While it is typical for most successful companies to average a year-after-year growth rate between 15 to 45 percent, Paypal’s referral program shot the company into a mind-blowing average annual growth rate of 1,650 percent. Yes, the brand hit 1 million users by March 2000, only two years after it was founded in 1998, and six years later, it had grown to 100 million users. Even better, all this growth happened before the social media age.
Paypal is estimated to reach 750 million users by 2025, while currently, more than 87.5% of online shoppers use the payment platform. According to co-founder Peter Thiel, the company decided to use referral marketing to reach and gain more customers because traditional advertising was too ineffective despite its high costs. The result of offering referral rewards was an average daily growth rate of 7 to 10 percent.
In fact, PayPal happens to be one of the first few internet companies to gain astonishing growth on a massive scale by implementing a referral program. By the end of this post, you should better understand how the PayPal referral program works, why it has been so successful, and some of the drawbacks that could have been fixed to make it more attractive.
How does the program work?
The PayPal referral program uses a simple double-sided rewards system that allows both parties to earn rewards when an account is created through a referral link. This means that the referrer (the person inviting someone to join PayPal) and the referee (the person who receives an invitation) both get a $10 reward.
To be eligible for rewards, the referrer and referee must have a personal PayPal account in good standing at the time of participation, and throughout the period the rewards are issued. Referrers can invite referees via the referral mechanism in the app. Each referrer can claim a cash reward for a maximum of 5 referees per calendar year.
The Reward Criteria
To gain a referral reward, referees must meet the following requirements:
- Access and complete the PayPal sign-up process.
- Link their bank, Visa, MasterCard credit card or debit card to their Paypal account
- Verify their cell number
- Complete an Eligible transaction, i. e. an online Paypal checkout payment of $5 or more using the Send Money feature to send to anyone other than the referrer.
The standard reward amount is $10. Paypal allows referrers to earn only one reward per referee and five rewards within the calendar year. If two or more referrers invite the same referee, Paypal credits the reward to the first referral. Rewards are usually sent within twenty-four hours but can take up to two weeks to reflect.
What are the good things about the program?
Several factors made the referral program successful, so let’s dive into them.
Instead of only offering users a reward, Paypal ensured that both the existing and new users gained an equal reward. This tactic was superb because it is easier to get new referrals when both parties know that they’ll all receive benefits. It connotes positivity and encourages both parties to keep the cycle going since they feel good about recommending and somehow helping their friends and family get a reward. Giving both teams, particularly newer users a reward motivates them to make purchases easier. Since they have received a perk for patronizing that product or service, they are more willing to spend. Aside from increasing their customer base, Paypal’s referral program structure helped them gain even more profit. The more referrals were made, the more the company earned profit from the transaction fees.
Incentive tied to Paypal’s Services
There is no doubt that everyone loves earning free money. However, Paypal’s decision to give its users cash rewards was highly advantageous because it reinforced its primary service, which is easy money transfers. Furthermore, referees were required to use the service for their first transaction to receive their rewards, a smart way to get new users to have an experience of how Paypal works. Apart from making customers delighted, the cash rewards aligned smoothly with Paypal’s purpose as a business, illustrating how simple and convenient it was to use the service. In essence, the incentive provided was valuable to the user and helped them see the value in continually patronizing Paypal’s services.
Another good thing about Paypal’s referral program is how the company used influencers throughout the marketing process. During its early year, eBay was growing rapidly, and eBay’s sellers found Paypal’s services quite valuable to their business. Since they were so satisfied with how the company’s services made their ecommerce transactions easier, they participated in the referral program. Then, they went a step further by placing ads on their store pages, making Paypal even more popular and gaining more customers.
What could they have done to make the rewards program more attractive?
For a well-structured referral program like Paypal’s, it is easy to assume that there are no more improvements. Per the evident results in the company’s growth rate since the program’s implementation, we can agree that the program has been widely successful because of the effective strategies Paypal put in place.
One more strategy Paypal can implement to make their program more attractive is to increase the reward amount for both parties. As discussed earlier, choosing to offer financial incentives enhanced the value of its services to its existing and new users. Hence, increasing the reward amount from $10 to say $15 or $20 will motivate users to refer others as Paypal builds a community of delighted brand advocates.
As an ecommerce merchant or online business owner, you don’t need to give away thousands of rewards for your referral program to be successful. As we’ve seen from Paypal’s example, you can create a lasting relationship with customers and build a solid loyal community that continues to spread the word about your products and services by focusing on the right targets and offering rewards that add value to the shopper’s experience. With the Bamboo app, you can build a fantastic referral program for your brand that increases retention and multiplies your profit. Try a demo today.