eBay (NASDAQ:EBAY) took over PayPal in late 2002 and has since used it to drive its primary business, eBay.com. Meanwhile, PayPal has grown into one of the most preferred modes of transacting on the internet. People use it while shopping on the internet to avoid phishing scams and sharing their bank details. If the financials reports from 2012 are any indication, PayPal is quickly catching up with eBay.com. In Q1 2012, PayPal saw its total payment volume increase to $34 billion, up 24 percent year over year, with 110 million active registered accounts. The second quarter saw total payment volume increase 20% year-over-year to $34.5 billion driven primarily by increased penetration on eBay as well as continued merchant and consumer adoption and strong growth in Bill Me Later. Its registered user base grew to 113.2 million. It currently constitutes 30% of our estimate of eBay.
PayPal prepares to jump into the real ‘offline’ world
PayPal recently released a new device “PayPal Here”. The device is aimed as a replacement for cash payment registers. PayPal takes a 2.7% cut in the transaction. The quick speed of the device allows the merchant to use the spare time to engage with another customer. With several big brands such as Home Depot, Abercrombie & Fitch, Jos. A Bank, etc integrating PayPal into their existing register platforms, the future for PayPal, subject to an effective implementation of the technology, looks promising.
Though this initiative would be quite significant for Paypal, the company faces tough competition from behemoths such as Visa Inc. (NYS: V) and MasterCard (NYS: MA). In order to be successful, PayPal will need to convince different businesses that its low hassle payment method is better than the old stale version. The company has taken the first steps towards this by making the device available to merchants for free. The device works with an app which is also available for free.
Additional competition for PayPal will come from Square, the brainchild of Twitter founder Jack Dorsey. Although, it has been in the market for a long time, Square has failed to gain traction. We currently have a $50 estimate for eBay.