Future PayPal CEO Dan Schulman Makes First Appearance In Front Of Investors, Stresses Potential

Dan Schulman had a cold. But that wasn't going to stop him from touting what he believes is PayPal's bright future.

Speaking publicly before investors for the first time since being tapped in September to become PayPal CEO when it splits from eBay , the former American Express executive on Wednesday stressed the payment firm's potential to a room full of investors at the Morgan Stanley Technology, Media and Telecom conference in San Francisco. He did that all while recovering from illness, which made his voice gravelly as he illustrated PayPal's dominance of an electronic payments industry that is poised for large growth in the next decade.

"Software is eating the financial services industry," Schulman said, appropriating a famous saying from former eBay board member Marc Andreessen. "We have a large addressable market for PayPal to play in."

In underscoring a repeated mantra for e-commerce executives everywhere, Schulman illustrated just how much PayPal could still grow. Online commerce represents only $2.5 trillion, or 10%, of the total $24 trillion in commerce worldwide, he said. If you consider all commerce as PayPal's addressable market, especially as more shopping happens online and PayPal injects itself into more real world, point-of-sale applications, the possibilities seem endless, he said. (Despite significant investments, PayPal's foray into offline transactions have failed to gain much traction so far.)

"We have an infinitesimally small percentage of our market," said Schulman, whose official title is PayPal president and CEO designee. "On market share, we have .4 or .5 of 1% of our addressable market. We have an enormous runway and opportunity in front of us."

While PayPal's leader focused on the potential ocean of opportunity in the financial services industry, he was also able to convey his company's dominance in the pond in which it currently operates. With 162 million active customers and 7 million merchants, PayPal did 4 billion transactions last year, 1 billion of which were on mobile devices. Revenue for 2014 came in at $8 billion, up 19% year-over-year, on $235 billion processed in total payment volume.

"One in three adults [in the U.S.] is an active PayPal user," said Schulman.

Schulman used a good portion of his 45-minute talk to illustrate the in-roads the company is making in mobile. On Monday, the company announced it acquired mobile wallet startup Paydiant for $280 million, adding the Wellesley, Mass.-based company to a portfolio that already includes payments processing firm Braintree. 

"Physical money, whether its checks or cash or credit card, are digitizing in front of us," Schulman said. "About 40% of the money going through our wallets is in checks or cash. By the end of 2017 that will go to 25%... Mobile is driving this change."

On that theme, Schulman also addressed Apple Pay, which many see as a threat to PayPal's dominance of electronic payments. Apple Pay, which lets iPhone users pay with their mobile phones, was coincidentally announced by Apple CEO Tim Cook on the PayPal president's first day on the job, and Schulman believes that his company can insert itself as a means for merchants to accept the fledgling form of payment. Half of the merchants Cook introduced as initial Apple Pay clients in early September, were "already integrated through PayPal" Schulman pointed out.

Though Schulman addressed what could potentially be PayPal's largest competitor down the line, he gave short shrift to another Silicon Valley tech giant: eBay. The PayPal chief only mentioned his current parent company three times by name in his talk, and noted that it may be easier to do business with some merchants who were previously skeptical of working with the payments company as it was the subsidiary of a competing e-commerce business. Indeed, eBay will remain PayPal's largest customer, but Schulman noted that his company will now be a true "neutral third party."

For now, the companies remain connected until the completion of the spinoff later this year. The two companies have been preparing for that change, with layoffs affecting both sides. Last month, eBay began cutting 2,400 jobs across its subsidiaries. PayPal is now down to about 16,000 people, though a spokesperson did not disclose how many jobs had been cut at the payments firm.

"We had grown too fast at PayPal," said Schulman. "Our operating expenses had grown to fast... Growth covers a lot of sin. We want to grow without sin."

Update on March 4, 2015 at 1:41 p.m.: An earlier version of the story stated that it was PayPal President Dan Schulman's first public appearance in his new role. He actually made a prior appearance in the role at a conference in February at Stanford University.