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A Bright Future for PayPal

By Motley Fool Staff – May 29, 2018 at 8:53AM

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PayPal is already a giant in the gargantuan payments industry, but there's still plenty of room to grow.

The war on cash is going strong, and PayPal (PYPL -0.79%) is a fierce competitor that investors might just want to take a closer look at.

In this Industry Focus: Technology segment, analyst Dylan Lewis and Motley Fool contributor Matthew Cochrane explain why PayPal is still worthy of a spot in your portfolio, how the company's recent acquisition of iZettle demonstrates this, how PayPal stands out from its competition, and more.

A full transcript follows the video.

This video was recorded on May 25, 2018.

Dylan Lewis: Looking at this news, looking at the competitive news, you're a shareholder, I'm a shareholder. Matt, how are you feeling about this?

Matthew Cochrane: Look, I'm very bullish on PayPal. I've been a shareholder for about two years, and I don't have any plans to sell my shares any time soon. I think what makes PayPal attractive is, one, like we were saying earlier, it can offer an entire suite of payment services to consumers. Again, are the credit cards coming out with their own standard for e-commerce checkout? Yes. Will that compete with PayPal's One Touch? Yes. But you can't use that platform to make P2P payments, for instance.

Then, another reason why I like PayPal, and this goes back to everything, it does seem like, at times, that everybody is gunning for them. You have Apple Pay, you have Google Pay or Android Pay, or Square with the Cash app. But, most of these are specific to a device. Like, if you want to use Apple Pay, you have to have an Apple device. Same with Android Pay. For credit cards, for their digital wallets, you have to have that kind of credit card to use. For an operating system, etc. PayPal is agnostic. You can use it across any device, any operating system. It doesn't matter what bank you have. The banks rallied around Zelle earlier, to promote Zelle, which is another great P2P platform. But it doesn't matter. You have to have a bank that participates in that program. PayPal, you can use it across any bank, any device, any service. It really is that universal digital payment platform.

Lewis: And I look at the acquisition they made, specifically iZettle, and say, this looks like something that will continue to fuel the virtuous cycle that we've seen with this company before. You have member growth because people are already using apps. There's the network effect of, you're able to pay your friends with Venmo or something like that. Then, as merchants come on to the platform, they're coming on because consumers are there, and the merchant acceptance fuels more consumer growth.

So, you continue to have different parts of the business feeding each other. I think, if they have a really great payment facilitation option in Europe, that will help a ton with customer acquisition there. It just continues to feed something that's already worked so well for this business.

Cochrane: Absolutely. The more PayPal account holders utilize their accounts, the more merchants want to sign on to PayPal's platforms. And the more merchants on PayPal's platform, the more customers use their accounts. And on and on that network effect goes, absolutely.

Lewis: I think this acquisition also shows a little bit of the optionality that a company like PayPal has, a company like Square has. We're talking about PayPal here, I don't think Square is a bad business, by any stretch. You look at both of them, though, they are disruptive payment companies, Square has been able to do a lot of things after getting merchants involved, where they've layered in all these extra services. I would not be shocked to see PayPal be able to do the same thing, now that they're moving more into that space.

Cochrane: No, absolutely. In fact, yesterday, I was listening to some of the presentations at PayPal's investor day, and when they talk about their merchant services, they have really co-opted Square's language that they use. When they talk about democratizing payment services, and empowering small merchants to compete with the big boys in their industry ... they absolutely have their eyes on some of the same exact markets.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dylan Lewis owns shares of GOOGL, AAPL, and PayPal Holdings. Matthew Cochrane owns shares of GOOGL, PayPal Holdings, and SQ. The Motley Fool owns shares of and recommends GOOGL, GOOG, AAPL, PayPal Holdings, and SQ. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.

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