Beware: PayPal has competition

Large rivals loom, and they are taking aim at the company's business model.

By Stock Traders Daily Aug 26, 2013 4:59PM

By Neal Rau, Stock Traders Daily.


The market for mobile payment transactions is predicted to rise 44% this year to over $235 billion, which includes merchant purchases, money transfers and bill payments.

PayPal, owned by eBay Inc (EBAY), is the best known mobile online payment option.  PayPal is extremely important to eBay, as it accounted for about 40% of eBay’s 2012 revenue. PayPal hasn’t had much competition -- but recently big names have been surfacing as potential competitors. How much would eBay’s stock be affected if a big competitor stepped in?

Security is the biggest concern for consumers who want to use digital wallet providers, which might be why PayPal has been successful in fending off some smaller challengers up to this point.

PayPal office (© Caro/Alamy)Only about 12% of consumers surveyed say they have used a digital wallet service other than PayPal. However, with the explosion of mobile merchant transactions, bigger players are starting to surface and eBay shareholders should take notice. Stock Traders Daily has eBay neutral long-term, and thus far the stock has held support through a tight trading range over the last six months.


The competition:


Facebook Inc (FB) confirmed it was preparing to test a mobile payment service that allows purchases to be made with just a Facebook login. The company has millions of gamers who spend money buying in-game virtual goods while playing on top of the Facebook platform. While the company has been clear that they are not looking to replace PayPal, with this test run it isn't a stretch to think they might at some point in the future.


Apple (AAPL), rumored to be starting a mobile payment service called iWallet, might be an even bigger threat to PayPal. The key factor is Apple’s iTunes, which the company said has more than a half-billion active iTunes accounts linked to credit cards. Another advantage is its existing partnerships with some of the biggest retailers like Wal-Mart (WMT), Target (TGT) and Best Buy (BBY). Apple could leverage those relationships to help its own iWallet service get started. Apple has been working on iWallet for the past two and a half years and a fingerprint technology to go along with it. Apple bought fingerprint and secure solutions specialist Authentec last year for $356 million.The next generation iPhone is expected to be released next month, and is rumored to include a fingerprint sensor and a near-field communications chip for mobile payments.


Google's (GOOG) product, Google Wallet, makes sense for the company because it can add purchase behavior to its already massive stockpile of data. Despite some major advantages, like Android, the company has yet been successful in making Google Wallet a household name yet.


PayPal might finally see some real competition in the mobile payment service business, as bigger names like Apple and Facebook move in. Any business lost from PayPal would certainly be bad for eBay’s stock. Shares of eBay have been in a tight trading range over the last six months, so right now there is no immediate concern, but if support breaks all that would change.

At Stock Traders Daily the discipline is to sell/short if support levels break or resistance levels are tested, but neither has happened yet; so according to our observations eBay should be monitored for opportunity, defined catalysts exist, but no actionable triggers are occurring for longer term trades in eBay quite yet.  Patience!

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Aug 26, 2013 6:17PM
Good. They need competition and finally realize that their days of being the only game in town might well be over. Sooner or later, they will be, it's just a question of who takes them down.
Aug 27, 2013 10:32AM
Facebook should buy Blackberry. FB has a market cap of nearly 100 Billion while Blackberry has a market cap of around 5 Billion, no debt, plus nearly 3 billion in CASH. Blackberry is known to have a secure network and creating a payment system via the Blackberry Network might be huge. Plus Facebook gets into the Mobile arena as has Google and Apple.
Aug 26, 2013 11:53PM
without paypal, ebay would be a struggling useless stock to hold. with paypal, ebay can make as many mistakes as it has forcing people to use its payment platform.

take into account that over 80% of paypal transactions are from non-ebay generated transactions......hmmmmm, who is fooling who?

Mar 11, 2014 6:16AM
I will switch instantly if Ebay allows the use of a third party, I think not, the people at paypal are finding any excuse going to hold peoples money for longer to make more money from the Interest and a lot of people want an alternitive. paypal works for buyers but not for the seller.
Aug 27, 2013 12:52AM

POS company will not even allow you to purchase firearm PARTS. SCREW them.

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