Here's 1 Way a Fed Rate Cut Could Help This Digital Payments Leader
The Federal Reserve cut its benchmark interest rate to a target range of 4% to 4.25% in September, the first reduction since December 2024. Further cuts are anticipated, potentially lowering the rate to 3.5% to 3.75% by year-end. This monetary policy shift is expected to benefit digital payments leader PayPal, which operates a platform with 226 million accounts and $1.8 trillion in annualized payment volume. Lower rates could stimulate economic activity, increasing spending on PayPal's platform and boosting its transaction revenue, which was $7.4 billion in Q2.
It has happened. Early in September, the central bank in the U.S. cut its benchmark interest rate to a target range of 4% to 4.25%. This was the first time since December 2024 that a reduction was implemented. The market was anticipating this course of action.
There could be more to come. It's expected that the Federal Reserve will drop the federal funds rate to a target range of 3.5% to 3.75% before the year ends. Companies across the board will be impacted in different ways.
But a digital payments giant is set to benefit from this shift in monetary policy. Here's one way ongoing Federal Reserve rate cuts could help this business.
Image source: Getty Images.
Boosting economic activity
PayPal (PYPL 3.51%) operates a massive payments platform that has 226 million monthly annual accounts. It handled a whopping $1.8 trillion in annualized payment volume during the three-month period that ended June 30. And it has been around for over two decades, helping shape the world of commerce.
PayPal would gain from a more accommodative stance that saw the Fed continue to cut rates. The business would benefit because lower rates are generally stimulative for the economy. This could boost spending on the platform.
Since PayPal essentially makes money anytime it handles a transaction, lower rates can lead to higher revenue with that increased spending. During the second quarter, the company generated $7.4 billion in transaction revenue. This represented 89% of the total sales base.
