Millennials as well as millions of other consumers are starting to pay for their purchases using their smart phones, and they’re doing it in droves. Most millennial’s are actually using Venmo however, shunning online payment giant PayPal for various reasons.
What most don’t realize however is that Venmo is actually owned by PayPal, who acquired the company when they also acquired Braintree in an $800 million acquisition in 2013.
Like many millennial’s, investors are also confused as to exactly what PayPal does and doesn’t do, which is adding to their concerns, especially with PayPal’s upcoming split from eBay looming next year.
Although Apple just recently got into the mobile payment market with their Apple Pay, which many see as big competition for PayPal, the fact is that their prospects are as bright as ever and, once the worldwide online payment giant is free from eBay for good, that bright side gets even brighter.
In fact, PayPal is already leading the way in digital payment options in the US, as well as quite a few other countries. In the last 12 months alone nearly $260 billion worth of transactions flowed through their coffers, an increase of 27% over last year. In recent quarters their growth has been increasing greatly, thanks in part to the Braintree acquisition.
Some investors mistakenly think that PayPal has always been dependent, maybe too dependent, on eBay, which is easy to understand when you consider that PayPal got their start offering a secure way for eBay buyers to pay for their online purchases.
The truth is that being too close to the Internet auction giant may have actually inhibited the ability PayPal had to make new deals with other companies as well as acquisitions based on stock. Also, only about 25% of the transactions now made on PayPal come from eBay, and that number is dropping rapidly.
But what about Apple Pay?
Many investors are also worried that Apple Pay will siphon a huge amount of money away from PayPal, but the fact is that less than 2% of PayPal’s total volume is actually used to pay for things in physical, brick and mortar stores. That’s exactly where Apple Pay has focused their main market, and opens the door wide for PayPal to enter the segment and disrupt it.
Many investors are also confused as to exactly what Apple Pay does and doesn’t do. The reality is that the new service is really just a convenient front-end payment option for consumers that actually uses existing credit card networks from MasterCard, Visa and American Express as well as Braintree’s payment processors.
At the end of the day, the spread of Apple Pay, as well as the increase in mobile payments in general, might actually help PayPal to grow faster.
One other thing that investors should keep in mind is simply this; while Apple is collecting $.15 on every $100 Apple Pay transaction, PayPal collects an average of $3.50 on that same $100 transaction. That’s a huge difference that will take Apple Pay plenty of time to catch up with, if ever.