PayPal revamps credit card to support user engagement push

The news: PayPal refreshed its Synchrony-issued PayPal Cashback Mastercard with expanded rewards, per a press release.

• The zero-annual-fee card gives customers 3% cash back when paying with PayPal online, in-store, or via mobile and 2% cash back for all other purchases. Previously, cardholders could only get 2% cash back on purchases.
• Cardholders can put their cash-back rewards toward statement payments or have the funds deposited to their PayPal account—and from there to a linked bank account or debit card.
• For a limited time, new customers can earn a $100 cash-back bonus for their first $500 spent. Existing cardholders will be upgraded to the new rewards structure.

Why it’s worth watching: The revamped card may be part of PayPal’s wider plan to increase user engagement.

During PayPal’s Q4 earnings call, CEO Dan Schulman said the firm would focus more on user engagement. The new card supports this by encouraging users to shop within PayPal’s network in exchange for expanded cash-back benefits.

• PayPal works with more than 20 million merchants. That gives cardholders many opportunities to earn the 3% cash back, which can help PayPal boost volume: Its core transaction volume is expected to grow 22.3% annually and hit $1.144 trillion globally in 2022, per Insider Intelligence forecasts.
• The card also offers in-demand rewards redemption features that can help promote use: 42% of US respondents said having rewards deposited to their checking or savings accounts is “extremely valuable,” per Insider Intelligence’s US Cash-Back Credit Card Emerging Features Benchmark survey.

The opportunity: The revamped card can support PayPal’s business in three ways.

• Tighter merchant relationships. PayPal merchants could see higher sales volume from customers using the PayPal credit card, which can increase the firm’s value proposition and make merchants less likely to rely on competitors.
• Increased volume outside of network. Letting users earn rewards for purchases at non-PayPal merchants gives them more spending opportunities. This could give PayPal a revenue stream outside of its core business.
• Additional customer tools. PayPal launched its super app in September, which included features like a savings account and shopping hub. The card can help PayPal become an all-in-one financial and shopping solution by giving users more ways to transact with PayPal-branded tools.

The bigger picture: We expect digital co-brands like the PayPal Cashback Mastercard to become more formidable players in the wider co-brand space. These cards are tethered to digital platforms that emphasize ecommerce and offer more robust technology capabilities—which can appeal to digital-savvy consumers.