- PayPal has become arguably the world’s most popular online payments system.
- Visa, one of PayPal’s fiercest rivals, has been aggressively gunning for the top spot and has now turned its attention towards developers in order to kick-start its efforts.
- The increased competition by companies such as Visa could have serious implications for PayPal stock price and the company’s future success.
Paypal Holdings (NASDAQ:PYPL), regardless of public opinion, has become the benchmark for online money transfer. The company’s services give people around the globe the opportunity to conduct financial transactions through their online web platform by granting them ability to transfer money electronically between individuals and businesses. Currently, the company’s operations are situated in 203 markets worldwide, with 159 million registered and active accounts. As the accessibility of technology steadily increases, more and more people will begin to look at online money transfers as viable alternatives to the more traditional and conventional methods of transferring legal tenders, such as bankers cheques and money orders.
Since its establishment in 1998, the company has grown leaps and bounds. The company had its initial public offering (IPO) in 2002 and became a wholly owned subsidiary of eBay after the latter acquired the company for $1.5 billion in July later that year. PayPal soon became the payment method of choice for the majority of eBay users worldwide, and by the year 2010, it had more than 100 million active users in 190 markets through 25 differing currencies. The company spun off from eBay and began trading independently from July 2015.
PayPal currently has to deal with the more notable threat posed by Visa (NYSE:V), statistically the world’s largest payment processing network, which is also attempting to assert its dominance in the online money transfer market. The company recently announced the launch of the Visa Developer Platform, which is a strategic move by the multinational financial services corporation, likely to holistically transform its online payment platform and spur further technological innovations in e-commerce and payment solutions.
This is the first time in the 60-year history of the company that third-party software developers have been granted open access to the company’s own payments technology, products and services. Examples of these products and services include account holder identification, currency conversion and person-to-person payments.
In this day and age, people are spending inordinate sums of money on purchasing goods and services, increasingly without the use of physical cash. Companies have discovered that if they can include themselves within the payment process, they can grasp tiny portions of those payments which, cumulatively, add up to significant sums of money. This is compelling evidence for the existence of services such as Apple Pay, Samsung Pay and Stripe.
Once consumers adjust to using their mobile devices as methods of payment for products, it would be significantly easier for the respective companies to bypass Visa as the intermediary channel in the payments process and work directly with banking institutions. This is why Visa is doing what they previously regarded as unthinkable, welcoming third-party developers to its payment processing system through the launch of its Visa Development Platform, which allows the company to maintain its footing within the industry, whilst attempting to capitalize on this emerging mobile money-transfer market.
The platform itself differs from other payment solutions through its developer portal which gives developers access to hundreds of application programming interfaces (APIs) and software development kits, as well as a search tool that permits users to search through all of Visa’s products and services. Visa CEO Charlie Scharf said the following in a company statement:
“Visa Developer represents not only a new access point to our network, but a new distribution platform for Visa products and services globally,”
With companies such as Visa raising the competitive bar within the industry, the implications for PayPal could be huge. In that regard, PayPal stock price and the company’s success as a whole could be under serious threat. PayPal recently revealed its fourth-quarter fiscal earnings results for the year ended 2015. Overall, the results were positive, as the company performed better than anticipated, with sales revenue of $2.6 billion as well as revenue growth of 17%. The GAAP earnings per diluted share grew by 28% to $0.30 and non-GAAP pro-forma EPS growth was 27%, raising the figure to $0.36.
I am of the opinion that PayPal should tread carefully in future. Despite the latest earnings call drawing major positives, the continuously fluctuating stock price, as illustrated in the diagram above, is a cause for concern. If they are to replicate these good financial results going into the first quarter of the New Year, they will have to set out an airtight strategy to deal with the threat of the existing competition that, if not adequately dealt with, will eat into the company’s revenue and profits. It is therefore, needless to say that the result of this is lower returns for investors, some of whom may look at selling their stake in PayPal and possibly investing in Visa stocks. The ball is now firmly in PayPal’s court.