If there’s a company that can boast being 100% digital native, it’s PayPal, the platform that allows companies and consumers to send and receive digital payments in a secure, comfortable and profitable way. Since 1998, the brand has evolved and grown in step with technology, and today, the size of its network and consumer use has made it a household name in digital payment systems.
Initially, the company emerged from x.com and Confinity as a crypto company, developing P2P payments and using PalmPilot’s Beam technology. “Over time, we became an email-based payment solution, so just by having an email address, you could receive money,” says Sri Shivananda, PayPal EVP and CTO. Soon, the brand became an unofficial third-party service provider that eBay users included as a payment method in item descriptions. “eBay saw the opportunity to welcome us into their fold and, eventually, we were acquired, becoming their official payment service,” Shivananda adds. “We grew hand in hand with eBay and have continued to do so after separating in 2015.”
Since PayPal’s inception, innovation and technology have been integral to the brand’s success, which, says Shivananda, has been developed through the start-up phase, growth phase, expansion phase, and then positioning itself in a platform mentality, he says, using the cloud philosophy, integrating acquisitions, unifying data assets, and using data science and AI.
One strategy, five keys
From a technological point of view, the brand’s strategic engine is divided into five investment areas. According to Shivananda, security is the top priority since it’s essential to offer a trusted platform to customers in a climate of increasing security breaches. “When we talk about security, what was enough yesterday is no longer enough today,” he says. “PayPal, like many other large companies, suffers attacks every second, and we can only manage this volume of threats through an architecture with reinforced security layers and solid technology, such as AI.”
Stability is another objective. For the 35 million merchants who trust PayPal as a means of payment in their businesses, it’s vital the service is high quality, reliable and always available. “It’s our responsibility to ensure that each valid transaction is completed and reaches the merchant,” he says.
Another fundamental piece is speed, that is, the ability to maintain innovation at a rate higher than that of the industry. To do this, says Shivananda, the company invests heavily in its platforms, tools and product development lifecycle processes in order to improve flow and eliminate barriers that occur during execution. “This allows us greater productivity and creativity on the part of developers,” he says.
From 2016 to 2022, the company went from processing a payments volume of $354 billion to $1.36 trillion last year. This growth, says Shivananda, “needs to be supported by a technological architecture that can grow by increasing capacity, and without requiring heavy engineering, reconstruction, or re-architecture work.” In other words, scalability.
Finally, there’s efficiency. “As we work in these areas, we must closely monitor efficiency and spend to ensure our cost per transaction is the lowest, and that we maintain operational excellence in all technological areas.”
To face these challenges, PayPal has a highly qualified tech team, and last year, global investment in technology and development was more than $3.2 billion. “Our technology workforce operates on a global scale and in all regions, so we learn different lessons from each one, which we apply in the rest of the markets where we operate,” says Shivananda. “This also allows us to have the best in terms of global technology, fraud mitigation and prevention, and cybersecurity measures in all markets, all while complying with local regulations and compliance requirements.”
To make all these strategic areas flow as smoothly as possible, PayPal’s technology is organized into four main layers. At the lowest layer is the infrastructure, made up of databases and data lakes. These applications live on innumerable servers, yet some technology is hosted in the public cloud. This combination allows the company to connect customers around the world and deliver the speed, value and reliability they’ve come to expect. User data is also housed in this layer, including profile, behavior, transactions, and risk. So it’s, in short, the structural skeleton of PayPal.
The second layer is made up of a set of technologies that underpin all PayPal products and services. “We call them foundational platforms and they allow us to efficiently use the underlying infrastructure,” he says. These platforms are made up of a series of functionalities, such as internal tools for developers and engineers, or services such as caching, messaging, password management, and cryptography, “It’s vital for our business,” he adds. “It’s like PayPal’s nervous system.”
The next layer, called Common Platforms, is where the technology that makes up the products and services is located, comprised of identity (user authentication), payments (transactions), risk (trust and security), compliance (fulfilment of obligations in all jurisdictions), privacy (protection of contextual information), taxes, finance (money movement), and treasury (money management). This is, according to Shivananda, the brain of PayPal.
The fourth is called the merchant, consumer, and developer experience layer, which includes the web interface, mobile applications, and APIs that allow customers to use PayPal’s service interactively and programmatically. This is considered the heart, the closest thing to customers.
Forward-looking disruptive technologies
Although the brand has various cutting-edge technologies in its hands, one of the most relevant for the future development of the business is AI. “We’ve been working on this for over a decade, including transformer-based deep learning,” says Shivananda. “Today we apply AI and ML across our business, including for fraud reduction, risk management, customer protection, personalized services, and global trade empowerment.”
As a company with over 431 million active accounts, it sees huge potential in AI to create the next generation of payments and commerce. Data that unlocks value at both ends is key. “Currently, PayPal has more than 200 petabytes of payment data, a competitive advantage with valuable information and potential to drive better commerce experiences for consumers and merchants,” he says.
An example of the impact of AI can be seen from 2019 to 2022, when the company’s loss rate reduced by almost half, in part thanks to advances in algorithms and AI technology. “Today, thanks to our advances in AI, we can quickly adapt to changing fraud patterns to protect our customers,” he says. “PayPal’s deep learning models can be trained and put into production in two weeks, and even quicker for simpler algorithms. This allows us to train models using the latest production data, incorporate new fraud patterns, and get feedback from internal agents and customers.”
The brand is also working on shaping the next generation of digital currencies and corresponding financial infrastructure. To do this, PayPal has invested in its own technology, personnel, and companies focused on blockchain, as well as filed patents related to cryptocurrencies. “Given our experience as a trusted digital payments company and our strong relationships with the regulatory and financial ecosystem, we believe the combination of our blockchain, cryptocurrency and digital currency (BCDC) team, and our investments in technical and regulatory infrastructure, will provide a solid platform for our aspirations in this space.”
Ultimately, the goal is to drive the inclusion, ubiquity and utility of digital assets to further define the future of commerce and value exchange.
Artificial Intelligence, Digital Transformation, Emerging Technology, Innovation, Payment Systems