PayPal Polishes Its Mobile-Payments Crown

eBay's (Nasdaq: EBAY  ) PayPal unit was early to the alternative-payments game and has become a leader in the mobile commerce arena. Lately, the sector is getting more crowded. Recent big-ticket news items include the partnering of upstart Square and Starbucks, which brings coffee connoisseurs nationwide a new method of purchasing their caffeine fix. Meanwhile, speculation that Apple (Nasdaq: AAPL  ) might be mulling an entrance into mobile-wallet territory with an NFC-enabled iPhone 5 is garnering its fair share of the press as well.

Don't think that PayPal has been standing still, though. It's been very busy securing its top spot by working on some partnerships of its own, and with some very big players: McDonald's and Discover Financial Services (NYSE: DFS  ) .

A trial in France, and a move into Discover terrain
The payment system with fast-food giant McDonald's is currently being tested at 30 of the company's restaurants in France. Customers use the app to place food orders and then seal the deal using PayPal. The partnership should behoove both companies, as McDonald's expects the system to reduce waiting time and line lengths, while PayPal will gain access to Mickey D's 30,000-plus restaurants.

The deal with Discover is much bigger and will eventually expose PayPal to the 7 million merchants that accept the Discover card. For its part, Discover will be processing PayPal transactions -- which should be quite lucrative. Upon the news of the partnership, Discover's stock shot up, evidence that investors are fully expecting the company to reap financial rewards from the new business bond with PayPal.

PayPal has agreements with other retailers, most notably Home Depot. Now available in nearly 2,000 of its stores, the payment method entails having customers type in their mobile-phone number and PayPal PIN code into a point-of-sale terminal. Although PayPal offers consumers a card, much like a credit card, that can be swiped, more than 90% of transactions involve the number-input method of payment.

Fool's take
The winners of this new venture are obvious, but who are the losers? I would say Visa (NYSE: V  ) MasterCard (NYSE: MA  ) . It's interesting that consumers using PayPal at the POS systems at Home Depot prefer not to use a card, because the home-improvement retailer is marketing the payment product as a way to avoid "abusive" merchant fees associated with credit card companies.

Consumers concerned about the recent lawsuit Visa and MasterCard brought against merchants may fear that retailers will charge consumers extra fees for using those cards and might be more inclined to use alternative payment methods. As for the pact with McDonald's, who wouldn't want to avoid standing in a long queue to pick up and pay for lunch -- especially when you could avoid all that hassle just by using your smartphone and PayPal?

eBay has done very well the past few years, and that is largely due to PayPal. Even Apple, if it decides to wade into the e-payments market, will have trouble dislodging PayPal from its throne. For the foreseeable future, PayPal reigns supreme over the mobile-payments landscape.

Companies like McDonald's are powerhouses in their own right, and partnering with PayPal will only encourage further growth. Find out which other companies join Mickey D's in dominating emerging markets by reading our special report -- it's free.

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of McDonald's, Apple, and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Apple, eBay, Home Depot, Visa, and McDonald's, writing covered calls on Starbucks, and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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