Is PayPal's Turnaround Moment Here?
PayPal is a name that evokes different feelings. It played a crucial role in the early development of the digital economy during the 2000s. It is recognized as a pioneer in online payments, enabling users to send and receive money easily over the internet. However, being a pioneer sometimes gives it the perception of being 'old' and not as advanced as younger, more dynamic, and innovative players like Stripe. Despite this, PayPal remains a trusted and well-known brand today.
Yet, it’s clear that PayPal has lost favor among investors, with its share price plunging 75% from a high of $308.53 in July 2021 to $77.36 in September 2024.
One reason for this decline is external and beyond PayPal’s control. During the pandemic, when people were confined to their homes, online transactions surged, and PayPal thrived. This period also saw a spike in interest in fintech, and as a major player in the sector, PayPal’s stock enjoyed significant gains. However, as the pandemic effects dissipated and people resumed normal activities, PayPal's momentum slowed. The situation worsened with rising inflation in the U.S., prompting the Federal Reserve to raise interest rates, which negatively impacted the valuations of growth companies, including PayPal.
However, another reason for PayPal's decline is internal—its failure to innovate rapidly enough in the face of rising competition. For instance, Stripe managed to capture significant market share in payment processing by being the first to offer APIs that allowed merchants to seamlessly integrate payment functions into their websites and apps. Stripe's developer-friendly approach quickly made it a hit, forcing PayPal to acquire Braintree three years after Stripe's API launch just to keep up.
As a digital wallet, PayPal also faces intense competition from Apple Pay and Google Pay. These two platforms have significant advantages in hardware and operating systems, boasting massive user bases and easily integrating their digital wallets into their existing ecosystems. The development of NFC technology was also a boon for both Apple and Google, enhancing their convenience for in-person payments. Personally, I regularly use Apple Pay because it’s so convenient, whereas I haven't used PayPal for years.