Until recently, PayPal CEO Dan Schulman was best known in Silicon Valley as the New Jersey newcomer who liked to wear cowboy boots. These days he’s more renowned for his leadership of the iconic payments company—one of few dotcom-era darlings that not only survived but flourished. (Shortly after going public in 2002, PayPal became a subsidiary of eBay; in 2015 it was spun back out.)
Since coming on board to run the newly independent company, after stints at American Express, Sprint, and Virgin Mobile—where he was the founding CEO—Schulman has made some shrewd bets. Opening up PayPal’s platform so that other big players, like Facebook, can build upon its payments software has proved to be a savvy move, enabling more consumers to make PayPal (PYPL) their default payment option. And acquisitions that predate Schulman’s arrival are also showing impressive growth under his guidance. In particular, Venmo, a peer-to-peer payments app popular with millennials, is starting to deliver on its promise. Schulman recently announced plans to roll it out to millions of merchants. That’s important because most of Venmo’s estimated 10 million regular users don’t pay transaction fees—but merchants will, so PayPal can convert its popularity into more revenue.
Schulman says all of these factors will help PayPal build on its already impressive growth: Last fiscal year, the company’s revenue came in at $10.8 billion, up 17% from the year before. That’s especially remarkable when you consider the crowd of new fintech players competing with this incumbent.
Dan Schulman is No. 8 on our 2017 Businessperson of the Year list. See the full list here.
Fortune’s Michal Lev-Ram caught up with Schulman (yes, he was wearing the boots) to find out more about what’s driving PayPal’s performance and what his plans are for the payments icon. An edited transcript follows:
Let’s start with Venmo. I think a lot of people still wonder, “How does it make money?”
I’ll give you the simplest analog: PayPal in its early days was a peer-to-peer service. Then it was bought by eBay, and it became a payment method for eBay. And then it started moving off eBay, and now 87% of our volume is merchant services outside of eBay.
Venmo [also] started as a peer-to-peer service, or really more of a social payments “experience,” because everyone tags their stuff and puts in little notes and emojis—90% of [transactions] are shared [on Venmo’s news feed].
Wow, did you just say 90% of Venmo transactions are public?
Yes, it’s really a social experience. People open the app to see what their friends are doing, where they’re going, who they’re hanging out with. Most of the comments are pretty amusing and fun. I open the feed to do that myself.
The next step logically is to open up the application to more functionality. So if you use it today, you know that you can split things easily, you can pay your rent. But wouldn’t it be nice to be able to use your Venmo to buy things, too, and then to split that purchase or to tell your friends about it?
So we have now opened the ability for 2 million merchants in the U.S. to accept Venmo. That’s exactly how we monetized PayPal, and that’s exactly what we’re going to do with Venmo. And by the way, the merchants are so excited about it because the purchase gets to go into your feed, and you can say, “Hey, I bought this cool thing.” They love that.
Does the social aspect of Venmo open the door to other revenue streams, like advertising?
Possibly. There’s a special magic to Venmo. We do pretty much no advertising around it. Its growth is all viral. There’s a network effect right now because it’s so big that you just want people to be a part of it so you can send them money.
I want to be very careful with the experience. I think the experience needs to be in keeping with the Venmo philosophy, and it’s got to be fully delightful for those who are using it. Monetizing by creating more value for a Venmo user makes a ton of sense to me. But other forms of monetization that are more intrusive, like in advertising or something like that, the jury is really still out for me.
Does the fact that so many of the transactions are shared surprise you? What does it say about Venmo’s user base?
If you think about the millennial generation, they grew up in a very different era than I did. [Schulman is 59.] The boundaries between private and public are much more blurred. And it’s not surprising to me that they want to share with all of their friends.
It is the secret sauce of Venmo that it isn’t [just] a payment; it’s more of an experience. A lot of people say, “Oh, there are a lot of peer-to-peer services out there.” There are, and it’s an exploding market. But Venmo is much more social in its nature. The app is opened more times to look at feeds than it is to do an actual payment.
How do you maintain your position, both with Venmo and PayPal, now that there are so many other players in payments?
I think there are three important things. One is that we’re in the infancy of digital payments. Peer-to-peer is between $35 billion and $40 billion today, and in five or 10 years it’s supposed to go to $350 billion. So this isn’t going to be a winner-take-all market.
Second, we’ve opened up our platform to give both branded and unbranded services. And people who everyone thought would compete with us are now very close partners. Like Facebook—many of their payment initiatives are done through our platform, and 50% of Apple Pay comes through our platform. The big banks are marketing PayPal to their subscribers. So over time the competitive environment has become more benign for us than aggressive.
Third, payments are just really hard. First of all, you magically [need to] make a two-sided network to appear at scale, because no merchant’s going to take the time to do integration and coding when there’s only a couple million users, if that, on a service. And no consumer is going to learn a new payment methodology if only a million or so merchants are using that payment. So you need to have scale. And once you have scale, like Venmo and PayPal do, you get a network effect. We have 17 million merchants. We have 218 million consumers. Our net new accounts are growing by nearly 90% year over year.
Another piece of your business is Xoom, which enables people to send payments back home to other countries. How big of a market is that, and do you worry it could be impacted by the political climate?
It’s a very large market: $600 billion. And it’s an incredibly important part of the GDP of many developing countries. On average today, between 8% and 10% of the remittance is taken by various middlemen. If you can do it all electronically, you can do that at maybe 3% to 4%. And you could still make a great profit on it, but save $30 billion, which could lift tens of millions of people out of poverty.
So the reason we bought Xoom [in 2015] is, one, it’s a very large market. But, two, we can do things much more efficiently, more secure, faster, less expensive. That’s a great value proposition to a consumer. And we feel it’s a market that’s ripe for disruption.
And on the political part of the question, is there any reason for concern that there will be some kind of regulatory hurdles put in place for money flowing out to other countries?
It’s so hard to predict the political environment. I think that business can’t sit on the sidelines and just watch. I think we need to be a force for the values that we believe in. We need to partner with government and regulators. But we need to bring our resources to bear against issues and problems that the public sector won’t be able to do by itself.
A lot of people say that I’m an activist CEO. I just think I’m a responsible leader of a business. When HB2 [a law that prevents transgender people from using bathrooms corresponding to the gender with which they identify] was introduced in North Carolina, we were the first business to pull out. I received a lot of personal threats as a result of it. So I think it’s not easy to stand up, and the environment is very politically charged. But I don’t think we can abdicate our responsibility.
Our mission is a very inclusive one. It’s to democratize financial services. Managing and moving money should be a right for all citizens, not a privilege for the affluent. It’s all citizens, all types. Which means that there should be no room in the world for discrimination against anybody for any reason.
A version of this article appears in the Dec. 1, 2017 issue of Fortune as part of our Businessperson of the Year package.
