Analyst Insight by Michelle Evans - Senior Consumer Finance Analyst
When PayPal launched in 1999, online card payments were still a challenge for many merchants. PayPal’s great breakthrough was determining how individuals and businesses could more easily accept money over the web. PayPal’s founders figured out early on that it could make a decent profit in this low-margin business of processing transactions if it could encourage enough users to fund PayPal payments via bank accounts rather than financial cards.
In time, it was speed, convenience and security that made PayPal’s online platform popular, especially among eBay’s small-time sellers. PayPal went public in 2002, and immediately its market value skyrocketed. Within a year, eBay, which once dominated the e-commerce market, bought the start-up for US$1.5 billion, as it realised PayPal was squeezing out its own in-house payment option.
The core component of PayPal’s strategy today still hinges on this online platform that dates back to its roots. Today, the online platform enables its 150 million registered users to send money in 26 different currencies to over 200 countries and territories. Over time, PayPal has also moved into other aspects of financial services, including consumer credit, mobile card acceptance and even card issuance.
Even so, PayPal, which dominated the e-commerce storyline a decade ago, now finds itself fighting to stay relevant as consumers shift their focus to the emerging mobile channel. PayPal today is in the more established role as payment incumbent, facing increased competition from younger start-ups. The entire payments landscape today is filled with innovative start-ups all are aiming to solve problems while siphoning a portion of the payment transaction fees from more established players like PayPal.