Fourteen years ago, when a little-known company named eBay Inc. (EBAY) went public, few imagined just how much the world of retail was going to change. At the time, the notion of an "online auction" was unheard of. The company had a mere 30 employees at the time, but it has since exploded to become one of the most successful tech stocks around, completely changing the way people bought and sold items in the global marketplace. One of the most successful components for eBay has been its online payment system, PayPal. For many online merchants, PayPal is the weapon of choice. With the recent news that eBay has reached a deal with Discover Financial Services (DFS) to allow its PayPal services to be used in retail stores throughout the country, eBay may be set to change the game once again.
With this recent news, eBay's reaches are no longer limited to the internet. The deal allows customers to pay with PayPal in any retail store nationwide that uses Discover, which amounts to over 7 million stores. PayPal currently has 50 million users, and that number will certainly grow on the heels of this latest news. I don't think it's an exaggeration to say this is going to be absolutely huge for eBay, and so far that looks like it's going to be the case. It just hit its 52-week high, and I see no reason to think it won't keep going up from here, especially as stores start implementing the new deal with PayPal. Analysts praised the deal as a move that keeps PayPal at the forefront of its field.
"This initiative further distances PayPal's digital wallet ahead of other mobile payment platforms," R.W. Baird analyst Colin Sebastian said. "PayPal continues to take measured and deliberate steps to extend its reach into the 'bricks and mortar' channel."
This move comes as no surprise, as eBay has recently been exploring ways to get into physical stores. The past year has seen eBay extend its PayPal services into many different retailers nationwide, including Home Depot. This new deal with Discover extends that number astronomically. Over the course of the next year, PayPal will begin issuing cards to its users that can be swiped at stores that accept Discover, using a PIN. Since Discover cards are not accepted in as many locations as Visa Inc. (V) or MasterCard Incorporated (MA), the move is also expected to be beneficial to Discover, as more stores will undoubtedly begin accepting Discover to meet customer demand of being able to pay with PayPal.
Another factor to consider that makes this move even more important going forward is the evolution of smartphones being used for mobile purchasing. Digital payment systems are going to be paramount going forward, and eBay is a name people already know and trust. Other companies are looking to get into digital payment systems, but eBay has already been at it for a decade, so the evolving world of digital payments is far less foreign to them.
Digital wallets are just in their infancy, and this deal with Discover is really the first major event that could really push things forward - and eBay could be set to reap huge rewards. In an interview with Bloomberg, PayPal Vice President of Retail Services Don Kingsborough touted the deal as great for both Discover and eBay.
"This really makes real all the technology and things that people have been working on and the changes in consumer behavior," Kingsborough said. "This is the first time that you make it real for the consumer and for the retailers."
Last quarter, eBay pulled in 40 percent of its revenue from PayPal, so it's clear PayPal is going to be an integral part of the eBay brand going forward. And though eBay is one of the kings of online shopping, the vast majority of people still do their shopping in physical retail stores. While more people will undoubtedly move to online shopping in the future, there will always be a desire for in-person shopping, as many people want to be able to see and feel the products they are buying. Thus, this move for eBay to extend its presence into these physical spaces is a brilliant one, and I would strongly recommend buying eBay immediately.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.