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PayPal's Biggest Nightmare Is Coming True

It seems that once you've grown large enough to disrupt business as usual for MasterCard (NYSE: MA  ) and Visa (NYSE: V  ) , you run the risk of getting muscled. MasterCard recently announced plans to raise prices on intermediated payment processors (read: digital wallets) that chose to withhold valuable transaction details from MasterCard. In other words, this measure takes direct aim at eBay's (NASDAQ: EBAY  ) PayPal and other digital wallets such as Google Wallet that do not share transaction details with the payment processor.

Priceless data
The more transactional data a company can get its hands on, the more insight it has on consumer behavior. In an age where marketers are working to better connect the advertising world with the world of commerce, transactional data becomes the equivalent of marketing gold. Considering that PayPal conducted nearly $145 billion in transactions last year, it's not surprising to learn that MasterCard's fee could impact eBay's bottom line in the neighborhood of $0.03-$0.04 per share for the year. Should Visa follow suit, eBay investors can expect its earnings to be affected by another $0.07-$0.08 for the year.

Although a potential 4% impact on next year's earnings doesn't sound too detrimental to eBay's bottom line, MasterCard and Visa together command nearly 90% of the global payment market. In other words, this duopolistic regime commands a serious amount of pricing power, which they could use to bully companies like PayPal that happen to be growing transaction volume hand over fist.

Just a matter of time
At this time, Visa has no official plans to implement the same fee hike that MasterCard will be implementing this June, but this official statement came after the CEO of Visa called such a fee hike "appropriate." Should MasterCard's fee increase make it past regulators without any hiccups, it's likely just a matter of time until Visa follows suit.

The future may be costly
By 2015, eBay is expecting to enable $300 billion of global commerce, a 71% increase from its 2012 levels. For investors, this increase in activity should translate into a 50% increase in revenue, of which about half should come from PayPal. As PayPal continues its forward march, investors should expect that MasterCard and Visa will continue upping the price, unless PayPal decides to share more information with the payment cartel. Either way, it should be considered the price of doing business.

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Read/Post Comments (20) | Recommend This Article (11)

Comments from our Foolish Readers

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  • Report this Comment On April 10, 2013, at 9:04 AM, CED1968 wrote:

    It is only a matter of time before PayPal and Vias/MasterCard square off in a legal battle over fees. Visa/MC control some $10 trillion in payments globally which, as the article states, makes them a duopoly. The reason Visa has not weighed in here yet is because Visa is a 15%(?) stakeholder in Square. And Square is a payment processor. So in essence, Visa would be discriminating amongst payment processors and "regulating" itself. My guess is that the larger reaction is that PayPal's Bill Me Later unit is exploding in growth and if you transact with BML in the PayPal wallet Visa/MC receive $0 in fees and PayPal keeps them all.

    Unfortunately for Visa/MC they have reached a level of market dominance that these fees will not fly in the largest global market - the EU. They have lost virtually every legal case against them and every attempt to increase fees. After the debacle on debit fees among retailers and the networks being forced to allow merchants to add fees to cover their payment processing costs, I would guess the networks would lose on this issue as well.

  • Report this Comment On April 10, 2013, at 9:23 AM, shahzadlatif wrote:

    Dear author, why is it a nightmare for Paypal? It is a nightmare for consumers who will end up paying more.

  • Report this Comment On April 10, 2013, at 9:33 AM, Work1ders wrote:

    Paypal is pain-pal! There's no "pal" in it. It's all for self, and it's all for Ebay to get their "pay".

    You sell on Ebay, you pay Ebay and when you get your money from Paypal, you pay Paypal. So, Ebay doubles the amount of money they are taking from you. I hate it!

    I recently signed up for a Paypal card. Thought it was just the debit card. Unfortunately, it was a credit card. (Found out I could get a Paypal here in town at General Dollar store). But, Paypal put me through a lot of stuff. They want my social security number, a copy of my driver's license, bills etc...

    Sent them my license, and a copy of my insurance bill and that's not good enough for them. I told them, after I sent my license, that I did not want that credit card because I didn't need it! But, they restricted my account, threatening, that if I don't provide that information, they will restrict the account further. I'm about done with Paypal. Just frustrated. If I want a bank account, I can walk into any of the hundreds around here and do that.

    At present, I cannot close the account. I can put money into it, people can send me money and I can refund anybody anything they sent to me, but I cannot pay for anything with the account. It's useless to me!

    Then, they had the nerve to ask me to send them feedback! Oh, I've got some feedback for 'em, alright!

    They just made me hate them even further! That's all!

  • Report this Comment On April 10, 2013, at 9:47 AM, motleyLiam wrote:

    Not a nightmare at all, for eBay.

    It will be the next, in a string of bad dreams for the sellers at eBay, who will end up footing the bill.

    Then, eBay will spin it as something good for investors.

    And the process starts all over, again.

  • Report this Comment On April 10, 2013, at 9:47 AM, Intuos wrote:

    At one time I recall reading that ING Direct handled all of PayPal's foreign money transfers. Is this still true after Capitol One's purchase of some of ING Direct's assets? A better nightmare for PayPal is the rise of Apple's payment processing system. The nightmare for consumers here is that PayPal continues to exist. I can't tell you the number of times PayPal and eBay have lied to me over the years, but no more as I've terminated all business dealings with them this year, both as a buyer and seller.

  • Report this Comment On April 10, 2013, at 10:03 AM, mikeflynn57 wrote:

    maybe its time for paypal to start their own credit card? sears tried that 25 yrs ago. the big 2 are in serious need of competition.

  • Report this Comment On April 10, 2013, at 10:07 AM, dstb wrote:

    Sounds like extortion and a likely lawsuit. Visa and MC just don't know how to stay out of court.

  • Report this Comment On April 10, 2013, at 10:23 AM, willnott wrote:

    Frankly anyone who is still using M/C or Visa with Paypal is foolish indeed.... Get an Amex blue, payoff the balance every month, and link it to PP - but use it sparingly.... You will pay no interest to Amex.

    And do NOT use the PP credit card, which they try to entice you into doing by stating you will gain (xx) points by paying with their cc.... Rot! those points are worthless.

  • Report this Comment On April 10, 2013, at 10:50 AM, wisconsin46 wrote:

    I deleted my Paypal account, they're very unreliable. The two times my checking account got scammed the scammers entered through my Paypal account. My checking account is with Bankamerica and the people there who helped return my money informed me Paypal is the worst system, in their estimation, security wise. Many people have money stolen from their checking accounts through Paypal, according to what they told me. Since I deleted my Paypal account I've I never had a problem with my checking account again.

  • Report this Comment On April 10, 2013, at 10:55 AM, tabascoz28 wrote:

    When I use paypal I don't use visa or mastercard. Always cut out the middleman if you can. Never been scammed. My friend's account was scammed once and the bank got it back.

  • Report this Comment On April 10, 2013, at 11:14 AM, Robinski709 wrote:

    I work as a web payment security specialist, and I can tell you from experience that if you have a pay pal account, it's not a matter of "if" you end up being ripped off, but "when" you get ripped off. They do not have ample security,nor do they meet many of the mandated federal laws for account, and information security. Don't trust them.

  • Report this Comment On April 10, 2013, at 11:31 AM, Mistyblue11 wrote:

    Love PayPal. Use it whenever I can. Problems with a seller, they take care of it quickly.

  • Report this Comment On April 10, 2013, at 11:44 AM, lilwillow3 wrote:

    Sounds like it's time for an antitrust suit.

  • Report this Comment On April 10, 2013, at 12:19 PM, RubyN wrote:

    People using Paypal have to have a credit card to sign up but people can use their bank accounts on Paypal to purchase things. They do not have to use their credit cards. If the credit cards pull this off, I will not use them when I purchase things. I would use Bill me Later and my bank account. We do have a right to privacy.

  • Report this Comment On April 10, 2013, at 2:12 PM, fuskiegirl21 wrote:

    PayPal will just raise its already exorbitant fee's and pass them along to the end user. Their fee's are already ridiculous. I read this article to find out if there is actually a viable alternative to using PayPal.

  • Report this Comment On April 10, 2013, at 2:52 PM, Work1ders wrote:

    My question is when will others get with the program and create a system to micmic Paypal and give them some serious competition!

    At present, Paypal is very mobile. I was surprised that they would allow Paypal payments at the Dollaer General store and some shopping locations are also beginning to accept them. So, they are becoming a large conglomerate in the mobile banking system.

    Competition to that? Those others that are yet to be discovered. It only improves beyond here! Bring on the competition, baby!

    I'll be glad to see what another competitior would offer!

  • Report this Comment On April 10, 2013, at 9:05 PM, PhilipCohen wrote:

    Hello "MasterPass". Goodbye clunky PreyPal—it has not been nice knowing you ...

  • Report this Comment On April 10, 2013, at 9:10 PM, PhilipCohen wrote:

    MasterCard’s new, professional, online digital wallet, “MasterPass”, is now available; details credit card users at;jsessionid=C6...

    If you are an online seller with a credit card merchant account with a real bank then all the info you need re accepting online payments via MasterPass is available at

  • Report this Comment On April 11, 2013, at 1:09 AM, Layla22052 wrote:

    I sell on evilbay and don't accept paypal

    I have a merchant account and pay at

    lease 1.5% lower than what paypal would charge me to process a transaction

    paypal allows too many bidders to rip off sellers

  • Report this Comment On April 11, 2013, at 7:57 AM, MyHeirloomSeeds wrote:

    We left processing with along time ago. They're simply not to be trusted. Paypal treats it's merchants with vain and distrust and often withhold their deposits and funds without any warning.

    Any business would simply be better off with their own merchant account which offer better benefits and lower processing fees.

    Bottom-line: Stay far away from just read the many negative reviews above!

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