These are PayPal’s top competitors.
PayPal (ticker: PYPL) has a heralded and unique history on Wall Street; its cabal of co-founders and early executives later went on to create or fund some of the highest-growing, most innovative companies on earth. Early Facebook (FB) backer Peter Thiel, Tesla (TSLA) CEO Elon Musk and LinkedIn founder Reid Hoffman were among those involved in PayPal’s creation and early growth, so in hindsight, it’s not so surprising the company has grown to become a $230 billion digital payments behemoth. Still, the global digital payments market is unfathomably large — it’s worth many trillions of dollars globally — so fending off rivals gunning for its market share is a full-time job. Here are seven top PayPal competitors to watch.
The public company that’s most directly analogous to PayPal is arguably Square; unlike some others on this list, payments is the heart and core of Square’s business, not another service it opportunistically spun up to further monetize a large user base it already had. Although initially focused on facilitating smoother point-of-service (POS) sales for businesses, the company also developed the mobile payments service Cash App in 2018 that has rapidly grown to become a popular peer-to-peer payments platform competing directly with PayPal-owned Venmo. Cash App’s gross profit more than tripled in the third quarter, growing by 212% year over year to $385 million.
One of the most consistent and fastest-growing parts of modern-day Apple is its services segment, which encompasses a variety of software offerings, including the App Store, Apple Music, iTunes and iCloud. Apple Pay also falls under that category, and it should be considered one of PayPal’s biggest competitors. Like PayPal, you can use it with supporting merchants to pay for e-commerce transactions or seamlessly request and transfer money with friends and family through your mobile device. Apple Pay also supports contactless POS transactions. There’s one big thing this rival has that PayPal doesn’t: at least 1.5 billion active Apple devices (and growing) that the $2 trillion Cupertino-based Big Tech heavyweight enjoys as a captive potential user base.
Alibaba Group (BABA)
U.S. investors might not realize it, but Alibaba has been one of the top PayPal competitors on the planet for quite a while now. While PayPal’s early growth was driven by the e-commerce platform eBay (EBAY) — which would quickly acquire PayPal and eventually spin it off again — China’s biggest e-commerce force, Alibaba, also sees the value of owning part of a digital payments service, Alipay, that rode its coattails. Alipay actually overtook PayPal in terms of largest mobile payment platform in 2013. It dwarfed PayPal in payment volume the same year. Chinese consumers rapidly adopted digital payments years ago in a way the U.S. has been slower to do, allowing Alipay to hit 1.3 billion active users worldwide, more than three times the 361 million active users PayPal reported last quarter. Alipay is a unit of Ant Group, which Alibaba owns around a 33% stake in.
Like Apple, Alphabet’s Google shrewdly leveraged its dominant mobile operating system (OS) to expand its portfolio of apps, a powerful growth lever that few other players can tap into. In 2019, Google revealed there were 2.5 billion active devices running on its open-source Android OS. An all-in-one payments and personal finance app, Google Pay allows users to split bills and transact within private groups, keep credit cards in its digital wallet, and track finances by linking bank accounts, Gmail and even Google Photos. Like Apple Pay, Google’s service also uses near-field-communication technology to allow for contactless POS transactions in person with participating merchants. Although likely much higher now, in late 2019, Google Pay boasted 67 million monthly active users generating more than $110 billion in transactions on an annualized basis.
Stripe is currently the most valuable private company in Silicon Valley, worth $36 billion at the time of its last fundraising round in April. Although one of PayPal’s top competitors, it doesn’t directly compete with PayPal on peer-to-peer payments, with more of its focus on e-commerce for businesses, back-end payment facilitation and recurring billing services. Although worth just a fraction of the valuation that PayPal has garnered, Stripe has reportedly been growing rapidly, and its list of top-tier backers includes Peter Thiel himself as well as Google Ventures, the venture capital investment arm of Alphabet.
In a direct response to the growing popularity of PayPal-owned Venmo, a group of major U.S. banks got together to form their own instant digital payment network, Zelle, in 2017. Zelle is owned by Early Warning Services, a private financial services company owned by several banks, such as Bank of America (BAC), JPMorgan Chase (JPM), PNC Bank (PNC), U.S. Bank (USB) and Wells Fargo (WFC), to name a few. These banks teamed up to create their own Venmo copycat; any customers with those banks — along with various affiliates and partners — can use the service to transmit payments digitally with ease.
Shopify has been one of the highest-flying stocks on Wall Street in recent years, as its cloud-based offerings allowing small businesses to set up their own “one-stop shop” e-commerce digital stores took off. As a one-stop shop, Shopify also offers its own payments solutions for merchants called Shopify Payments. Without a third-party gateway, merchants can accept credit cards through the service. Like Square, Shopify Payments also offers POS payments on iPads. Now worth about $120 billion, Shopify stock has soared from $28 a share in 2015 to about $980 a share today. Investors are paying a lot at current levels for the growth that Shopify provides. SHOP stock trades for more than 620 times earnings and more than 270 times forward earnings — a hard price to justify.
PayPal’s seven top competitors:
— Square (SQ)
— Apple (AAPL)
— Alibaba Group (BABA)
— Shopify (SHOP)
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