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Why Apple's New Mobile Payment Solution Will Not Affect PayPal

Sep. 09, 2014 4:06 PM ETeBay Inc. (EBAY)AAPL32 Comments
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  • PayPal processed about $180 billion in transactions in 2013. In the second quarter, PayPal’s net payment volumes grew 29% to $55 billion.
  • About $27 billion, or 15%, of PayPal’s payment volumes last year were mobile transactions, largely ecommerce-related. Apple would have the potential to disrupt about 15% of PayPal's revenue source.
  • Apple’s upcoming mobile payment solution is unlikely to slow down PayPal, which has continued to grow at a healthy clip over the last several years.

As the launch of Apple's (AAPL) mobile payment solution careens our way, perhaps now is a good time to examine what it really means for PayPal and, by extension, eBay (NASDAQ:EBAY). The first time news that Apple was planning to launch a mobile payment solution hit news feeds, eBay's shares started selling off by a huge margin, a true testament of the kind of fear that Apple instills in its competitors. PayPal is by far eBay's most important cash cow, bringing in about 45% of its overall revenue each year. Anything that threatens PayPal's future growth is, therefore, very likely to have a negative impact on eBay's growth as well. Let's now look at just how serious is Apple's mobile is to PayPal and eBay.

How serious is the threat?

Apple new mobile payments solution will be based on NFC and/or iBeacon. It's very likely that Apple will look to focus more on offline payments rather than online ones where the space looks a bit crowded with the likes of PayPal, ISIS by American Express (AXP), Google Wallet, and other payment solutions by Amazon (AMZN), Visa (V) MasterCard (MA) and so on. PayPal, ISIS and Google have made iterations on their online payment solutions to cover physical payments as well, but their efforts have mainly been hampered by the popularity and ubiquity of credit cards. Square is a large mobile payments player, but has of late run into problems with its high cash burn rate and consequently been forced to delay its much-awaited IPO

PayPal is by and large an online payments platform, with a tiny presence in offline payments (probably 2% or less of PayPal's revenue). The fact that Apple's mobile payment solution is likely to focus on offline payments therefore eliminates a lot of potential trouble for PayPal.

This article was written by

Options Calling profile picture
Research group in equity analysis, value investing, fundamentals, with experience as a Independent Investment Advisor Background in engineering and economics..

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Comments (32)

I do not see Apple Pay as causing any short/near-term issues for PayPal. It might pressure the stock price, however, because many investors/analysts really do not understand the difference in services offered. The primary differences based upon what I believe to be the case are as follows:

1) PayPal has a large and growing moat in online payments due to network effect;
2) Apple Pay is primarily geared at offline (i.e., in-store) payments;
3) PayPal uses the ACH system for payment processing;
4) Apple will use Visa, Mastercard and Amex for payment processing.

I believe Apple's primary objectives are: 1) sell iPhone 6; 2) strengthen ecosystem and brand; 3) develop core competencies to participate in digital money revolution; and 4) achieve critical mass of merchants accepting Apple Pay offline digital payments.

How digital money will play out in coming years is anyone's guess in terms of the winners and losers as there are so many players and the stakes are huge. Banks, credit card processors, merchants, payment providers, central banks, etc. However, I offer this one thought - the approach Apple is taking seems quite similar to the technology used in Bitcoin payments in terms of transferring digitized "tokens" to authenticate and execute transactions.
Kershaw profile picture
There's a good chance that Paypal and Apple will work together in the future. It would likely benefit both. While Apple will certainly bring more competition, PayPal is likely to continue it's healthy growth trajectory for many years to come. There's going to be plenty of business to be had many several companies much like Visa/MC/Amex in that space.
It's going to be a tough end of year for EBay with Apple Pay and the upcoming Alibaba IPO.
KingBro profile picture
I use Paypal and will not open/use another platform as I am well served by Paypal.

I also do not plan to buy either an iPhone/iWatch so...

EBay is at a good price right now.

Seeking Benny Frank profile picture
Apple Pay has already cost Ebay shareholders billions.
Yes indeed and put a VERY small portion of those billions in my trading account this week when I sold my EBAY weekly puts at a tenfold profit!! :))
The smart thing for Ebay to do here would be to buy PAY (Verifone) and combine it with their PayPal unit spun off as a separate entity.

Ichan will be happy and off their back, so will be the rest of current Ebay share holders.

Combined new PayPal+PAY would then be strong in online+offline transactions.

The right stock to own here is PAY!
PAY is one of the AAPL partners on yesterday's rollout.
Also consider PayPal can be in ApplePay if they negotiate just like the banks did.
ApplePay will work with ANY merchant that has a contactless terminal. Stores can buy these plug ins on Ebay for $50. What Apple DID NOT disclose yesterday though was VERY SLICK. NFC currently qualifies for Visa & MC "keyed" interchange rates. It does NOT qualify for the lower "swiped" interchange.

What are stores going to say about ApplePay when they realize their monthly credit card processing bill is going to go up 20%??!!
Most ebay mobile purchases are made via the ebay app are from Apple devices. It's been said that Android devices are a much smaller source of income for ebay.

How long do you think Tim Cook is going to allow PayPal to be the only payment method. How long before Tim Cook bans PayPal altogether? How long before ebay sellers have another electronic payment choice available and shun PayPal? How severe will the migration to Apple Pay be for PayPal in the long run?

PayPal will be spun off. It's just a matter of when. Would Apple then acquire PayPal?

Interesting days ahead....
Apple is supposedly getting ~0.20% per transaction rebate. Since most of PayPal is tied directly to checking accounts and consequently much more profitable, acquisition of PayPal by Apple seems very likely. Icahn definitely wants it out there for auction that's for sure.
freed0m profile picture
What Apple did is mostly to replace the plastic cards, other than that, hard to see much difference from a normal plastic credit card. Maybe more troublesome, but fewer cards to carry and unlikely identify theft.

And Paypal maybe can be used with Apple Pay in the future, you never know. Paypal is more like Visa/MasterCard today. And Apple Pay is nothing like that.
Apple Pay will have a dramatic impact on Paypal WHEN AND IF they allow small businesses to use their platform to process CC and debit card purchases as Paypal has been doing for some time now.
Alan1967 profile picture

From what I say Apple Pay is integrating with a very popular 3rd party payment system called Stripe. So, that integration with smaller business could start quickly.
Thanks for the "heads up" I will look into it for my small online business. I would LOVE to ditch Preypal!!
I think the PayPal spinoff is now guaranteed. PayPal must be spun off so it can operate independent of eBay.
For what it is worth, I used paypal for an offline transaction for the first time today. Recently I had problem with my debit card and I had to get a new one ordered. I was at Dollar General and didn't have my debit card, so I saw Paypal was an option. Let's just say I really enjoyed the experience. Not to mention I didn't even have to get out my phone.
locutus49 profile picture
I use Paypal all the time and my ONLY complaint is the fee, which is a bit high.
The Apple Pay looks very cool. I'm looking forward to using it soon. Paypal has nothing like it. I expect Apple to dominate payments within 5 years.
tarheelboy profile picture
Saying apple is unlikely to cut into PayPal has not one bit of proof. Purely a story of "contrarian feeling."
gettmoney profile picture
saying apple "will" cut into paypal has not one bit of proof..that can go both ways, wouldn't you agree?
Alan1967 profile picture
PayPal most certainly will be effectd.

Secure Weable Device + Wireless Payment System = The biggest disruption of the next 10 years.

How this all plays out PayPal vs. Apple Pay vs. Bitcoin on cell phone is yet to be determined. But wireless payment is clearly the most important disruptive change that will happen in the next 10 years.
locutus49 profile picture
Bitcoin??? Seriously?
gettmoney profile picture
Secure Wearable device, I didn't hear apple say anything about security..
Alan1967 profile picture

This seems like a rather partisan replay, so I'm not sure if I should take you seriously. Did you listen to the keynote?

Anyway the TouchID on the iPhone5s is what I'm talking about when I say security. The merchant accepting payment needs to know that the phone you are paying with is yours. That is what I mean by secure wearable device.
We will see in a year or two who will be the big winner. Even if Apple makes a small dent in the market it will still add to their bottom line of profits. The true test will be how many other retailers start to accept Apple. If Apple can keep that market growing then they might be the winner down the road.
I doubt Apple will make much money from their payment system. Apple Pay is a great addition to their ecosystem and it will drive demand for Apple devices.
Poolmaster profile picture
Your first sentence should be "billion" not "million". Hard to take any article seriously that has an error like that. Sorry.
gettmoney profile picture
lol...because nobody makes errors.. what a perfect world we live in right
techy46 profile picture
I'm not storing my credit card info in any electronic device. Never used a debit card.
Your credit card is not stored on the device. You should educate yourself on how the system works. Credit cards are antiquated and you have more risk of them using a credit card than the Apple Pay system.
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