eBay's Greatest Asset: PayPal
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the success stories from the dot com bust era is eBay (NASDAQ: EBAY) and eBay now have the potential to give life to another even larger success, PayPal. With over one hundred million active PayPal users and transaction volume above seventy billion dollars annually (and that volume stat is years out of date), Paypal is undeniably huge, and it is only going to grow in the future.
This growth in PayPal will not come from eBay sales it will come from mobile payments, which are in their infancy and in the coming years will grow exponentially. Services like Square and Google Wallet are already starting to experiment with technologies and services like Near Field Communications (NFC), Geo-Fencing, and mobile payments. PayPal has launched a service and mobile app called PayPal Here that allows businesses to take payments on their Android devices, a direct competitor to a service from Square and one from Intuit; they are also using a geo-fencing technology. This allows customers to pay for their purchase without any cash ever changing hands. There's also no need to swipe a card because the cash register detects that the customer’s phone has a mobile payment app on it and charges that account directly. With their huge user base and multi-billion dollar internet payment business already fully operational PayPal has an advantage over its competition.
We are not only moving toward a world in which we no longer carry cash but one in which we no longer even carry credit cards. A post currency world as it were (I’ve never even owned a checkbook), and in this mobile, cashless world a few major players will reap huge success from fees (The PayPal Here service charges 2.7% for each transaction and Square takes 2.75% ). There is already competition in the mobile payment field, Google's (NASDAQ: GOOG) Wallet, PayPal Here, GoPayment (by Intuit (NASDAQ: INTU)), Square and more will enter in the next few years. These services have different fee structures (recently Square and GoPayment each relaxed their 2.7%/2.75% fees), all offer a slightly different set of features and they have different partners (GoPayment recently partnered with Verizon Wireless). Additionally they use different technology, some use Geo-Fencing some use NFC, some simply take payments from credit cards through a smart device, but as they continue to compete their services and technology used will expand.
Though they are all somewhat different, they are all going in the same direction. With a goal to allow businesses to accept payment from their phones (I bought Girl Scout cookies from a ten year old with a smartphone last year) and eventually customers will be able to walk into a coffee shop and pay for their latte as they enter (using geo-fencing) and if they want a second latte they can pay for it without ever touching their wallet (using NFC or Geo-fencing). This technology is not something that will only be used by the elite or the wealthy it is the type of disruptive technology that will change a small part of everyone’s daily routine.
The acknowledgement that this mobile location based payment market will be a large, stable and profitable one in the future has spurred variety of different companies to capture a slice of the pie. Just like there are now a few major credit card companies in the future there will be a few major mobile payment companies and it will be a Cash Cow for the few companies who invest heavily now and make it big later.
This fantasy of mine will come to fruition and PayPal will be one of major players, taking PayPal to a whole new level as a company. The possibility for PayPal to be the leader in an international mobile payment market makes PayPal far more enticing than eBay. In the future PayPal could function as a financial hub for customers, taking the role of a bank account all the way through the roll of a credit card, they could even experiment in the micro-financing business. PayPal is what makes eBay a good buy and eBay should consider if PayPal will, in the future, continue to be a subsidiary of eBay or if that relationship may be in for a switch up.
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