PayPal Holdings (PYPL -1.12%) is one of the pioneers in the online payments space. The company operates a worldwide system that also supports money transfers between different countries and currencies. PayPal was listed back in 2002, and then bought by eBay, only to be spun out of eBay in 2015 in a second IPO.

PayPal just reported impressive Q3 2019 earnings, with revenue growing 19% year over year to $4.38 billion and net income after taxes increasing by 6% year over year to $462 million. In addition, the company added 9.8 million net new active accounts during the quarter, raising active accounts to 295 million for year-over-year growth of 16%. It's surprising that a $124 billion market cap company is still able to post double-digit revenue and active subscriber growth, and PayPal definitely should rank as one of the stronger growth stocks out there.

However, the fact is that PayPal is only one of many players in an increasingly crowded online payments market space. The digital global economy is growing rapidly, with a total market opportunity of around $110 trillion in payment volumes. PayPal's total payment volume (TPV) of $581 billion means it has a less-than-1% share of the market. The question here is: Can PayPal carry on growing its business, or will it get swamped by the competition?

A person holding a credit card while typing on a laptop.

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Strong industry growth

A McKinsey & Company 2018 study on the global payments industry reported that the industry grew by 11% last year, the largest annual increase in the last five years. Payments topped $1.9 trillion in global revenue and are on track to hit the $3 trillion mark within the next five years. The forecast is for global payments revenue to grow at a compound annual growth rate (CAGR) of 9% till 2022, with the Asia-Pacific region driving the fastest growth at 11% CAGR.

The above facts bode well for PayPal's market prospects, and the company is also surpassing the industry growth rate with its 19% year-over-year revenue boost.

Many new contenders

However, there is no shortage of competition in the lucrative payments industry. Some of the stronger contenders include Alphabet's (GOOGL -0.02%) (GOOG 0.10%) Google Wallet, 2Checkout, and Stripe, just to name a few. Google Wallet allows users to send and receive money at no cost using their mobile devices or personal computers. Alphabet has very deep pockets and the ability to fund this venture to make it one of PayPal's strongest competitors.

2Checkout is regarded as one of the best online payment platforms and enables buyers from anywhere in the world to make online payments to more than 100 shopping carts, as well as more than 200 markets and 17,000 active merchants globally. Like PayPal, it also supports more than 45 payment methods and close to 100 different currencies. 2Checkout also works with many different partners, the latest being an extension of its partnership with PagBrasil, a leading fintech company focused on effective payment processing in Brazil.

Stripe was founded in 2010 and is a global technology company with software that enables online payments. Just three months ago, Stripe raised another $250 million to take its valuation up to an eye-popping $35 billion, making it one of Silicon Valley's most valuable start-ups. Though the company has no plans to go public just yet, it counts reputable businesses such as Lyft, Airbnb, and Shopify as its clients.

New fintechs such as Revolut, a British-based digital banking app, have also upped the pressure on PayPal. Revolut has grown at a breakneck pace since its launch in 2015 and is in talks with investors to raise $500 million next year to fuel its global expansion. The company now has more than 8 million customers and is hiring aggressively to improve on its platform capabilities.

Not standing still

PayPal, however, is not standing still amid this intensified competition. Last year the company acquired Hyperwallet in order to strengthen its payout capabilities, and PayPal CEO Dan Schulman has reported strong traction gained with leading brands such as PepsiCo, Lime, and Epic Games.

It looks as though the jury is out for now on whether PayPal can continue to sustain its current pace of growth. The good news is that the company has strong tailwinds boosting its future prospects, but the bad news is that many of the new fintech start-ups continue to receive massive amounts of funding, setting up PayPal for stiffer competition in the months ahead.