PayPal: Lost Giant or Future of Payments?

PayPal is in a grey area between growth and maturity, confusing many investors about whether it has a place in their portfolios. It has a huge presence in online payments but faces increased competition. 

The company’s stablecoin launch might be this payment processing company's next major money maker. 

What’s happening?

  • PayPal’s earnings are solid, if not spectacular, but the stock is down almost 13% this year despite a broad market comeback.
  • It faces competition from all sectors, including co-founder Elon Musk, legacy credit card companies, and even the Federal Reserve.
  • Having a stablecoin ensures the company can collect fees on crypto transactions as they operate on an internal blockchain.

Fun Fact:

PayPal’s market dominance is primarily due to its early entrance into the world of digital financial transactions.




Payment processing companies enjoy stickiness and scalability. This means consumers aren’t likely to switch once they pick a provider. At the same time, after marketing campaigns and similar costs needed to penetrate a market, there aren’t many expenses involved in maintaining the position. These factors and first-mover advantages mean that PayPal is still the dominant online payment processor.

PayPal's Financial Fundamentals

PayPal counts more than 435 million customers within its share of the fintech market, so its place on the global stage is well-assured. At the same time, though, its dominant position and relative maturity mean little room for skyrocketing growth that many fintech investors expect.

At the same time, PayPal doesn’t have the hallmarks of a value-centric banking stock. The company doesn’t issue dividends and trades at a high P/E ratio compared to legacy banking firms.

PayPal’s financials are, if nothing else, reliably stable. Earnings dropped at the beginning of the month, and while no one was surprised by the results, PayPal maintained a moderately positive trajectory even if the results weren’t earthshaking.

Bottom-line numbers are reassuring to current shareholders, and the company reported:


  • 7% YoY revenue growth
  • 2% jump in operating margins
  • 11% decline in non-operating expense


All three stats indicate PayPal is adapting well to a new economic climate that includes reduced consumer sentiment, inflation, and higher debt costs. Still, PayPal’s stock price isn’t anything to boast about, as shares dropped almost 13% since January despite the market’s sharp reversal, represented below by the S&P 500’s 16% climb over the same period.



Source: Morningstar

First Mover Advantage

PayPal’s primary benefit is in its first-mover advantage. PayPal was one of, if not the first, companies to facilitate digital transactions and adapted well as technology and consumer trends changed over time.

Payment processing, in general, has two advantages: stickiness and scalability. Once a vendor picks a payment processor, they’re often reticent to divest themselves of the company within their business ecosystem. This is where PayPal’s first-mover advantage comes into play, as the company is a staple for many small and medium online businesses with modest expansion into the brick-and-mortar space.

Competitors, Old and New

Despite the first mover advantage, though, PayPal faces increased competition from diversified firms offering payment processing. As companies like Apple and Google expand their payment processing mechanisms, they effectively create a closed-loop ecosystem for brand adherents. We all know someone who’s got the newest iPhone, Apple Watch, Mac, and is pumped for the Vision Pro – do you really think they’ll be eager to break their cozy environment by using payment systems other than Apple Pay?

Globally, PayPal faces the real threat that sovereign states will either endorse or mandate in-house competitors. Investors don’t have to look further than China’s Alipay and WeChat, both of which have a state stamp of approval that effectively excludes PayPal from the market. At home in the States and abroad, PayPal faces new competition from X (formerly Twitter) as Elon Musk moves towards his goal of making the platform an “everything app” à la WeChat. If the plan pans out and consumers shift payment preference to X alongside their social media musing, PayPal is in real trouble.

Finally, PayPal faces a threat from a new entrant – the Federal Reserve. In July, the Fed rolled out its own instant payment service called FedNow. FedNow seeks to close the gap between transaction settlement periods and deployed to 41 banks and 15 service providers, including JP Morgan Chase and US Bancorp. While it’s too early to tell the ultimate effect FedNow will have on providers like PayPal and Venmo, remember one thing – it’s not usually wise to bet against the Fed.

Paypal's Stablecoin Bet

There was one surprise in the wake of PayPal’s earnings report. At the beginning of the week, PayPal launched stablecoin PayPal USD (PYUSD) and became the first US financial service provider of note to launch its own stablecoin product.

Since stablecoins are less speculative than typical crypto, as they’re backed by cash and Treasuries while remaining pegged to the dollar’s value, this isn’t a particularly risky move for PayPal, as some fear in the wake of FTX’s collapse. The launch comes on the heels of its 2022 move to let customers buy, sell, and transact with major coins like Bitcoin.

The move is as practical beyond keeping PayPal at the fore of digital banking trends. Remember that PayPal’s revenue comes from transaction fees between PayPal users. When crypto transactions execute on a blockchain, though, PayPal can’t get a piece of that action beyond charging for convenience.

More and more companies are moving to blockchain-facilitated platforms, though. PayPal risks being squeezed out of the market as more consumers get comfortable transacting directly between buyers and sellers through crypto exchanges. By managing transactions on their blockchain and disallowing PYUSD on third-party platforms and exchanges, PayPal secures a piece of the next-gen payment landscape.


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