PayPal (NASDAQ:PYPL) is the clear leader in online checkouts, but Visa (NYSE:V) Checkout and Mastercard's (NYSE:MA) MasterPass platforms are growing at an impressive rate. Should PayPal be worried about this rapidly growing competition, or will its first-mover advantage keep it in the lead for the long haul?
In this Industry Focus: Financials clip, host Jason Moser and Motley Fool contributor Matt Frankel, CFP give their two cents on the matter.
A full transcript follows the video.
This video was recorded on Oct. 1, 2018.
Jason Moser: This week on Twitter, we have a couple of folks I wanted to spotlight here. First, we have @FadeOutAndroid, who asks, "After listening to your comments on Industry Focus this past week, what do you think about Masterpass from MasterCard and Visa Checkout from Visa as competitors to PayPal? I keep on getting promotions and seeing their logo next to PayPal on online sites that I shop on." I thought this was a good question. Thanks, FadeOutAndroid!
I did a little digging into both Masterpass and Visa Checkout. They're obviously very huge, very big networks in Visa and MasterCard. I wouldn't dismiss those companies as competitors on any level. I think where MasterCard and Visa have fallen short is, they haven't been able to make the investments in the mobile interface on the tech side like PayPal has been able to do. Furthermore, we were talking about Venmo earlier on in the show, there is an up and coming consumer that is very familiar with that Venmo interface, with that PayPal interface, with that Square interface. They are not familiar with that Masterpass and Visa Checkout interface. The numbers bear that out. You have a number of users there, but they just aren't gaining the same traction. While I wouldn't put anything past them on the competitive level, it doesn't seem like they are holding as much traction as these younger players. What about you, Matt?
Matt Frankel: No. And to put the scale in perspective is really important in response to this question. To give you some perspective, PayPal has about 180 million active users. That's 10 times more than the nearest competitor. And the nearest competitor is not Masterpass or Visa Checkout. It's Apple Pay.
PayPal is much, much bigger than either of those two. PayPal estimated that about 70% of the market, in terms of those checkout features. So, while it's a competitor, like you said, yes, it's growing faster than PayPal, yes, just because of its size. PayPal can't grow at a 90% annual rate right now. But I don't think it's a competitive threat. PayPal was the first mover in the space. Like you said, people are familiar with it. I have several Visa cards in my wallet right now, I can't tell you what the Visa Checkout interface looks like. But I can tell you what the PayPal interface looks like and how to navigate it. They had the big first mover advantage, which in fintech, is everything. PayPal's lead is just too great!
Jason Moser owns shares of Apple, Mastercard, PayPal Holdings, Square, Twitter, and Visa. Matthew Frankel, CFP owns shares of Apple and Square and has the following options: short December 2018 $90 calls on Square. The Motley Fool owns shares of and recommends Apple, Mastercard, PayPal Holdings, Square, and Twitter. The Motley Fool owns shares of Visa and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.