Can PayPal Continue to Compete With Big Banks?

Stephanie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

At one time, eBay (NASDAQ: EBAY) was on fire. The company was growing at an astronomical pace, leading investors to believe that the auction site's success would continue despite what it did.

Nearly 20 years later, the company is still going strong, although the days of sliding by on consumer demand are long gone. Competition from sites like Craigslist, Etsy, and CafePress has made a sizable dent in eBay's customer base. With eBay's earnings report this week disappointing investors, the company's one bright spot, PayPal, is drawing more attention than ever.

Boosting revenue

Revenue for eBay was good, coming in at $3.9 billion. This was a 14.1% increase from last year's second quarter. $1.6 billion of that number was from the company's PayPal division, which helped boost revenue 20%. Investors' disappointment came from eBay's guidance, with the company adjusting projected profit to between $0.61 and $0.63 per share, a number that was below expectations.

PayPal is a cash cow for the company, claiming 60% share of the online payments market. So far, competitors have failed to unseat PayPal as the preferred method of online payment, especially with eBay building PayPal into its process.

Google makes it easier

But, despite eBay's efforts to allow customers to pay directly on its site, PayPal still requires an excessive number of steps for each payment. Google (NASDAQ: GOOG) has simplified the process through its Google Checkout service, which processes transactions in a shorter time frame.

Yet, Google Checkout still lags far behind in popularity with customers, coming in as the fifth most popular online payment method behind smaller names like Authorize.net and usaepay.com. It's important to note that Google doesn't have to take PayPal down to succeed. The company's ad revenue from its many services helps contribute to its annual earnings.

As the company attempts a move toward mobile, it brought in $14 billion in revenue in its last earnings report. But the big news was in its cost-per-click, which fell 4% from a year earlier while the number of paid clicks rose 3%.

Checkout is one of the many offerings from the search giant. All of its divisions work together to help Google achieve its ultimate goal: heavy use that increases its ad revenue. Through its checkout, Google allows shoppers to purchase goods through Android phones, collecting data on each shopper that can help provide more targeted advertising.

Other payment options

But, the real competition for PayPal comes from the likes of Bank of America (NYSE: BAC), whose revolutionary services may beat PayPal. PayPal has made no secret of its plans to venture into the bricks-and-mortar business, but will stores go along?

Currently, BOA customers can deposit checks, receive "shop safe" numbers to keep credit card numbers safe, and pay for items purchased on every website on the Internet. But, tech analysts are pushing for revolutionary payment methods, including the ability to pay for store purchases using a smartphone app.

PayPal's push includes that capability and the company plans to have partnerships with two million merchants by the end of 2013. But, BOA is working hard, too, with customers already able to pay without swiping using its "contactless payment" option. The company is also rivaling PayPal Here with a Mobile Pay on Demand feature that lets customers accept payment via smartphone or tablet.

BOA witnessed a 70% increase in earnings in its most recent quarter. While the company is still recovering from its 2008 acquisition of Countrywide, its handling of the fallout has been an example of how to cope with a crisis. The company has scaled back, laying off workers and closing branches to combat its losses.

But, the company's revenue was up only 3%, proving it needs to continue to be innovative to truly compete. As Bank of America, PayPal, and Google Checkout compete to revolutionize payments at cash registers around the globe, it's hard to ignore the favorable odds for Bank of America. Because it already has a presence in bricks-and-mortar locations, BOA has less ground to cover in shifting from swiping a credit card to paying without even removing a wallet.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Bank of America, eBay, and Google. The Motley Fool owns shares of Bank of America, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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