PayPal Really Wants to Be Square

Anything you can do, PayPal can copy better -- at least that's what it'd like you to think.

OK, so eBay's (Nasdaq: EBAY  ) PayPal hasn't done anything illegal -- it's not like it flat-out ripped off anyone else's technology -- but PayPal continues to redefine the gray area of idea emulation at every turn.

Specifically, eBay has some sort of Square-envy that it can't seem to get out of its system. In a true "if you can't beat them, be them" strategy, PayPal moved one step closer in its metamorphosis yesterday to becoming Square 2.0.

The evolution of Square 2.0
Square, the privately held battering ram aimed directly at PayPal's mobile payment business, introduced a mobile swipe device shortly after it was formed three years ago. Shaped unsurprisingly like a square, the device can be plugged directly into mobile devices, allowing small businesses and entrepreneurs to capture payment and signature data, all from their mobile platform. In return for this convenience, Square skims a 2.75% fee off the top and deposits the balance in its customers' checking accounts the next business day. Square is now on pace for about $8 billion in annual dollar transactions -- quadrupling where it was just one year ago.

Earlier this year, eBay's PayPal followed suit by offering PayPal Here, a card-swiping device that can also be attached to mobile devices and is shaped like a triangle. Aside from the fee of 2.7%, which is 5 basis points lower than Square, the idea is basically the same.

Fast-forward to August, when Square announced that it had landed a white elephant in Starbucks (Nasdaq: SBUX  ) . The deal would bring Square's mobile payment devices to 7,000 of Starbucks' 17,000 stores within months. At the time, the only deal PayPal was working on involved testing its mobile payment platform at 30 McDonald's (NYSE: MCD  ) restaurants in France. The solution: one-up Square again. Just two weeks after Square's announcement, PayPal announced a partnership with Discover Financial Services (NYSE: DFS  ) , expanding its processing reach to millions.

Transformation complete
Then came yesterday's rumored announcement from Reuters that PayPal that it would be laying off somewhere in the neighborhood of 400 employees (about 3% of its workforce) in order to better focus on its product and become smaller, like a start-up company. Furthermore, eBay CEO John Donahoe described PayPal president David Marcus as having "start-up energy" when he was brought in to head PayPal.

Clearly Square isn't the only mobile payment competition for eBay's PayPal. Google (Nasdaq: GOOG  ) has also developed its own mobile payment platform known as Google Wallet, and who knows what other companies are tinkering with the idea of offering their own take on mobile payment processing devices. What I do know is this: If a technology presents itself as competition to PayPal, you can count on some old-fashioned innovation through duplication.

However, if you're looking for the next cutting-edge idea, then look no further than the three companies highlighted by our analysts at Stock Advisor in our latest special report. Click here and get your very own copy, for free!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Google, McDonald's, and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend eBay, Google, McDonald's, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 16, 2012, at 5:57 PM, fortunategromit wrote:

    re : "the only deal PayPal was working on involved testing its mobile payment platform at 30 McDonald's"

    Are you sure about that?

    It sounds like you're suggesting that Paypal managed to partner up with Discover within the two weeks after Square announced its partnership with Starbucks, and that they did it purely as a reaction play.

  • Report this Comment On October 16, 2012, at 7:42 PM, TMFUltraLong wrote:

    PayPal's approach to innovation has involved reacting to its competition at every turn, so I wouldn't discount the idea.

    Make no mistake, I'm not saying PayPal is a bad investment either... I happen to like eBay a lot moving forward. I just can't help but point out that PayPal isn't proactive; it's reactive.

    TMFUltraLong

  • Report this Comment On October 17, 2012, at 6:06 AM, fortunategromit wrote:

    I agree that Paypal blatantly copied Square's idea, however I can't believe that they managed to seal a deal with Discover within two weeks after the Square/Starbucks announcement. Although they may have been forced to show their hand earlier than they anticipated.

    I think achieving a physical presence in brick and mortar stores has been a longer strategy for Paypal, given that they were already in Home Depot a few months before Square entered the brick and mortar arena - so in this instance it would be Square following Paypal's lead.

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