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PayPal gets boost from stores looking to compete with Amazon

[SEATTLE[ PayPal Holdings chief executive officer Dan Schulman's campaign to expand the digital-payments service beyond websites is getting a boost as more retail stores seek to compete with e-commerce giant Amazon.com Inc.

Retailers desperate to differentiate themselves and make shopping more convenient in the digital age need a technology partner, and PayPal is standing out, Mr Schulman said in an interview. Adding to PayPal's appeal is the fact that it is a service provider, not a competitor - a common concern for retailers and brands that may be wary of doing more business with Amazon.

Access to stores is a key part of PayPal's strategy to become a versatile financial tool rather than just a payment method for websites. Online sales are growing rapidly, but will account for just 9.2 per cent of all retail spending this year, according to EMarketer Inc.

At the same time, the pressure on retailers to improve in-store shopping to compete with Amazon gives PayPal a lot of fuel for growth. Digital-wallet features could also be key for shoppers to conveniently access online orders in stores.

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"PayPal is the great hope for anyone looking to compete with Amazon," said AB Mendez, an analyst at Frost Investment Advisors.

The in-store momentum is translating into higher sales and earnings. PayPal on Thursday said third-quarter profit before certain items was 46 cents a share, and revenue rose 21 per cent to US$3.24 billion. That topped average analyst projections for 44 cents in profit and sales of US$3.18 billion, according to data compiled by Bloomberg.

Total payment volume increased 30 per cent to US$114 billion, and the company had 218 million active customer accounts, up from 210 million in the second quarter.

For the current quarter, San Jose, California-based PayPal projected revenue will rise to US$3.57 billion to US$3.63 billion, compared with the average analyst estimate of US$3.56 billion. Shares gained as much as 6.3 per cent in extended trading, continuing investor confidence that has propelled the company's stock 70 per cent higher this year.

Mr Schulman's latest move has been expanding PayPal's Venmo service beyond free peer-to-peer payments, like splitting a restaurant tab, and turning it into a method for paying merchants directly. The service handled transactions worth US$9 billion in the third quarter, almost double the amount a year earlier, the company said in a statement.

Investors are optimistic about the potential money-making opportunities for Venmo. It is now accepted by more than 2 million US merchants who give PayPal a fee on each transaction.

"Venmo is being viewed as a greater and greater asset," said Josh Olson, an analyst at Edward Jones & Co. "The potential of Venmo is very high, which is being priced into the shares."

PayPal split from online marketplace EBay Inc. two years ago to speed its transition from a payment button on websites into a financial tool that lets people pay merchants and send money to friends through smartphone apps.

Mr Schulman's goal is to lure shoppers with time-saving features, such as apps that let them order ahead and skip lines to encourage the transition from cash and credit cards to mobile wallets. The one-touch feature of mobile wallets means shoppers can quickly pay with their smartphones using saved account information.

BLOOMBERG

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