According to a recent Forbes article, PayPal finds itself in the middle of two battles. The first one is the fight for the control of every monetary transaction worldwide against the giants of Internet, and the second is a fight to determine its own destiny from eBay.
For 21 months now David Marcus has been at the head of PayPal. And in this period 143 million people have paid with PayPal via smartphones thanks to an array of new and innovative products and it is predicted that the worth of the company will surpass that of the one that acquired it in 2002, eBay.
The idea and the goal of PayPal have always been clear: offer speed and simplicity for online acquisitions. Today, the challenge is to take the same experience to the physical world. The main obstacle is not technological: it is that of convincing retailers that this is the right path to follow. Clients increasingly want to pay quickly and with their mobile apparatuses and they want their services to be enriched with coupons, loyalty programs, promotions, etc.
Currency is becoming mobile and this trend is unstoppable: Gartner estimates that mobile payments will reach a value of 720 billion dollars per year by 2017. An enormous jump if it is considered that there were 235 billion transactions via mobile last year. But there are still huge growth margins: globally, 15 trillion dollars circulated at sales points in 2013. Whoever manages to take a significant piece of these transactions will not only increase their value due to the commissions on these transactions but also due to the enormous amount of client data and their acquisition habits and, thus, the possibility to do increasingly targeted advertising. It is not surprising, therefore, that PayPal considers the giants of Internet, like Google, Amazon, Apple, and the most successful startups like Square (created by Twitter founder Jack Dorsey) as their direct rivals and not the more traditional payment institutions.
But PayPal, the precocious child of the last dot.com boom (as Forbes has defined it), is not afraid of this confrontation. Just last year, in the 193 countries in which it operates, PayPal transferred 180 billion dollars in 26 different national currencies and its revenues grew by 20%, currently representing 41% of eBay’s revenues and 36% of profits. And, for who in 2002, when PayPal was bought by eBay for 1.5 billion dollars, said the price was preposterous, it should be noted that, today, PayPal is worth about half of the 70 billion dollars of eBay market capitalization.
This is why many believe that, in reality, the question of who will control the gold rush of mobile payments can be resolved with the answer to another question: who will control PayPal? This is a legitimate question for Forbes who, in an analysis that seems a lot like a provocation, has highlighted how PayPal would benefit from a separation from eBay. According to Icahn: “I don’t think eBay is a well-run company. When the tide is rising high, everyone looks good. Just compare eBay to Amazon. PayPal is a jewel, and eBay is covering up its value.” While eBay shares are up 80% since March of 2008, over the same period Amazon is up 400%, and Visa and MasterCard are each up 245%.
EBay, therefore, is making PayPal’s battle against the Internet giants a lot more complex. Google, as well as launching its digital wallet on billions of Android apparatuses in circulation, has recently reached an agreement with MasterCard to be accepted by millions of retailers. Apple has used its own sales points to test mobile payments and with the digital reader present in 5s. It is easy to foresee that it will not have problems convincing its millions of clients to pay with their Apple phones rather than with credit cards. Amazon is elaborating a payment system based on Kindle through which clients can easily exchange money between each other.
Now it is CEO David Marcus’ turn to find a way to respond to the moves made by these giants and realize the mission of PayPal: “to be the center of every transaction, everywhere. Platform agnostic. Online or physical”.
David Sacks, the preceding CEO of PayPal is convinced that the only way to succeed is to make PayPal as flexible as possible, thus separating itself from eBay: “If you allowed PayPal to pursue its destiny there are moves it could make to become the largest financial company in the world.”
Other analysts think, however, that PayPal would not necessarily work if it was an autonomous company, but eBay’s control definitely does not help. Suggestions have been made to sell it to companies like Visa, who would definitely pay a high price to have a gem like PayPal.
But an opposition to this can be made with the voices and numbers that make note of the fact that once the chains of eBay are broken, PayPal could be worth up to 100 billion dollars, more than double what it is worth today.