PayPal's CFO explains what sets it apart from competitors like Stripe when it comes to dealmaking and details the 2 areas the giant payments processor is focused on
- John Rainey, PayPal's chief financial officer, told Business Insider the payments processor will generate over $3 billion in free cash flow this year, giving it more flexibility to make deals than some competitors.
- Rainey said one area of focus is expanding PayPal's footprint into regions it has previously failed to tap into.
- Another area of interest for Rainey are companies that can add complementary services to the business for merchants.
John Rainey hasn't shied away from deals in the nearly four years he's spent as chief financial officer of PayPal. In addition to several partnerships, Rainey also helped orchestrate a handful of acquisitions, including the largest in the company's history, buying Swedish credit-card processing company iZettle for $2.2 billion in May 2018.
And while it's been almost a year since PayPal's last acquisition - a $120 million deal that brought on fraud prevention platform Simility - that doesn't mean Rainey isn't interested in getting back to the negotiation table.
Part of the reason PayPal is always ready to make a deal is the fact that it has the resources to do so, something its competitors might not have the benefit of. Rainey told Business Insider PayPal will generate over $3 billion in free cash flow this year.
"That's a war chest that we have to go out and compete," Rainey said. "If you're Stripe, you don't have that, right? So, not only do we have 20,000 people that wake up each day focused on how do we do payments better for our customers. We've got money to go spend to acquire technology where that might be a more effective than trying to develop that internally."
A spokesperson for Stripe declined to comment.
As far as where PayPal will spend that money, Rainey sees two specific areas of focus. One is broadening PayPal's reach into regions the company has yet to establish itself, referring to it as "white space on the globe".
Specifically, he cites Africa, southeast Asia, and India - although he notes PayPal has started to develop there already- as areas where the payments processor lacks good coverage.
That's not to say PayPal will be looking to make a string of acquisitions in all those regions to gain market share. In some cases, Rainey notes, it's more likely the company will look to partner with an established player in the space.
Take South America, an area PayPal previously did not have a strong presence in, as an example. In March the payments processor made a $750 million strategic investment through common stock into Mercado Libre, which operates online marketplaces in Latin America.
In addition to PayPal establishing a foothold in a region it felt it hadn't fully tapped into, Mercado Libro will gain access to PayPal's 22 million merchants, Rainey added.
However, it's not just global expansion where Rainey sees opportunities when it comes to deals. Another area of focus is adding more services or capabilities to PayPal that complement what it already offers to its merchants.
He cites what he calls risk-as-a-service as an example of this. When deciding on whether or not a transaction should be approved, there are times PayPal and the merchant don't see eye to eye. The latter might be more willing to push forward with a transaction despite the risk of it being fraudulent.
Enter the aforementioned Simility, which uses machine learning to better detect instances of fraud. Rainey said that while PayPal had a similar type of capability, it wasn't best in class. Therefore, it made sense to make the deal.
"It's examples like that where we can provide a holistic suite of services on our own platform to merchants, which is what they want," Rainey said. "They want one-stop shopping for all of this, right? They don't want to have to go to company a for processing, company b for reporting, and company c for risk management."