PayPal leans on AI to improve its customer relationships | PaymentsSource

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PayPal CEO Alex Chriss is refocusing the company’s product development strategy.


As PayPal looks to recover from what CEO Alex Chriss characterized as a “lack of focus,” the payment company is applying advanced data analysis and artificial intelligence to improve how merchants and consumers engage with one another. 

The payment company introduced several new products for PayPal and Venmo on Thursday. PayPal faces competition from other payment companies that are increasingly using generative AI and other advanced forms of AI for product development, marketing and customer service. And like most financial technology companies, PayPal is charting a comeback following a two-year correction

“The latest wave of gen AI and broader AI developments is at such a fever pitch of growth that I think it would be harder for payment providers not to announce some sort of initiative, or partnership or product launch,” said Gilles Ubaghs, strategic advisor for commercial banking and payments for Datos. 

The products released on Thursday include Fastlane by PayPal, an online checkout system that enables consumers to pay with a one-time passcode in a few taps. The checkout feature draws on consumers’ past payment choices to recommend a payment option — acting as a payment facilitator. Materials provided by PayPal’s public relations office, BigCommerce — which piloted Fastlane — show that e-commerce checkout conversion rate increased to 70%, up from a range of 40% to 45%, for BigCommerce’s online seller clients.  

“This will change how people shop and how merchants engage with them,” said Chriss, during a video presentation on Thursday morning, ahead of the company’s next earnings call, which is scheduled for February 7. The updates are the largest updates to PayPal’s app in about a decade, Chriss said, adding products will launch this year, initially in the U.S. and then globally. 

PayPal has also updated how it presents receipts. The new version, which replaces an email of a traditional paper receipt, is an AI-driven system that personalizes cash-back offers. 

Another product, called Advanced Offers, uses PayPal’s data from payments and AI to enable merchants to make cash-back offers within PayPal’s app based on what consumers purchased in the past and what they may buy next. PayPal’s consumer app has been updated to enable access to hundreds of personalized incentives. And Venmo’s business profiles will add a subscribe button, profile rankings and the ability to offer promotions through business profiles. 

“It will allow merchants to customize offers and only pay for performance and not impressions,” Chriss said. “We want to provide customers with more reasons to shop with PayPal.” 

While much of the hype around AI centers on ChatGPT or other forms of gen AI, which analyze data to produce original content, PayPal is not partnering with an external AI developer for the products it announced on Thursday. 

PayPal’s internally developed AI tool analyzes consumer data alongside product information from merchants to produce recommendations or communications specific to that consumer and their shopping and payment history on an opt-in basis. The result is similar to the original content from a gen AI platform. 

“Product recommendations have been around for a while. And they’re table stakes now,” said Daniel Keyes, a senior analyst at Javelin Strategy & Research. “But now it needs to be actually relevant. The data that’s being used needs to be strong. The consumers need to have high quality recommendations or it won’t make an impact.” 

Other payment companies are adding new AI or other data-crunching technology to improve product recommendations. Klarna, for example, uses gen AI to help people shop online. Using ChatGPT, consumers enter a phrase such as “I’m looking for a gift for my 5-year-old niece,” to receive a set of recommendations based on that request and other data on that shopper. Klarna also provides access to an AI-powered shopping tool for merchants to analyze inventory versus product level data on shopping and payment preferences for consumers that can be available while shopping, or before the point of sale.

Timing is also important when linking recommendations to the point of sale, Keyes said. “The recommendations need to surface at the right time to have the best chance at conversion.” 

Among other payment companies, Stripe is using gen AI to power customer service, sales, risk and back-office operations. And Square in late 2023 introduced 10 generative AI features that sellers use to automate operations, workflows and other processors, such as a menu generator for restaurants and a feature that helps businesses add AI-generated backgrounds to marketing materials. 

During PayPal’s most recent earnings call, Chriss, who became PayPal’s CEO in September 2023, said PayPal would change how it builds new products, suggesting that the company would focus more on its core business as a payment technology company. PayPal’s goal is to enable an “end to end” shopping and payment experience for consumers that is built on the company’s core checkout system. For businesses, the strategy is to add features to existing PayPal payments and merchant services. 

Advanced AI is a big part of this, with Chriss late last year saying PayPal is looking for “responsible” ways to use AI to connect consumers and merchants. 

Across the payments and fintech industries, investors, shareholders and customers are all increasingly interested in AI, and a lot of these announcements and initial developments are at least partly being driven by the need to be seen to be doing something, according to Ubaghs. 

“Not all of these initiatives will stick, and I’m sure many of them will seem a bit gimmicky. But many of them will likely prove pretty fruitful, especially deployments that can add efficiencies or solve real problems,” Ubaghs said. 


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