PayPal: David Vs. Goliath

| About: PayPal Holdings, (PYPL)

Summary

PYPL overhauled its mobile app to make it more user friendly so it can compete against larger players such as AAPL and Android.

Positive direction in embedding local services and wealth management into the app.

Remain bullish on PYPL for its pace of innovation.

PayPal (NASDAQ:PYPL) just did a massive overhaul of its mobile app, representing the first time in history that the company has rebuilt its app from scratch. I think it is a significant step for the payment company to position itself competitively against Apple Pay (NASDAQ:AAPL) and Android Pay (NASDAQ:GOOG) (NASDAQ:GOOGL). With the recent design overhaul, PYPL is focused on offering a more extensible framework that allows the app to add new features in the coming month that could extend across mobile e-commerce, mobile payment and P2P transfer.

With a simplified and integrated mobile app experience, PYPL's app could potentially become Alibaba's (NYSE:BABA) Alipay and Tencent's (OTCPK:TCEHY) WePay, which have seen tremendous success in China. I remain bullish on PYPL given its pace of innovation. While AAPL Pay and Android pay simply allow users to store accounts and pay at offline locations, PYPL's expansion into mobile e-commerce can be considered as a differentiated service offering that may lead to long-term customer acquisition and retention.

PYPL's decision to overhaul its mobile app originated from feedback gathered from over 8,000 customer service reps. The most noticeable area that was revamped was the user experience in which PYPL's new app features a cleaner, more modern color scheme, iconography, fonts, and layout with simplified user navigation. The smooth browsing that allows users to quickly view their account balance, jump into their account or view their recent activity with just a tap within the app is an improvement relative to many bank-owned mobile apps and this is one key differentiation PYPL is able to achieve, in my view.

Other features include expanded support for Android fingerprint authentication, separation of account activity by pending and completed transactions and the ability to add credit cards from other countries, but I think the most attractive feature is its ability to allow the users to order and pay for food delivery through the PYPL app. This is essentially the O2O service that is commonplace across China and widely used by companies such as BABA, Tencent and Baidu (NASDAQ:BIDU). To my knowledge, PYPL is one of a few mobile apps that have tied service and payment on one platform and I would not be surprised to see PYPL partner with other merchants such as hairstylists, grocery stores, pharmacies and even QSR chains.

Besides mobile payment, another focus PYPL has is on money management. Once again, this is essentially the same thing that Chinese mobile apps from BABA, Tencent and BIDU are doing. In a nutshell, the Chinese internet companies sell money-market funds to the users on their mobile payment app and interest earned is accumulated daily. The increased wealth effect encourages spending, and in this case, PYPL could see increased usage of its mobile app on food orders or other services. So far, PYPL is only focused on budget and goal setting but I expect the services will eventually be expanded.

In short, I remain bullish on PYPL and its growth outlook in the mobile payment space. Although AAPL and Android are popular options, I think the market may not give PYPL enough credit given how advanced its mobile app is relative to others.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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