Time and time again, PayPal (PYPL) has rebuffed fears that the company will be badly stung by an upstart online payments player. Though its shares -- and back when it was a part of eBay (EBAY) , eBay's shares -- have dipped a number of times on news that a tech giant is trying to muscle in on its turf, the company has kept delivering 20%-plus payment volume growth like clockwork.
But while any talk of a would-be "PayPal-killer" merits skepticism, the company does arguably face a tougher competitive environment than any time in recent history. This has a lot to do with the expansion of platforms that -- for one reason or another -- already have the payment card data of hundreds of millions of consumers.
Amazon.com (AMZN) provided fresh evidence of this threat on Tuesday when it announced Amazon Payments, which lets consumers pay on third-party sites and apps process via their Amazon account info, has now been used by over 33 million people. That's up from over 23 million as of last April, at which time Amazon opened up Payments to e-commerce software/services platforms such as Shopify (SHOP) and Future Shop.
Amazon added its payment volume nearly doubled last year -- no specific number was given -- and that over half of all Payments users are Amazon Prime members. Also, 32% of last year's transactions were done on mobile devices.
The numbers come as PayPal says it has held talks with Amazon about letting shoppers on Amazon's site use PayPal. Amazon's internal e-commerce growth has long been a headwind for PayPal, since the company has been taking share from eBay and other big PayPal clients. Amazon's North American e-commerce revenue rose 22% annually in the fourth quarter, and its International segment revenue 18%.
Six days prior to Amazon's announcement, Apple (AAPL) disclosed on its earnings call its Apple Pay transaction volume grew by over 500% annually in the December quarter, and that it handled "hundreds of millions of transactions and billions of dollars in purchases." A lot of these transactions involve bricks-and-mortar stores -- still only a small portion of PayPal's business -- but the growing embrace of Apple Pay by mobile apps and (more recently) websites is also playing a role.
Alphabet (GOOGL) is also looking to handle more online/mobile transactions, partly to strengthen its giant search ad business. In addition to offering its Apple Pay-like Android Pay service the company has been rolling out Purchases on Google, a solution that lets viewers of Google's popular Product Listing Ads (PLAs) pay for advertised items without leaving Google's site, courtesy of credit card info previously shared with the company. By improving conversion rates for ads, Google hopes the solution will compel advertisers to spend more on PLAs.
Facebook (FB) , meanwhile, has launched several commerce solutions that are backed by the ability to pay on its site and apps. These include allowing businesses to create dedicated shopping sections for their Facebook pages, creating Call to Action buttons (they might say "Shop Now" or "Book Now") for pages and ads and testing a Shopping section in its apps where users can browse products. The company also supports peer-to-peer payments via Facebook Messenger, and allows Messenger chatbots to conduct transactions.
It's worth noting some of Facebook's payment solutions, such as the shopping pages and Messenger chatbots, support PayPal. But Facebook has also teamed with PayPal rival Stripe, and worked directly with credit-card giants.
PayPal is also facing tougher competition from regional players. Indian commerce/payments firm Paytm surpassed $5 billion in total transaction volume in November. Chinese online payments leader Alipay has been expanding its overseas payments offerings and recently struck an $880 million deal to buy money transfer service provider MoneyGram.
But it's the tech giants that might pose the biggest risk, due to their scale, the amount of information they already have and the ability of their offerings to match PayPal in terms of convenience.
Amazon claims over 300 million active customer accounts, Apple had about 800 million iTunes accounts (they require payment info) as of April 2014 and the number of Google accounts with payment data attached could be in the same ballpark, thanks to Google Play and other services. With Facebook possessing over 1.2 billion daily active users and having collected $753 million in "payments and other fees" revenue last year (much of it was related to gaming purchases), it's also a force to be reckoned with.
For now, PayPal is still performing well. Its payment volume rose 22% annually (25% in constant currency) in the fourth quarter to $99 billion. Active customer accounts rose 10% in 2016 to 197 million, and transactions per active account grew 13% to 31.
The fact more merchants seem willing to do business with PayPal following its 2015 split from eBay appears to be providing a lift. PayPal has also done a good job of creating mobile-friendly payment solutions such as OneTouch, and of battling the increasingly popular Stripe with its Braintree private-label payments platform.
And beyond all of this, user familiarity and trust can help keep many PayPal customers loyal, even if it's as easy to pay with an alternative solution.
But fourth-quarter growth did slip a bit from the 25% or higher rates seen in the prior three quarters, and was propped up some by a 126% increase in payment volume (to $5.6 billion) for PayPal's Venmo social payments platform, which only collects fees on a fraction of its transactions.
In addition, PayPal guided for forex-adjusted revenue growth to slip to 16% to 18% in the first quarter from the fourth quarter's 19%.
Given all of the changes afoot in the online/mobile payments landscape, it's worth paying close attention to how well PayPal's volume growth holds up in the coming quarters.