How eBay Can Kill Visa

The credit card swipe takes just 17 seconds to happen, and it costs us consumers nothing. But this inconsequential ritual of our daily lives has an enormous financial impact on the stores and businesses where we make purchases. You see, every time that plastic card slides through a payment terminal, the merchant doing the sliding is taking it on faith (it'll take 24 to 72 hours to get paid) and taking it on the chin (by surrendering 3.5 % of its profit to processing fees).

Depending on your point of view, that's either a miraculous or a badly antiquated system. According to Motley Fool Director of Analyst Learning Buck Hartzell, it's poised for a change. The credit card transaction system we use today first appeared in 1979, when Visa (NYSE: V  ) introduced the electronic data-capturing terminal. The product of a massive investment of time and resources, the system proved to be a strong competitive advantage for Visa and the other established credit card players for many years.

But today, 30 years and $280 billion in revenue later, changes are afoot in the payment-transaction processing market -- and investors should be paying attention. Think there's a hot new software or telecom company poised to emerge in this space? Maybe. But Hartzell says it's more likely that the upstart will be a former tech darling we already know: eBay (Nasdaq: EBAY  ) . Remember when eBay acquired PayPal for $1.5 billion back in 2002? Since then, the company has used PayPal primarily to grow its auction business. But with that line now approaching maturity, PayPal is suddenly free to fulfill its own destiny -- to become a giant in the payments business.

Leveraging its impressive foundation of 84 million active accounts, PayPal is preparing to make a run at the dinosaur-like magnetic stripe system still favored by banks and card companies. Having recently opened up its platform to developers to devise new ways to use the Web to facilitate traditional and micro payments, PayPal is hatching a disruptive innovation that ought to have Visa, MasterCard (NYSE: MA  ) , American Express (NYSE: AXP  ) , and others shaking in their shoes. And with innovations in smartphone and mobile data coming fast and furious these days, it's just a matter of time before a wide array of payment apps is unleashed for our iPhones and BlackBerrys -- all using PayPal. 

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Buck Hartzell owns shares of eBay, which is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a bull call spread on eBay. The Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (23)

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  • Report this Comment On June 03, 2010, at 1:29 PM, SaratogaPhil wrote:

    Give it a rest Buck, Ebay is not going to kill Visa. Where do you come up with these foolish notions? When I buy from Ebay I use PayPal, by paying with my Visa.

  • Report this Comment On June 03, 2010, at 2:15 PM, prginww wrote:

    That was great Phil!!! LOLOLOL! Say no more!

  • Report this Comment On June 03, 2010, at 2:39 PM, Patricia013 wrote:

    LOL - its a toss up to see whether Visa or Mastercard will kill off Paypal by coming out with a like system for transferring money. Both seem interested in capturing Paypal's juicy fees.

    Paypal does NOT have a good reputation amongst the sellers who use it. Paypal is becoming notorious for its 21 to 180 day holds on money and its rolling reserves (where it keeps a chunk of the seller's money for safe keeping) - both on and OFF Ebay! I know of one class action lawsuit against them filed May 12, 2010 concerning the money holds. I'm sure there are probably more in the works. Ebay tarnished Paypal by forcing it on their users - Ebay sellers can no longer take moneyorders, checks or cash unless the buyer specifically asks for those forms of payment in writing. Sellers cannot advertise those payment methods in their listings. The whole Ebay/Paypal business smacks of underhandedness and a sleazy way to do business. It just has to come back to bite them eventually.

  • Report this Comment On June 03, 2010, at 3:39 PM, Patricia013 wrote:

    Just for the heck of it....what did you people do with my POST????

  • Report this Comment On June 03, 2010, at 3:40 PM, paypalslushfund wrote:

    PayPal is an non-federally insured unregulated SLUSH FUND.

    PayPal is an unfair capricious hateful entity. I use PayPal only because it's required to buy and sell on eBay.

    I, and am sure others would dump PayPal in a heartbeat if another payment system surfaced.

    To use PayPal is to experience fear that one never experiences with Mastercard or Visa.

    Sell something on eBay and the buyer for any reason decides to open a dispute, doesn't matter if the seller is 100% correct PayPal arbitrarily refunds to the buyer. PayPal is 1000% UNFAIR.

    It's a matter of time until eBay and PayPal become another America Online implosion.

  • Report this Comment On June 03, 2010, at 4:02 PM, NYKellie wrote:

    Don't bank on Ebay, rumor has it that Obama's administration is going to take it over, since there has been rampant fraud with Paypal users/abusers.

    Not a safe bet at all, more like buying stock in GM before your stock was worthless when it became Government Motors!!

  • Report this Comment On June 03, 2010, at 4:25 PM, mikefr21 wrote:

    At the end of the day the majority of all PayPal business is a Visa/MasterCard transaction.

  • Report this Comment On June 03, 2010, at 6:08 PM, thinkcomp wrote:

    You might want to check out FaceCash:

    http://www.facecash.com

  • Report this Comment On June 04, 2010, at 10:39 AM, taperx wrote:

    First off, The headline to this article is a scam!! This writer seems to imply that ebay and pay pal can over run visa??? If you are going to write an article about these companies i suggest you do more research!! Its not about the SINGLE TRANSACTION. Visa and M/C Have the network in place to route blocks of transactions between banks at the end of the day where no other company in the world has this in place. All pay pal is, is an escrow company for people who both have credit card accounts but no merchant visa/mc accounts. If you don't have the banks you don't have squat!!

  • Report this Comment On June 04, 2010, at 9:03 PM, davaidesign wrote:

    PayPal won't kill Visa as the two complement each other, but if anyone doubts PayPal's bright future, you should have shelled out $500 and went to the Google Developer Conference earlier this year. The upcoming PayPal for iPhone/Android is awesome and (here's a crazy idea) guarantees to at least double PayPal's moolah in the next few years. Besides that, PayPal was, is, and will be the most popular (by far) way to pay for stuff online. I owned a web development firm a while ago, and our go to e-commerce solution was always PayPal. There are alternatives out there, and always have been, but PayPal understands developers (the people who drive their business) better than anyone, so I expect great things from them going forward.

  • Report this Comment On June 16, 2010, at 11:30 PM, QueridaNegra wrote:

    Paypal's problem is largely one of trust. Opening a dispute on either end is a nightmare, with very little likelihood of success, and no explanation as to the final results. For that reason ALONE, Visa and Mastercard are safe.

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