PayPal Holdings Inc., known for processing payments made online, is now in the business of helping retailers and consumers undo those kinds of transactions.
Earlier this month, PayPal acquired Happy Returns, a vendor that handles return services for online retailers by setting up return kiosks, called Return Bars, which consumers can use to send back purchases from participating online retailers. The move is part of PayPal’s plan to move beyond the checkout button to become a broad-based purveyor of financial and ecommerce services.
PayPal says the Happy Returns team will become the nucleus for PayPal’s post-purchase offerings to merchants and consumers. For Happy Returns, the deal could help the vendor expand more quickly than it otherwise could. But Happy Returns is already growing fast. Last fall, the company added more than 2,000 FedEx locations to its network of return drop-off sites.
Happy Returns’ network now has more than 2,600 drop-off locations in 1,200-plus metro areas in every state in the continental U.S. and Washington, D.C., the company says. In addition to FedEx, Paper Source (No. 1474 in the 2021 Digital Commerce 360 Next 1000) and Cost Plus World Market stores house the Return Bar kiosks. “Hundreds of brand partners” use the vendor’s returns software and reverse logistics services, according to Happy Returns.
Happy Returns co-founder and CEO David Sobie says the merger is a good fit because of the vendor’s “deep respect for PayPal’s ecommerce leadership” and the acquiring company’s inclusive and innovative company culture.
“With PayPal’s support, we will also focus on improving our platform and expanding our footprint, all with the goal of providing more customers with the most seamless, cost-effective, and environmentally friendly way to make and process returns,” Sobie says without providing details.
Happy Returns and PayPal were already acquainted. In 2019, PayPal’s venture capital arm made a strategic investment in Happy Returns as part of an $11 million funding round. Upfront Ventures and U.S. Venture Partners also participated in the funding round, but the investors didn’t disclose the exact dollar amounts contributed by each.
Why retailers use Happy Returns
Happy Returns gives retailers and their customers access to in-person return drop-off locations. It allows shoppers to return or exchange items quickly, without printing or packaging the item.
When a shopper goes to make a return from a merchant, she receives a QR code and instructions on where she can drop off her return. She goes into that physical location, either a FedEx store or another retailer with a Return Bar and looks for the Happy Returns sign. A store employee scans the QR code and takes the unboxed product from the shopper.
The return takes less than a minute, and the shopper receives her refund immediately, the vendor says. FedEx then ships back all the Happy Returns products to one of the vendors’ two regional processing hubs, where Happy Returns redistributes the products back to retailers.
Some retailers with no stores, or only a handful, offer the convenience of returns to physical locations by working with Happy Returns. Among them are the online shoe brand Rothy’s and Draper James, a women’s apparel brand founded by actress Reese Witherspoon.
Rothy’s teamed with the vendor in May 2018 and then expanded in February 2019 to use Happy Returns’ software for the traditional way of returning orders to a Rothy’s warehouse. At the time, Heather Howard, chief operating officer at Rothy’s, said Happy Returns helped the retailer solve a big problem.
Without the Return Bar service, Rothy’s didn’t process returns—and thus shoppers didn’t receive their refunds—until the package reached a Rothy’s warehouse, which could take 14-18 days.
As of May, the Happy Returns’ website says it immediately initiates debit or credit card refunds for Rothy’s customers. Refunds can post to a customer’s account within three to five days.
Draper James has used Happy Returns since January 2019. The retailer, which operates just three stores, signed on with the Happy Returns service to ease what had been an “excruciatingly painful” returns process,” Helen Nightingale, the retailer’s director of ecommerce, said in June 2019 at an event in Chicago. After launching the feature, 30% of returning customers have chosen the in-person return option, Nightingale said, and the retailer’s conversion rate and order frequency increased.
Happy Returns charges merchants a monthly service fee for handling returns and a per-item fee that varies, depending on the processing work required.
Dan Neiweem, co-founder and principal at ecommerce service provider Avionos, says Happy Returns adds “tremendous value” to retailers.
“First, Happy Returns provides the customer with convenient options to return purchases they made online. This is critical for smaller retailers to compete with Amazon, Target, and Walmart who have vast footprints for customers to make convenient returns,” Neiweem says.
PayPal wants a bigger piece of the ecommerce pie
In a May 5 conference call to discuss Q1 results, PayPal CEO Dan Schulman said the company believes the shift toward ecommerce spurred by the pandemic will remain unchanged in the post-pandemic world. And PayPal sees an opportunity in helping retailers compete online as ecommerce keeps expanding.
If helping retailers compete is vital to its business plan, then the Happy Returns acquisition makes sense. According to a May survey of 1,049 U.S. consumers from Digital Commerce 360 and Bizrate Insights, consumers say the pandemic crisis made them appreciate free returns. In a list of ways COVID-19’s long-term impact could affect their apparel, accessory and shoe buying behaviors, 26% of respondents said they will now factor in free return shipping before buying, making free returns the most-cited element.
“As much of the world begins to shift its attention towards a post-pandemic recovery, we continue to see strong demand for a comprehensive set of services from both our merchants and consumers,” Schulman said during the May 5 call. “Over the coming year, we will accelerate our customers’ digital engagement through the rapid innovation of our digital wallet and merchant commerce platform.”
Brendan Witcher, vice president and principal analyst, digital business strategy at Forrester Research, says return policies matter more than ever.
“In the uber-competitive landscape retailers sit in today, a solid strategy for returns—one that attracts customers and minimizes negative impacts to the business—must be part of the equation for success,” Witcher says.
A largely ignored part of Amazon’s logistics strategy has been the “quiet evolution” of its returns process, he says. “From lockers at 7-Elevens to accepting returns at Kohl’s, and even allowing customers to skip boxing up returns and printing labels before returning items to a local Amazon store or Whole Foods, Amazon has already set the bar high, forcing retailers to follow suit,” Witcher says.
Neiweem at Avionos agrees that offering easy returns is important if retailers want to compete.
“Easy returns have moved from a nice-to-have to table stakes,” Neiweem says. “If retailers aren’t providing end-to-end convenient options, they will not be competitive moving forward. The risk of inaction will only make it harder for retailers to compete as their competition reduces the cost of doing business, potentially passing on savings to the customer, and providing convenience to their end customers.”
PayPal’s recent acquisitions and expansion plans
PayPal’s acquisition of Happy Returns is the latest in a series of moves intended to broaden PayPal’s relationships with online retailers and consumers as ecommerce growth continues.
In addition to entering the reverse logistics business, PayPal has invested in making it easier for retailers to accept cryptocurrency payments from U.S. customers. In March, PayPal launched a service called Checkout with Crypto, which allows customers with cryptocurrency holdings in the U.S. to pay for online purchases using cryptocurrencies within the familiar PayPal at checkout already offered by millions of online merchants.
To help support its cryptocurrency investments, PayPal acquired Curv, a digital asset security technology firm founded in 2018 and based in Tel Aviv, Israel. PayPal said the acquisition, announced in early May, would “accelerate and expand” its efforts to support cryptocurrencies and other kinds of digital assets. That acquisition was part of a broader cryptocurrency strategy initiated last fall. Last October, PayPal launched a new service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal accounts.
In the coming months, PayPal plans to launch a bevy of new services, which could include high-yield savings accounts, check-cashing services and stock-investing capabilities. It’s all being done in the hopes of PayPal becoming the world’s next “super app,” akin to China’s Alipay or WeChat, India’s Paytm or Singapore’s Grab.
During the May 5 conference call, PayPal’s Schulman said the company has similar ambitions for Venmo, the payments service PayPal acquired in 2013.
“Venmo is going to move down the same path that the PayPal super app digital wallet is going down,” Schulman said. “It’s going to become a super app itself, putting in more and more capabilities and services around, again, shopping and basic consumer financial services and payments. It has international expansion in front of it.”
But some observers are skeptical about PayPal’s ability to pull off its super-app plans.
“It’s going to be hard to create a super app as we know it, like what we’ve seen in China,” Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods, said in a recent interview with Bloomberg News. “We have compartmentalized how we consume things. We didn’t have the luxury of finding things in one place like people in emerging markets have had because of the super apps.”
Bloomberg News contributed to this report.
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