Interview: Barry Herstein, GM NA for PayPal (transcript)
Robert Reiss: We’re here today with Barry Herstein, GM NA for PayPal… I’m interested to have you on the show because I use PayPal myself and so do many other people. How many customers do you have now, is it about 180 million?
Barry Herstein: Not quite, although that would be wonderful. In terms of our actively engaged base we’re at over 75 million which in 10 short years is quite remarkable when you think about what it’s taken other networked payment businesses to reach levels lower than that.
Robert Reiss: What do you do that’s different? You’ve grown so quickly; what is the brand of PayPal about and why is no other brand from your framework similar to it in the marketplace?
Barry Herstein: It’s probably worth noting that network payment businesses are a rare thing. There are only several of them in the world and they don’t come around that often. What makes PayPal unique is that we are entirely focused on the web and digital payments. We were born of the web and that’s where we remain. We really address customer needs when they’re shopping online and need to send money online and that has to do with security, safety and also speed. Those are the core functionalities that we provide to people. Also, it’s a brand that’s been built by word of mouth; we engage in very little traditional marketing as we would know it. This is a brand built by the community of users, starting with EBay. That’s how PayPal came to be, as a widget application that EBay sellers found and EBay then bought the company and it’s grown from there. I think the fact that it’s a brand that has authenticity is incredibly powerful.
Robert Reiss: When you look at how you’ve grown, you spoke about the customer. From 1998 to now, how has the customer model changed?
Barry Herstein: We started as the way to pay on EBay and we’ve gone where our customers are going. As our customers started moving from EBay to shopping on the web and selling on the web… the other important thing about PayPal is that we provide a means for small businesses to accept payments. This is a segment that is largely overlooked by the other payment networks. We’ve migrated with our consumers and our sellers and – importantly – we facilitate a lot of cross-border selling. So if you’re a seller in China and you want to reach buyers in the US, PayPal is the way to go. In real time, people can transact in 19 different currencies across 119 different countries. That is quite incredible.
Robert Reiss: When you look at the internet’s growth, I think there were about 150 billion online purchases in 2008 and we continue to see double-digit growth. What are you doing to take advantage of the behavior?
Barry Herstein: I’m really pleased to tell you that, in the US, we’re outpacing even e-commerce growth. E-commerce is obviously the fastest-growing part of retail and PayPal is growing at almost three times the rate of E-Commerce growth.
Robert Reiss: What are those rates? What is E-Commerce growing at and what are you growing at?
Barry Herstein: I don’t want to forecast E-Commerce growth because being in the current environment that’s a difficult thing to do. I don’t know where we’ll land. This year, it looks like it could be somewhere in the range of 5-8% and I’m going to be growing my business at a multiple of that – in terms of what we call the off –EBay business – of 3-4 times that rate.
Robert Reiss: Here’s what’s really interesting to me, Barry. You’re talking about forecasting; you probably understand the customer, the entrepreneur – and we probably have several hundred thousand entrepreneurs listening in right now wanting to grow businesses – what changes do you see happening – so I do want to ask you about forecasting now, because of the internet – over the next several years in terms of customers and business?
Barry Herstein: Today PayPal is facilitating global e-commerce. I just got back from Australia and we have a sizeable segment. The PayPal business in Australia is actually Australians buying online from US seller. When you think – going back even a couple of years – consumers really didn’t think that way, even about the internet, and so we are really globalizing e-commerce, not just facilitating e-commerce. I think if you’re a small business, the fact that you can sell, literally, to anyone in 119 countries and engage your business that way, that’s incredible. In terms of the economy, in most developed countries around the world – and perhaps even beyond developed countries – small businesses are the engine that drives most economies.
Robert Reiss: And that’s fascinating because you are the facilitator that drives the engine. I want to ask you quickly, because there seems to be this issue of integrity, of trust on the web. Now people are becoming a little more trusting. Somehow PayPal has built the cachet; it’s the Rolls Royce, it’s the stamp of approval. When people see it, even when I see it, I say – frankly, in full disclosure – “Okay, I’m willing to buy there. I’ll give them my credit card.” I trust that. How did you build that and how do you maintain that integrity?
Barry Herstein: This really goes to the heart of what I think is this authenticity of PayPal. Max Lipton, the founder of PayPal, was a cryptographer.
Robert Reiss: Cryptographer meaning?
Barry Herstein: Think security online. His whole expertise was building code that would be impenetrable from a security breach perspective. That is the heartland of PayPal. We’ve always represented a very safe and secure way for people to shop online. Why would you want to share your credit card details with someone you don’t know, you’ve never met? We allow you to engage in all the things that you want to do around e-commerce without compromising. But we built off of that, and that’s important because that’s table stakes, right? People today expect things to be secure even though not everything is secure, and that’s where we added the speed and what we call “on my side.” We are a business born of the community and we always reflexively try to represent the consumer and the customer perspective in how we deal with the community of PayPal users.
Robert Reiss: It’s interesting that you mentioned the word community. We have about 4 minutes left before the break. There are two things I want to talk about: one is technology, but first I want to ask you about community. I understand that PayPal really is a company that’s doing well by doing good. Talk about that.
Barry Herstein: Pierre Omidyar, the founder of E-Bay, very passionately believes in community, and his premise always was “If you trust people, the community polices itself and good things happen,” and that’s a thread that continues in our business. For example, I’m very proud to say that we have a business called Microplace and it enables people to invest in funds that actually engage in micro-lending. There are about 85 funds and they engage in micro-lending in developing countries. You can invest, earn returns that range from 1-3%, do good in the world, do good for your portfolio – these days, a 3% return ain’t half bad – and it’s also a great way to teach children about investing. It’s a great way to feel good about how your money is working, and that’s part of our community.
Robert Reiss: I want to ask you, before we take a break: From PayPal’s perspective, from your perspective, talk about technology and the role that you see technology playing in advancement of economy in America and in the global economy and in terms of the entire environment of the world we live in.
Barry Herstein: It goes without saying that the roots and the heritage of PayPal lie in technology, but we have to maintain that pace. We’re on the cusp right now of the next major change, in that we’re going to be the first payment network in the world that’s opening itself up to developers. Just as with the iPhone, everyone is downloading apps, we’re going to open up the PayPal payment platform to developers to develop applications probably, in the near term, more focused on helping the merchants – the sellers – but ultimately it could be consumers as well. That’s a step-change function in how people think about payment networks. The fact that you can open up an network of payments, still maintain security, still maintain the trust but now unleash all of that energy and creativity of developers around the world. We have an event planned in San Francisco in early November where we launch this to the world and it’s tremendously exciting.
Robert Reiss: That sounds it. What’s it going to be like?
Barry Herstein: The average iPhone user has 60 apps downloaded, so think about it in that context. These developers are going to be using the engine of PayPal to build off of to develop all kinds of applications to support the community of users around the world. When you get those kinds of brains and something safe and secure and flexible like PayPal, I think you’re limited only by imagination.
Robert Reiss: I have someone else with me: Dennis Troyanos, who has done interviews with me before and is fascinating because he’s at the intersection of the internet and executive recruiting. Why don’t you go ahead, Dennis?
Dennis Troyanos: During the last segment, Robert picked up on the concept of innovation at PayPal. You were talking about opening up the platform to developers and really interesting ways for people to interact with the brand. I’d like to pick that up and finish that discussion. Give us an idea of where the culture of innovation has developed to at PayPal and what are you doing to keep advancing that culture?
Barry Herstein: That’s a great point. One thing you realize when you live and work in proximity to Silicon Valley you realize the innovation quotient that this country has, and it’s quite powerful. We want to unleash that in payments. There’s the intersection of two developments occurring. Mobile, because the web is no longer just about your PC and I daresay the mobile phone is going to be as important as the PC. Just as people are downloading apps for their iPhone that do all kinds of things, we want to have the developer community developing new applications for the PayPal payment system to work on behalf of our merchants as well as our consumers. Both of those initiatives – mobile and the developer platform – are going to be kicking into high gear later this year.
Dennis Troyanos: That plays right into the concept of customer experience, particularly in the offline world, and that appears to be a real focal point for marketers today. So, give us a sense of the emphasis that you guys put on the customer experience, both online and through mobile marketing.
Barry Herstein: It really is about tailoring the experience to the individual consumer. While I would say that that’s still an aspiration, that’s really the gold standard that we hold ourselves accountable to. First, it is the focus on user experience, on customer experience, because we’re not a terrestrial brand. We exist only in a digital space, so the user experience is of paramount importance. Increasingly, we want to be able to leverage what we know about our merchants’ and our consumers’ tastes and preferences to craft experiences that allow them to tailor PayPal for them, to their own individual needs. We’re on a path to do that. I should also mention, in that context, innovation is about bold moves. Last year, at the depths of the credit crisis, we announced the acquisition of BillMeLater, the #2 online payment provider in the US. So now you have the PayPal brand and the BillMeLater brand and all of the functionality of transactional credit that BillMeLater brings joining forces, and we’re about to launch the transactional credit product in a PayPal wallet both on EBay as well as in our merchant services business.
Dennis Troyanos: Based on the concept of acquisition of new services to enhance the customer experience, we’ve seen a tremendous rise in the social media and business-to-business as well as business-to-consumer networking. What role will PayPal play in influencing the influentials in the consumer marketing area?
Barry Herstein: One of the things I love about social media is that in terms of a listening post it provides the ultimate real-time focus group, where you can observe and be part of the dialog that’s going on. The fact that PayPal can participate in the dialog with our consumers is really important. Of course, you need to listen and that’s one of the things that I think PayPal does well, and social media is a way to do that. Plus, it’s obvious that social media has now become part of the fabric of what people do online. When you look at the growth of things like Facebook and Twitter, we want to be where our consumers are. Where they go, we will go.
Dennis Troyanos: Barry, I think this is a good point to turn the discussion to the topic of leadership. Conventional wisdom has it that as companies get bigger it becomes harder to innovate. What are some of the things that you’re doing to maintain a culture of innovation at PayPal? Where do the best ideas come from, and how do they surface to the top?
Barry Herstein: It’s a great question and it’s something that you have to be, as a leader, attentive to every day. First and foremost, we look for that customer orientation in anyone we hire and it’s of paramount importance to anyone who’s a leader in our organization. We also create opportunities for the people who work at PayPal to unleash their own creativity and innovation. In our technology organization – and keep in mind that in a business like PayPal the plurality of our employees are what would be considered technology-oriented folks – we call it lab rats. It gives an opportunity for anyone in the company – but mostly the folks in technology – to create all kinds of new inventions, share them with management, and we fund the top ideas that come out of the program. This is something separate and distinct from what anyone might be working on in their day-to-day business orientation. We also look for breadth of experience. We’re a payment business, so obviously financial service experience is important, but we also look at people who’ve had a breadth of experience. For example, I spent the first half of my career in the beauty business, and that’s a far cry from payment. It really is looking at a pattern of what somebody’s demonstrated in their own career, and if you can hire those people and then cultivate in the environment an opportunity for them to constantly express that innovation and that thought leadership, and reward it, it’s going to go a long way towards ensuring that it continues. Being in Silicon Valley, the heartland of innovation in America, doesn’t hurt.
Dennis Troyanos: What kind of companies do you feel are cultivating these kinds of high-impact people today?
Barry Herstein: I’m not sure I could actually name the companies, but what we look for, wherever somebody has worked: is there a pattern that they’ve demonstrated a capacity to innovate in that category, and also that they got to that point by listening to customers. It wasn’t just a random event; it really was from some systematic process of development and listening. We’ve grown in ten years from a company that was 10 people to one that’s now over 7000. One of the things that struck me when I came here is how remarkable it is that we’ve maintained that culture of innovation as we’ve grown to 7000 people.
Dennis Troyanos: So give us some insight: what’s the optimum way to manage folks who are coming in who have talent, who have innovative skill sets? What’s the best management style to bring out the best in th ose people?
Barry Herstein: Set the bar high. I think people respond to high expectations. Live the leadership values that you set out. One of the things that makes PayPal and EBay special is that the values that we set out transcend the category of business that we’re in. We have four behaviors that we ask people to demonstrate: to lead completely, to practice judgment, to trust each other and my favorite, keep it human. I think that one, more than any of them, is the characteristic of our organization. It may be large and it may have grown dimensionally but it is a very human organization.
Dennis Troyanos: That’s a prescription for success not only in business but in life too. PayPal has always been thought of as a proven breeding ground for digital entrepreneurs. If you were going to start your own digital business, what unmet need would you fill in the marketplace right now?
Barry Herstein: I’m not sure I could give you the specific need, but what I would say is: It’s really important to find what the pain points are that people experience and eliminate them. Do it consistently, and do it to a high standard. When you think about PayPal, what did we do? People were scared to share information, they felt the checkout processes were often clunky and slow and we did some very simple things. Sometimes simplicity out of complexity is the hallmark of finding great solutions. I’m hoping that I’ll be at PayPal for a long time to come so I won’t have to worry about starting my own business but it certainly has confirmed to me that principle.
Dennis Troyanos: One of the great barriers across the board in terms of purchasing on the web is that a very high percentage of shoppers bail out at checkout time. Can you give us some insight into this behavior, why it’s so common, and what PayPal has done specifically to overcome that?
Barry Herstein: You’ve put your finger on a very important pain point for consumers. What we call “checkout abandonment” is a very big issue in the world of online shopping. We’ve actually sponsored a number of studies to look at this. What’s interesting is, for some percentage of people – and keep in mind that somewhere between 30-45% of people begin a shopping process and never complete it – security is an issue, but one thing that came up in the studies that we’ve done is that people want to be able to look at things like shipping charges and comparison shop before they get to the checkout. Not many sites provide the ability to do that, and what we’ve done is create a feature on express checkout; we call it PayPal instant update API. What this allows is for our merchant partners to show order details earlier on in the process of shopping so that the consumer can look at the different choices and options that they have, both in terms of shipping and in terms of the total cost. Something as simple as that can drive a dimensional improvement in completion. Obviously that drives business to our merchant partners and it drives satisfaction to our consumers.
Dennis Troyanos: 50 years from now when someone writes the Barry Herstein story at PayPal, what is it going to say?
Barry Herstein: I hope it will say that I brought an incredible customer focus, that I brought an incredible business focus, and also innovation and thought leadership. If I could achieve those three things I’d feel pretty happy.
Robert Reiss: I have one more question I want to ask you, because you mentioned how you’re not terrestrial: Is there a role for PayPal in the brick and mortar world?
Barry Herstein: I think that our traditional definitions, going forward, are not going to serve us well. If you think about the mobile phone, it moves with the consumer wherever they go. I think that, as is the case with a lot of things in business and in life, the paradigms change and sometimes you don’t realize it until you’re in the new paradigm. Probably, the best thing is for us to not think about those definitions any longer, because I’m not sure that’s how the customer is thinking about it. I think they want to have the kind of advantages that PayPal offers wherever they go, and I think things like a mobile phone are going to enable them to do that.