20 years ago, PayPal was a scrappy startup, a FinTech disruptor. 2 decades later, the company is a financial giant, in some ways part of the financial establishment it initially took on. Still, the industry continues to evolve, and new technologies threaten even currency itself.
Cognitive Business News founder and publisher Loren Moss recently was able to sit down for a conversation with PayPal CTO Sri Shivananda, where Shivananda sheds light on where PayPal stands with regards to Artificial Intelligence, blockchain, cryptocurrencies, and the future of payments.
Cognitive Business: PayPal started out as an industry disrupter, I remember when PayPal was relatively new and at first the banks ignored it, then it started to grow, then eBay bought it and now PayPal I think has become bigger than eBay. Now it’s a global payments behemoth. I think I’ve used PayPal several times in the last 24 hours. How does a company in this position prevent itself from becoming disrupted? How do you go from being the disrupter to now you’re the establishment? How do you stay fresh, how do you keep new and keep at the cutting edge?
Sri Shivananda: So, one, Loren, thanks for being an amazing PayPal customer, if you’ve used PayPal multiple times in the last 24 hours that’s awesome. To answer your question, there are various things that we do to ensure that the while we have a large company, that we continue to innovate and stay competitive no matter who the disrupter is. There are various methods, one is, at the core we are, something that we consider as a customer champion company. And being a customer champion company, we are connecting with our customers in person and actually trying to experience what they’re experiencing on a daily basis. Our product management function and our product marketing function are out there in the markets meeting with merchants and consumers, and picking up, like, what is relevant today, versus what was relevant yesterday, and our road maps that we build are based on those kinds of insights.
That insight is what drives us forward in continuing to evolve what we’ve done in the past. Second, is that, we have a fair amount of investment in methods of innovation, and if you were to take horizon one innovation and horizon two innovation, horizon one innovation happens on every single thing that we have. Horizon two innovation is where, those teams are working on this year, maybe next year, we do horizon two on what is two years and beyond. So we look at new technologies, new methods, and we start to play around with them, we have an innovation center here in the US, we have an innovation center in Singapore, we have an innovation center in India, and we also work with the local start-ups, in fact we advise some of them even, and that way we stay in touch with what’s going on in the industry today.
Last but not the least, all of us as leaders strongly believe that while we have our assets and strengths, we need to continuously keep an eye on outside in, and that means that we participate in industry conversations, we participate in other conversations, and staying relevant to all of that and being informed helps us ensure that we never get complacent, that we are always hungry, and that we are trying to make sure that we are staying on the cutting edge. Maybe one other thing I’ll add is even though we have a big company, the way we are internally organized is that we are, on the product development side, we have more than 350 scrum teams, each of only 10 people. And that 10-person group actually works like a start-up. So, you can think of PayPal internally as these small groups that are very agile, nimble, and learning continuously, and that helps us to stay on the cutting edge of innovation.
Cognitive Business: That’s interesting, it reminds me of that Two-Pizza Team concept; having a large organization made up of many small groups that act as their own innovative companies. How many countries is PayPal active in now? I’m talking to you from—I think we have at least three different countries on this call.
Sri Shivananda: PayPal has, about, 56 offices around the world, and 12 of them participate in our product development work. Also, at the same time, you probably know this, but we serve our customers in more than 200 markets, and more than 100 currencies.
Cognitive Business: What are the unique challenges of serving these populations in some of the developing or emerging markets? I was in Africa recently and to a large degree the population has bypassed banks and now a lot of transactions are done mobile phone to mobile phone, and don’t use a bank as an intermediary, and that’s interesting because that has a lot in common with PayPal. I don’t know if that’s a threat, or an opportunity, or some combination of both, but how are the challenges different? PayPal in the US disrupted an existing market, a mature market, but in some of these developing countries where you have a large unbanked population, is there opportunity there?
Sri Shivananda: Absolutely. I think the one thing that we realize is while the technologies that are being used around the world are getting similar, the experiences that people desire and deserve are not necessarily the same in every single place. Everyone is starting from a different place, like you very carefully articulated, and we have to meet the customer where they are. So, as the customer champion company like I said, the first thing we understand in any market is where is the customer, what do they need and desire?
Now, here’s what I’ll tell you, it’s a stat I can give you which is at this point in time, if you look at mobile transactions, last year we did $578 billion across all of PayPal. $227 billion of that was on a mobile device, so 40% of our volume is already mobile. We have invested in mobile now for a really long time, and we see the growth of mobile to be extremely fast. And mobile I think, is the tip of the revolution on digitization of cash. Particularly in economies where for many people, the mobile phone is the first computer they have, it is the first connected device they have. It is the first time they have access to an online service. So, mobile is a critical aspect of this.
Let me also add another thing to the context that you’ve brought up. We believe that the approaches in the past have not necessarily been an equal opportunity for all users around the world. There are many people who are not financially included in that digitization journey. And, with the coming in of mobile interconnectivity, we are making significant moves in our product experience to ensure that we can take the banking, the money transfer experience, the money exchange experience, and the e-commerce experience to most people who have not participated in something like that before.
And it’s not just about disrupting; we are actually partnering with banks where we need to partner with banks, but we think that more financial inclusion, more outreach to customers, reaching them where they are, leveraging the technologies that exist, and, it is not very different than the world of mobile phones, where, countries like the US; from first gen, to second-gen, to third-gen, to fourth-gen, to now 5G right? There are many countries like India, and African countries that have similar opportunities. I think we are well positioned for that, and we understand that every place in the world is different. That offers us a lot.
Cognitive Business: What are you doing to use artificial intelligence and machine learning or pattern recognition? I think that some banks or alternatives are behind the curve and sometimes a traveler will just go from one city in the US to another city and all kind of red flags go up, transactions get unexpectedly declined, and of course that creates all kinds of awkward situations. I find that doesn’t happen as much with PayPal, so I wonder, not just when we talk about the cards, but when we talk about PayPal transactions as well, you have so many cross-border transactions, and the ease of use as far as being able to just log in with a thumb print in an app and do a transfer, something like that. I think that ease is one of the things that has made PayPal attractive, but how do you use some of these new technologies to combat fraud, without introducing friction into the transaction?
Sri Shivananda: I think that you’re so right about everything that you said in terms of how the customer experience is, what goes behind the scenes is a kind of investment, not just in technology but in terms of how we manage and leverage data. And we have always been a very data-rich company, we actually have used machine learning not just in the recent revolution, but we’ve used it for more than a decade now, and now what has happened is some of the advancements in computing, has commoditized and commercialized artificial intelligence to an extent where more and more people in the company can use it too. Now, you talk about fraud and risk. Fraud and risk is one of the places where we use artificial intelligence the most. We take a history of your transactions, we take a history of your locations, we keep it all private. No one else can see that information. Artificial Intelligence (AI) uses that information to ensure that, if we know it’s you, and we can do so based on the parameters we know, you are a good user, and we want you to have a good experience. But at the same time, if we know, for example that, somehow that card is either compromised or is being used by somebody else, that we can catch it. This is one of the reasons why we have one of the best conversion rates on check out, and also at the same time we have some of the lowest fraud rates because of the engine we have built over time using AI.
That said, AI is used not just for fraud risk, but in many other places. For example, it is used in commercialization, we understand you and we understand your patterns. So, we want to make sure that the experiences we offer to you are catered to you. And, then third, we also use it in customer service.
Now, whether it is augmenting the customer support agent with the right kind of information to serve you quickly and fast and resolve your problem, or through methods like a chat box and so on, we are using AI there as well. There’s a ton of other places where we are finding AI to be useful. In fact, what’s beginning to happen is, we used to have software engineers, and data scientists. Now, software engineers are also learning how to become data scientists because it’s become easy. We are finding more and more use cases for it, beyond fraud and risk, cyber-security, commercialization, and customers.
Cognitive Business: There’s a lot of buzz right now, about crypto-currencies and blockchain, they have become big buzz words. Every two or three years in our industry there is a new one and it’s interesting because I’ll get into conversations with people in our business and I say: “you know, those are nice, but I don’t see a lot of practical uses yet, especially for crypto-currencies.” I mean, block chain is a technology platform but, because it’s the new cool thing, everybody’s jumping up and down and making a lot of noise about it. What’s your take on it, what’s PayPal’s take, is it just an interesting thing that’s out there, is there a real use for it? Is it a threat, is it just a novelty? Is it this year’s fad? What’s your take on that?
Sri Shivananda: Both crypto-currencies and block chain have certain characteristics that will actually not just sustain but actually thrive in the long term. When I look at it today, crypto-currencies in general are more of an asset than a currency, but a lot of it is very volatile and there’s also a lot of fear amongst consumers and merchants still because they don’t understand it, so consumers and merchants are not using crypto-currency yet. Until everyone becomes comfortable with using something like crypto-currency it won’t be relevant in commerce or day-to-day business.
Now, will someday, all the currency that we use get digitized into some kind of digital currency? Yes, it will. As mobile, and connectivity and all these things increase, more and more of our transactions will become digital, and the presentation of money will be digital, but that’ll be the future. We are on the other hand, pretty optimistic about the technology of block chain. And block chain, while the first problem that block chain solved was crypto-currency, the promise that block chain has is not just in the area of payments and settlements, but in areas like asset management, contract management, ownership management, and things of that nature. There are many other use cases where it will actually apply, and it has a broader use for the industry than just in the currency space. We are doing some experiments which are very early, we are optimistic about what it may be able to do for us in the future, but the real practical use case is not yet there. And on the crypto-currency side, today its relevance in commerce is lower, because one, the lack of use and fear, and the second, the volatility that it has as well.
Cognitive Business: So, what’s next? 10 years ago, PayPal was a subsidiary of eBay, and now PayPal of course is once again a separate company, it’s thriving, it’s growing, it’s global, it’s dominating the space. 10 years from now what is PayPal going to look like? How does PayPal evolve to continue to be relevant? What part does PayPal play in the financial world 10 years from now?
Sri Shivananda: The way I would put it is that there are two parts to the future that I see. One is, becoming the ubiquitous payment operating system for transactions around the world. And no matter what modality, whether that is for a commerce transaction, whether it’s on a mobile device, or it is on your television, or on a voice agent, or in your car, no matter what it is, PayPal becoming the payment operating system for the world. It is about making it ubiquitous. It is about taking the hard things about payments and solving them, and those hard things are things like cybersecurity, reliability, convenient features, regulations, we want to be the one that is an explorer, that takes all that and solves it really, really well, and provides an easy way for anyone, anywhere to exchange money and accept payments. So that’s the payment operating system part.
At the same time, that kind of ubiquity allows us to lessen this financial divide that exists in the world, between the people who have the ability to do what they need to do today financially, and those that don’t. And as we start to create those opportunities for folks, in terms of being able to manage and move their money, I think many of them will come up with use cases that we haven’t thought of before. Maybe it is users who want to get themselves more educated, start a new business, or be able to have experiences that are different from the ones that they’ve had. And therefore, uplift a part of the financially excluded community, to a place where they now start to see other opportunities that they have not seen before.
So I see those are the strategies into the future, and when I look at PayPal 10 years from now, a ubiquitous payment operating system, convenient to use, secure, regulation-friendly around the world, the one thing that people trust no matter where they go, and while at the same time making it easier for those that are being financially excluded to participate in the economy, and do better than they’ve done.
Cognitive Business: The great enabler. Okay wonderful.