Should PayPal Investors Be Worried About Big Credit Competition?

The war on cash is raging, and PayPal (PYPL -1.35%) is fighting hard on the front lines...and so are a legion of other massive companies.

In this clip from Industry Focus: Technology, analyst Dylan Lewis and Motley Fool contributor Matthew Cochrane discuss PayPal's incredibly sticky One Touch platform, and how worried investors should be about competition from the likes of Mastercard, Visa, and American Express. Find out what the credit card titans are working on, how this new offering would compete with One Touch, and what PayPal still has going for it in light of all of this.

A full transcript follows the video.

This video was recorded on May 25, 2018.

Matthew Cochrane: One Touch allows a user to register a device -- say, your smartphone -- and from now on, when the consumer is shopping online and using that device and they come to a website's checkout page, they can simply click the PayPal button, and they're done. There's no need to enter their credit card number, their expiration date, the billing address, the shipping address. It's more secure and more convenient.

Personally, I find it easy to use. I probably literally get annoyed every time an online merchant doesn't offer it. And I'm not alone. Yesterday, at PayPal's investor day, they said 31% of consumers -- this is according to a comScore survey -- would not even complete a purchase without PayPal One Touch. One Touch now has 92 million consumers enrolled and 8.6 million merchants enrolled.

Dylan Lewis: And it seems to me like the legacy payment companies have taken note, because based on some recent comments from Visa, I think, in particular, but several of the credit card companies, we're seeing that they are now focusing on making these payment options a little bit easier for customers. I think people don't want to be putting in 16 digits, an expiration code, and a three-digit code on the back every single time they make a purchase. They're focusing now on this, too.

Cochrane: Correct. There's a little quote. The credit card companies have always offered their own digital wallets for the last couple of years. MasterCard has Masterpass, Visa has Visa Checkout, American Express and Discover have digital wallets that nobody uses and nobody knows what they're called, but the four have decided to gang up, essentially, and make a common e-commerce checkout standard, the goal of which is to rid the need to enter cumbersome data such as lengthy credit card numbers when making online purchases, which sounds an awful lot like the PayPal One Touch platform.

Lewis: And I think this is probably something that rightfully worries PayPal investors a little bit. So much of the strength of it has been, "We're making things easier than almost anyone else is to make these payments happen." How worried are you about this, as an investor?

Cochrane: Well, it's too early to tell. I personally think that the digital payment space is so big, there's more than enough room for two players in this space. That being said, it's something you're going to have to wait and see. Fortunately for PayPal investors, they do have some time. The MasterCard CEO, Ajaypal Banga, in his last conference call, he was saying the effort was going to be transformative for the industry. When he was asked about the timeline, he said, "You're going to begin to see the first fruits of this effort maybe by the end of this year, and you're not going to really see a real push until the beginning of next year." So, it's one of those things, one, PayPal does have time, and we're just going to have to see how it plays out.

Lewis: You think about the user growth that they have, and so much of what makes payments easy is the idea that I can easily send money to you. We have the P2P side of things, and then we also have the ability to interact with merchants. That's the wonder of, maybe, the long-term vision of PayPal. I think, if they go further out and say, "This is going to be something that hits a year from now," Venmo isn't going to be standing by doing nothing during that period. They're going to be continuing to get stronger, they're going to be adding users, and that base is going to get stronger.

Cochrane: Correct. So, you have a year, which is another year of growth for Venmo, another year of growth for PayPal's core platform. What you were talking about, P2P payments, I think that's a big draw for PayPal. PayPal can offer a whole entire suite of services to consumers. This standard will be nice for when you're checking out online, but if I want to send money to you because we split a dinner tab last night, I'm not going to be able to use this standard for that. PayPal, I can do everything from one platform.

You only have so much space on your phone. People aren't going to sign up for a million different apps. So, the more you can offer an entire suite of services, I think, the more attractive you're going to be, and I think that's where PayPal falls in a really sweet spot.