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Here's Why PayPal and Square Are Rising Today

By Matthew Frankel, CFP® – Apr 22, 2020 at 2:04PM

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The payment processors are getting a boost from one of the day's big news items.

What happened

The stock market is having a strong day on Wednesday, fueled by a rise and stabilization in oil prices and the government's $484 billion stimulus package that is expected to pass as early as tomorrow. As of 1:30 p.m. EDT, both the Dow Jones Industrial Average and S&P 500 index were higher by about 2%.

Among the day's biggest winners are the fintech payment companies. PayPal (PYPL 0.63%) was up 7% on the day, and Square (SQ -0.35%) had risen by more than 5%.

Man standing in front of open door with sign that says Open.

Image source: Getty Images.

So what

There isn't any major company-specific news out of either fintech. Instead, the major driving force here is likely the massive stimulus bill that's making its way through Congress.

Here's why. The stimulus adds $310 billion to the Paycheck Protection Program (PPP), which ran out of money last week and is designed to provide forgivable loans to small businesses to help meet payroll and other expenses. PayPal and Square are both approved to make PPP loans, and $60 billion of the funding is specifically designated for smaller lenders in the program.

Perhaps more significantly than these companies being able to make loans is what the stimulus means for small businesses. Combined with the original $350 billion allocated to PPP loans in the CARES Act, this makes $660 billion in funding that will help merchants -- especially smaller ones -- make it through the COVID-19 pandemic.

Now what

Small businesses are the bread and butter of both of these fintech companies. PayPal's core business is processing payments for online merchants, while Square is more focused on brick-and-mortar retailers. In both cases, the additional PPP funding should help the financial security of the companies' customers and therefore should help avoid a massive drop in revenue when the economy starts to reopen.

Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends PayPal Holdings and Square and recommends the following options: short September 2020 $70 puts on Square and long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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