it was first set to be a mobile encryption company with
efficient encryption technology. But encryption technology alone, without scenarios or needs,
remained unusable. So the founding team went through a transfer and shifted its direction to
cryptocurrency. Another development relies on infrared for PalmPilot payments with the help of a
smart assistant device (PDA). Unfortunately, the PalmPilot user network was not as strong at the time
and remained a niche market. Unfortunately, the PalmPilot user network was not as strong at the time
and remained a niche market. By the end of 1999, PayPal had eventually discovered the emerging
trading market of eBay through user feedback, shifted its product development efforts to serve that
market, and started PayPal on the road to user growth. When a large number of valuable merchants
are gathered on PayPal, they can tier the operations of merchants through back-end transaction data
and, at the same time, remind high-value merchants to upgrade their accounts and purchase a more
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advanced account level. Value-added services such as support for bulk transfers and microcredit are
also provided. By relying on upgrades from personal to corporate accounts, Paypal has gained a
sustainable and profitable revenue model.
PayPal is constantly optimizing the payment experience in e-commerce scenarios. As a payment
product, it plays the role of a platform to connect buyers and sellers while helping users open up the
funding channels between it and banks. Its own role is to solve the problems of efficiency and
customer trust in the transaction process. PayPal, from the beginning of the period through the
mailbox payment, will later rely on eBay to continuously improve the payment method, which is
constantly improving the user’s payment experience, so as to better meet the needs of users. PayPal
and its “shop without sharing” design were created to offer a secure alternative to traditional payment
systems [7]. The confidentiality of user information through this system means that using PayPal to
pay is safer than most other credit cards, which has allowed PayPal to accumulate a large number of
loyal users. Consumers spend less time entering their information; merchants can set up a payment
system quickly, with no upfront payment required [8]. Likewise, PayPal encourages the support of a
platform that allows everyone to pay, regardless of their background, family status, and the right of
everyone to consume the service for a minimal fee. PayPal’s entire payment process can be considered
free. Once upon a time, too many people had to pay a lot of extra fees that they didn’t need in the
daily payment process, so PayPal wanted to keep everything to a minimum and eliminate as many
unnecessary fees as possible. Similar to this and other details, PayPal takes into account the user’s
sense of use, truly thinking from the user’s perspective and continuously improving itself, which is
truly in line with the needs of customers and merchants.
4.
Discussion
PayPal is not only making progress on its own but is also learning from other companies of the same
type and progressing with them. In 2016, PayPal announced its first partnership — with Visa — and
soon it partnered with Master card, Discover Financial, JP Morgan Chase, Citigroup, and more [9].
By partnering with Visa, not only is direct competition avoided, but it is a win-win situation. PayPal
optimizes the Visa online experience and shares transaction data. Visa opens up its offline network
and the implementation of payment capabilities to PayPal. In the current Internet era, PayPal can be
called the leader of online payment platforms, but that does not mean that PayPal is without
drawbacks. Due to PayPal’s excessive protection of user information, it may very easily lead to the
freezing of users’ accounts. With the rise of more and more emerging payment platforms, PayPal will
also face more competitive pressure. Only by insisting on the advantages of doing well now, and then
constantly realizing new transformations and upgrades can it adapt to a wider range of fields.
5.
Conclusion
Based on the above analysis of PayPal’s specific corporate strategy, this paper can clearly show that
PayPal’s strategic advantages lie in two aspects: first, using SSL3.0 as an advanced security system
and maximizing confidentiality measures for customers’ personal information to gain their trust.
Customers can rest assured that their personal information will not be disclosed when they purchase
something on the site, and sellers and merchants can rest assured that using PayPal will make the
buying and selling process more secure. The second is to expand the scale of users by improving
payment methods and enhancing users’ sense of payment usage from the beginning, and then to cater
to users’ preferences to increase the number of high-quality customers. While other payment
platforms, such as Amazon, Visa, and Mastercard, require a lot of extra fees, PayPal has taken the
majority of the population into account and eliminated all unnecessary fees. Through this series of
means, PayPal succeeded in slowly pulling away from other companies of the same type during the
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start-up period to achieve a qualitative leap. This paper did not combine the data aspects of the
analysis. Future research on PayPal may be more in-depth and focus on PayPal’s marketing strategy
or its financial management system.
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