PayPal: Dan Schulman

This interview of Wisdom from the Top was recorded in twenty twenty. From Luminary and Built It Production. It's wisdom from Failure. From some of the greatest I'm Guy Roz and on today's show PayPal. A pun? Uh yeah How Dan Shulman embraced social justice and we He's brought to PayPal. When Dan Schulman arrived to PayPal back in twenty fourteen, the company was in a simmering conflict with the big credit card companies, a conflict that was on the verge of becoming a scorched earth war.

The credit card companies were angry because PayPal was discouraging customers from using credit cards on its platform. PayPal was angry because of the fees they had to pay to the credit card companies. On the day he arrived as CEO of PayPal, it's fair to say Dan Schulman had his work cut out for him.

He eventually worked on a plan to create partnerships, which we'll hear about a bit later. But the other thing Dan Schulman did was to ditch the standard corporate playbook when it comes to issues of social justice. He didn't play it safe.

When Hate Group started using PayPal, he threw'em out. He even banned conspiracy theorist Alex Jones from the platform and several others who've spread misinformation. When North Carolina passed a law that many saw as anti transgender, Dan ordered PayPal to scrap plans to build an operations center there. In June of 2020, after massive demonstrations against racial injustice, PayPal committed$530 million in grants and funding towards black owned businesses.

And in the meantime, none of these decisions have hurt PayPal's bottom line. To the contrary, the company is doing better than ever.

Dan says a lot of his philosophy and approach comes from his childhood. His parents were both civil rights activists, and from an early age, activism was part of his identity. My mom pushed me around in a uh baby carriage at civil rights marches in Washington DC. My dad was worried that I was going to be the youngest person. ever to have their own FBI file. Um and um my dad was also a very courageous activist.

This is the environment that I grew up in. Obviously your parents make a huge difference in the way you think about the world and uh My parents were always about civil rights and social justice. Dan played varsity football in high school, but he admits he barely got into college and didn't know what he wanted to do after. I saw this advertisement for at the time it was New Jersey Bell. It wasn't even ATT yet that said, you know, we are looking for

Account executives, you know, salespeople. And a salesperson is like the quarterback of the sales team. And I thought to myself, well, You know, I've been successful quarterback, maybe I can do this job. I mean you say you say quarterback, but you were starting at at an entry level job, like d doing what, like sales and marketing? Yeah. An assistant account executive Which is about as low as you can be uh at the Bell system. Uh it's the lowest level of management.

And uh I was earning I think at the time about fourteen thousand dollars a year, which was a little disappointing to me'cause I wanted sixteen thousand. But um I think What really made my career take off At ATT was unfortunately kind of a tragedy that happened inside my family where my sister died of an aneurysm very unexpectedly. And it was one of these events that You know, fundamentally rewires your brain. Um and is a very, very, very difficult time before then.

I had been very much oriented around my own personal success and it was a lot about me. And then afterwards because I had to take some time off, it was pretty devastating, I came back and my team had really rallied without me and had done some incredible things and uh I remember having to present to senior management at ATT w what my project goals had been, how we had done, and I went in there and said, look,

We've had incredible success, but none of it is due to me. You know, I wasn't even here. And somehow that whole idea of recognizing how important your team is. and giving them actually all of the credit. I don't know if it was coincidental or it was because that's actually how I felt about things going forward, but my career took off.

uh at that point. Well. I credit you know, I wish my sister never died, but I credit her and what she taught me through that with so much of what's happened in my career at least afterwards. I actually spent eighteen years moving from first New Jersey Bell and then to ATT at the uh divestiture of the Bell system.

And I had an amazing career there. Yeah. You know, eventually I um was managing the consumer division uh for ATT, some forty thousand people in it, uh about twenty billion dollars of revenues and so and I was doing all of that I think I was thirty nine years old or something like that. W which is crazy to imagine now that that

ATT's consumer uh long distance service was a multi billion uh multi billion dollar business. I mean sorta like how travelers checks were a big part of of American Express's business at one point, which just seems nuts. that long distance calls were a huge part of the way telecom companies made money.

Oh yeah. But you know, it's so interesting to me, guy I I mean I probably That twenty two billion dollar revenue stream is probably in the single digit billions now. I mean, that's how how much long distance has disappeared. I mean, think about it, not that many people even have a uh a landline in their home anymore. It's all about mobile. But that's what's happening in technology right now. That's what makes

the world we live in so interesting but also challenging because it's moving so quickly. I mean, whether it be Say ten years from now, the explosion of quantum computing, which is gonna fundamentally redefine what processing is all about. I mean just such a discontinuous manner that it's hard to imagine. And then you've got the explosion of machine learning and artificial intelligence and the explosion in data. And this is why

so many companies struggle to keep up with it. I think the average age of a um Fortune 500 company today is like eight years. And if you went back Seventy five years ago, it was something like fifty years. Yeah. It it's just that it's hard to keep up with it all. And so in some ways, it's amazing to me that that revenue stream has practically disappeared. But in other ways that is that's part of the world that we live in today.

In in two thousand almost twenty years. I mean you were with ATT for almost twenty years. Um you you left. Um you decided to leave and go on to Priceline. Was was your decision to leave? I mean, it m it seems to make sense. You know, you d did you

Did you sort of see the writing on the wall that that telecommunications companies were, you know, were gonna become dinosaurs and uh and and this internet thing was the the the the exciting, shiny new thing to be part of, or was there a different reason behind your decision to to go? Well it was a big debate in my family. Um Priceline was a tiny little business at the time, maybe ten, twenty million dollars of revenues, obviously growing very quickly, but from a very small business.

And uh when I told my dad that I was contemplating leaving, he thought I was crazy to go do that. Absolutely crazy. And what I basically told him is that I didn't want on my tombstone to be written, you know, he presided an elegant retreat over the death of long distance. You know, because the best you could do was do an elegant retreat. There was no way that long distance wasn't going to shrink, it was going to be replaced by a few.

And uh you know, looking back I I sure am glad that I did, but it it was not Some amount of courage to leave a So you leave and you join this company Priceline and And um what what was it like? I mean this this was like you you got there right before the I guess m right probably right before or right around the dot com crash? Right before the dot com boom and crash. Um so priceline at a

peak, I think it was valued somewhere around thirty or forty billion, and at its low it was valued at just a couple of billion dollars. Um but I would say I probably

Got a master's degree education at Priceline that uh has helped me for the rest of my career. First of all, I got to meet Richard Branson.

uh because we had been servicing Virgin and he's the one that convinced me to uh uh to go and start Virgin Mobile uh with him. Yep. But second, I also learned that even in the depth Of all of the things that can go wrong, there are ways of thinking about businesses, of fixing them, of Always realizing that you need to wait for the cool light of the new dawn uh before you make decisions because there may not be a solution to everything.

But if you think about it thoughtfully and you have good people around you, there's typically a way around uh different challenges. And, you know, at the end of the day When Richard said, Hey, look, you've done so many things at Priceline, you've taken out the costs, you've got it on a good foundation. Would you join Virgin Mobile? Um, which was a raw startup, by the way. And I I leapt at that opportunity.

Um I wanna I wanna kinda dig in a little bit about Virgin for a moment. Um, because you were I mean, it seems from the outset that it was successful. You were signing up millions of users and You had these prepaid model, but it it never became profitable as far as I understand. Um what why? What what explains it?

No, it was profitable. Um, you know, we listen to the Or struggle to become profitable, I should say. Yeah, no, it was many years before we came profitable. But the reason for that guy is basically The way that the wireless business model works is that you need to acquire customers and and you pay to acquire that. That's your cost.

per net ad coming in. And the faster you're growing, the more your costs are because you're you're acquiring lots of customers and you're paying uh for those customers and then the service revenues Associated with those customers come in over time. And so ironically, the slower you grow, the quicker you become profitable. The faster you grow, the longer it takes you to become profitable. But

Over time, the bigger you are, the more successful, and the more profitable. And then I remember one time where we had to buy handset. to go into retail. We had struck all these deals and I needed to buy like forty thousand handsets. And you know, that's before you have any revenues. And that was gonna cost us Call it twenty thirty million dollars and we didn't have Um I and I went to Richard and I said, Look, Richard, we probably need to shut down the business.

Because, you know, we don't have twenty or thirty million dollars. We you know, I've never met a wireless company that ever existed without having handsets. And he said Nope, I am going to sell. my favorite hotel property in the world to fund you. Wow. And I said, Richard, don't do that. I said, like this business is really uncertain. We're just a startup. I mean our chances of success it's hard to measure. And I'll never forget what he said. He goes, No, I'm not I'm betting on you.

And um because I believe in you. And I said, Don't do that. Yeah, I mean all the responsibility that that puts on my shoulder. But he knew exactly what to say and what to do, and there was no way that I was going to uh to let him down after that. And I remember when we eventually sold the business to Sprint for just under a billion dollars, being able to give him uh something like a two hundred and fifty million dollar check.

uh from his original investment. And um it wasn't with it without its ups and downs, but um but at the end of the day, it really paid off for all of us.

So after that that sale, were you kind of Looking around for the next year. project or'cause you you would go on to American Express, um or was that did they kind of come to you and say, Hey, I know that you know you're this this thing's wrapping up. Do you wanna come come work with us? So um the head of um human resources for American Express was on the board of uh Virgin Mobile. Right.

So he I always joked around with him that it was like a uh a four year interview process uh that he saw me in action in both uh, you know, difficult times and really good times. But I had no intention. of going on to Wall Street. Most people would consider me the opposite of Wall Street. I mean, I constantly dress in jeans and a sweater, never aspired to move into uh financial services. This individual who is on our board was

said you should meet Ken Chenault, who was running uh American Express, who I know you've interviewed. And Ken was trying to set up a new division inside American Express to actually think about all the ways that technology were going to revolutionize the financial services. and he wanted to bring somebody new into American Express and it took maybe six or nine months of um courtship, uh, but it it wasn't a straight path from uh Virgin Mobile to American Express.

So you get to American Express and I I guess your title was uh President of Enterprise Growth. Um and one of the f I guess one of the early projects you ended up working on was something called that was called Bluebird, which was a prepaid car that American Express unveiled. And was the the idea behind it was that that it would be available to lower income people who had a hard time getting credit cards?

Yes, and it was really kind of a uh joint venture between uh Walmart and American Express and to really try and But how could we Create a value proposition that would um be attractive to what we call the underserved population, the 70 million adults in the US that live outside of the financial system and before Bluebird.

There were large monthly fees, transaction fees associated with every transaction. I mean, there were fees both visible and invisible almost everywhere in the prepaid industry. And um, we tried to Really a customer champion card, really leveraging off the Virgin Mobile experience. And we did that. We redefined

Prepaid industry. And the prepaid industry was never the same. We took out a lot of the profitability of the industry, but we made the card something that was durable and over the long term was profitable but didn't have all the churn uh that was associated with these uh cards that frankly were less than great for uh that underserved population. That was um

Really, uh I think for both the Walmart and the American Express team, really one of the prouder moments that we had. You were there for I think about four years before you were

brought in to become the CEO of PayPal. I think you got there in September of twenty fourteen At that time, PayPal was in the process of splitting from eBay. Like from what I understand, everything was integrated, like the the the HR systems and the and like everything, the computer systems. And you your job was to take over take it over and and and basically spin it out. Tell me about what what you faced when you got to PayPal in twenty fourteen. Your point is exactly right.

There couldn't have been two divisions of a company more intimately connected. I mean, every single part of our companies were connected from deep into data centers and deep into the infrastructure, software infrastructure of the business. to websites that were fully integrated together where you know that PayPal and eBay were just as linked as could be. We literally had a clock.

on the wall that would say how many days and how many hours till separation. We had a full action plan both on the eBay side and the PayPal side. And it wasn't just, you know, separating. It was like, what does the agreement look like going forward? Like what is the operating agreement that we're gonna have as two independent companies that will govern our way of working together? So It was very, very complex, very, very difficult.

But it was clearly the right thing to do. And if you look obviously at the uh combined market cap of the two companies, which today is somewhere around two hundred and thirty, two hundred and forty billion dollars. I think the combined market cap of the company at that time was maybe fifty or sixty billion. Wow. It it clearly unleashed a tremendous amount of value and allowed each company to focus and create the right mission and vision and values to propel uh each of our companies

forward and we were rapidly becoming two very distinct and separate entities inside of eBay. Uh you know, I I I I guess one of the first real challenges that you had to face was with credit card companies. Because from what I understand, right, it i the the way it works

when you got there to ebay was um if somebody purchased something and they use their credit card, PayPal would have to pay all these fees to the credit card company. So it was designed to really discourage people from using credit cards and rather to use money from their banks. Uh which really pissed off some of the big credit card companies like Visa and MasterCard and and there's kind of a a a a a kind of a war that was brewing, you know, when you arrived there, right?

Yeah. Yeah. Um, I think this was probably the single biggest and most important decision that I had to make with my team and and our board. The credit card companies had viewed PayPal as a Uh what they would call a frenemy. We obviously generated a lot of revenues because we were a a good digital distribution. Solution for them. But at the same time, you know, our default or encouraging customers to use other financial instruments besides their credit card because we made a larger margin. And

You know, the the decision was not so much about the credit card companies. It was about what we were talking about before, Guy. It was about what does it mean to be a consumer champion? And does being a consumer champion mean giving customers the choice? Of paying how they want to pay. Not how we want them to pay, but how they want to pay. The issue was like, well, what was that going to do to our business model?

To the payment mechanism that was best for PayPal was also causing a ton of customer confusion. Like we were taking from And consumers, you know, were like, wait, I thought I was paying with my credit card. Yeah. There might have been some bank overdrafts. We had.

millions upon millions of customers who signed up for PayPal gave us their credit card information and we said, wait, you can't start transacting until you give us your bank account information and they would churn off right away without making a transaction. And so what we decided to do was what we called full consumer choice. And that, by the way, the networks were like, that's fine with us. I mean, like, we're willing to compete on our value proposition. We just don't want you to default.

So the day I announced that Drop by nine percent. Wow. The day you announced that you would stop doing that, you would stop. Yep. That we would be customer champions and we would provide true. And the market just felt like okay, well that's just gonna destroy their margins and And I remember God, this is so interesting, where like literally an hour later, a headline came out that says market questions Schulman's strategy as PayPal stock drops nine percent. And I thought to myself,

Isn't it horrible that, you know, people are talking about strategy and measuring it in within an hour of us announcing it? Um, like can't you give me a week or like at least twenty four hours? And um I think really the rest was history on that. Obviously giving consumers choice, unleashed partnerships with networks and financial institutions. It reduced confusion by customers are

New ads, you know, new customers coming on, skyrocketed. And had you not made that decision, the the big credit card companies would could have decided to uh put all of their resources into a business to compete against you and and to crush you.

So I guess uh over the years there have been a lot of potential competitors uh to PayPal. But what's really like a philosophy that I have, which I think is uh I've learned from all of my experience in martial arts. I I've done martial arts for uh For a long time I probably every day? Yeah, practically every day. Wow. And uh you know, Krav Maga is a especially a somewhat, you know, effective, maybe brutal form of uh of martial arts.

But the overriding philosophy of Krav Maga is the best way to win a fight. is to not get into a fight. Right. And I really felt with like all the credit card companies, with the financial institutions, with tech companies that If we could demonstrate how we could be great partners together. how the best of what we had to offer to customers and the best of what they had to offer customers could come together, that neither of us could do all of it alone.

But together we could create value propositions that nobody else could replicate and would be the best in class for consumers and merchants. That was the best possible way to go into the market. PayPal is a uh one of the sort of the the linchpin businesses in Silicon Valley. Stands among among peers like like Twitter and and Google and Facebook and all these different companies. And I mean most companies uh traditionally have have avoided

being political or being uh uh being perceived to be political or taking any kind of stance that would be perceived to be political. And you have been pretty comfortable with it. Sounds like you've been pretty comfortable with like I think

In twenty sixteen PayPal had pl had plans to to have an operations center in North Carolina and then scrapped it when the state passed an anti trans bathroom bill. Wh where does that come from? That that comfort with Taking a stand and not worrying about who you alienate. Well, I think it it isn't actually political, although I understand why people think it's political. These are all values based decisions.

And the number one value that we hold at PayPal is about diversity and inclusion. That is our number one value because our mission as a company is Is to assure that managing and moving money is a right for every citizen, not just a privilege for the affluent. And that's a very inclusive mission and therefore our values also need to reflect that. And so my view on this is that values

have to be something that you act upon. If they are just on a wall uh and you don't act on them, then they're just really propaganda. And that's worse than probably having no values at all. uh because you're not you're not true to those values. So when North Carolina happened, people said to me like, Yeah, it must have been a really difficult decision. The truth of the matter was it wasn't a difficult decision. I saw the governor

talking and he was basically saying, you know, a lot of companies are signing petitions, nobody's taking really any action. You know, we're gonna be fine here in North Carolina. And I literally walked down the hallway to uh our head of corporate communications and said, Look, in a week

We're gonna pull out of North Carolina. And I called the governor and I said, Look, if you rescind H V two, we'll stay in. But if you don't, we're gonna leave. And um, you know, I didn't realize at the time just how public that statement would be. Um, you know, it was news everywhere and it was very lonely for a while. I received

A lot of personal threats, a lot of death threats. Well you know, I had to have security, go into bathrooms before I went in there, uh, to search and make sure nobody was waiting for me in there. It was lonely for a while, but then, you know, I come from New Jersey, as you know. Um, and then when Bruce Springsteen actually canceled his concerts in North Carolina

You know, I was like, okay, good, Bruce and I are in this together. Um and then other companies started doing that. The NCAA did, the NBA did. And, you know, we made a real difference in what happened there. Um This same thing guy happens in taking a stand for who can use. your services and your platform. Um, you know, we created an acceptable use policy that bans people or organizations from using PayPal or Venmo. to raise money for anything that has to do with violence

uh racial intolerance or hate. You know, the internet can be a little bit of a lawless place. And um We probably take down hundreds of sites a month that violate our acceptable use policy. You don't hear about most of them, but we're v quite vigilant on it.

Many companies talk about values, but um they're afraid to take positions that would be perceived to be political. Um it's a little bit different now with what's happening around the the country and the world uh uh with the demonstrations against racial injustice.

Um a lot of companies are are making statements. Um but there's been a lot of criticism about it too, that it's it's performative. You know, that it's um a lot of this is is just companies kind of responding to the moment to make sure that they they they continue to appeal to their millennial and and Gen Z uh consumers.

So let me ask you about r about these movements. I I have to imagine this is a conversation that's been going on um at the executive level at PayPal about, you know, who are we? What do we do? What's our response? What do we have to as a company change and and take actions internally. Is that I mean, is that happening? Yeah, I think um the last several weeks have unleashed Introspection and reflection inside corporate America, I think inside all of our households.

And um that sense of emotion and um sometimes despair, sometimes exhaustion, Sometimes determination was felt throughout PayPal, but probably most acutely by our black colleagues. and I spent, you know, at least Two weeks talking to black leaders inside PayPal, black leaders across the country, listening, trying to learn, trying to understand. And uh basically where we came out, Guy, was that It was not enough for us to condemn racism, but that as a company we needed to be anti-racist.

And as I explained on a all employee video conference, uh which is the way of our world these days, basically I said what it means to be anti racist is it means that we are part of Fight that we are willing to do the work. To address systemic racism. And really, what is distinctively something PayPal can do is to try to address some of the racial wealth gap that has existed in our country and has not been closed whatsoever since the last civil rights movement.

nineteen sixties and we have a distinct way to go and do that. is we made a$530 million commitment to help start the ability for black-owned businesses, for black and minority communities. to start to have capital available to them. Uh, so that black businesses that have typically received less loans and equity infusions than other businesses across the country that we would give right now, today,$10 million, not of loans, but of grants.

to black owned businesses that have been hit two times as hard. as other owned businesses in COVID-19 who just need cash to survive. And the other thing, Guy, that we do is our products and services themselves. should be able to help here. You know, we are, most people don't know this. We are one of the top five providers of working capital to small businesses in the United States. We've done some fifteen billion dollars of loans over the last several years.

Interestingly, seventy percent of our loans go to the 10% of counties. where ten or more banks have closed branches. And banks close branches where the medium income of a neighborhood is below the national average. Why? Because they need a certain amount of deposits for those branches to be profitable. And so if they can't get that those branches aren't profitable. But we can go in there and use technology to basically very disproportionately lend

into those lower income neighborhoods and therefore disproportionately uh help minority owned businesses, women owned businesses. So it's not just about the five hundred and thirty million dollars. But it's also about what do we do day in and day out to help uh the most vulnerable segments of our population who most need our help.

When you look back at this period in in five or ten years, um where where most of your workforce, presumably right now, is is is working remotely. When you think of all the challenges facing, you know, many companies, including PayPal right now, what do you want to say, you know, that that I took from this period and and made my company better, made me a better leader? I think all of us uh who lead companies uh can take away from this is it's actually possible

Do what was practically impossible to imagine in a short period of time when you have no choice. For instance, if I had told my team a year ago, I want a hundred percent Of our workforce to work from home. Not a great idea. Our productivity will go down. We're all about collaboration as part of our culture. You know, there's security things we need to think about.

It'll take us two to three years to do this. And by the way, had I told them I want it done in two to three weeks, they would have thought I was crazy. That's what happened, you know, in two to three weeks we were able to do something that was massive and we would have thought was impossible to do a year ago. You know, I've been surprised by The enhancements in productivity that I'm seeing, you know, we're probably doing fifteen to twenty percent more software releases.

Uh than we did when we were at the office. Um and uh we just need to think about what does an office look like? And we're spending a lot of time thinking uh about that. What are the benefits, but clearly There is a large part of our workforce that will want to take advantage of work from home. Yeah. Um, for the foreseeable future. Can you imagine a future where you don't have to live in the b in in the Bay Area you know, I mean where you don't have to come to headquarters where you can

Live in um, you know, some rural part of California instead of driving into Palo Alto every day. Yes, I can. I I also think it's gonna open up Our ability to recruit and Yes, talent from around the world. if somebody is in West Virginia Or Tennessee or Mississippi or California, let's recruit the best talent because now we understand that.

Actually coming into headquarters may not be as important as we used to think it was. I remember many, many years ago, being first to the office and last to leave was a way that people measured how dedicated you were. these times have fundamentally changed. When you think about how you approach leadership, right, and and I and I ha I've I have to assume it's it's evolved and changed over time.

Since you're you're you know, the the first kind of responsibility you were handed at at ATT to where you are today at PayPal, which by the way, how many employees do you oversee at PayPal? About twenty five thousand. Wow. Um How do you how do you make sure that you're getting r truly

uh unfiltered feedback. You know, because when you're when you're the CEO of a twenty five thousand person company, it's very easy to be surrounded by people who are gonna say, Great job, you know, great idea. But h how do you make sure that actually You have people tell you that's that's not right, or that's not gonna work, or this is a mistake. What's your strategy for doing that? Well I think that comes from one being authentic.

being very willing to say that you don't know all of the answers, the moment you think you know it all, is the moment that your company starts to fall behind. I think we just need to be you know, not know it alls, but really people who are constantly trying to learn and gather more information. And that comes from talking to people, from being authentic, from listening, by treating people with respect.

by when they say something to you, you listen, you take it into consideration, and you feed it back so that people know that you heard them. The other thing is you need to take care of your employees. Like I One of the things that I fundamentally believe in is this idea of this what people have now called it multi-stakeholder capitalism. You know, as a CEO,

I have several constituencies that I need to satisfy. I need to satisfy my customers, I need to satisfy regulators, I need to satisfy shareholders, and I need to satisfy my employees. But the number one constituency that I serve, number one, is my employees. Looking carefully at are they financially healthy? Are they making enough money where they're not struggling to make ends meet? at the end of the month. And what I found, guy, for my entry-level employees and for our call center employees.

Some eight or ten thousand of our employees is when I did the survey. Two thirds of them were struggling to make ends meet at the end of the month. Our employees at that level. only had like call it four to six percent. of their income uh was uh was disposable. So no wonder they were struggling to make ends meet. And we decided that we needed to set a target of 20% net disposable income for all of our employees. And so we lowered the cost of of health care and benefits by

sixty percent, six zero percent for that set of employees. We gave every employee uh equity in the company so they could share in our success. And the is far outweighed by the benefits we will get over the medium to the long term in the ways that we serve customers. I just Think about your consistency. We need to act as a leader in a compassionate way, in an authentic way. You're in it together. Like the only thing you have Yeah. This is one. There's really nothing you can't do as a company.

That's Dan Schulman, president and CEO of PayPal. And since Dan joined the company, PayPal has doubled the number of accounts it serves, over 305 million businesses and consumers. Hey, thanks for listening to the show this week. The music for this episode was composed and performed by Drop Electric. I'm Guy Roz, and you've been listening to From the top, from luminary and