What happened

PayPal Holdings (PYPL 1.51%) dropped on Friday, extending a steep decline in the digital payments company's stock price in recent months. As of 11:30 a.m. ET, PayPal's shares were down more than 2% after falling as much as 5.3% earlier in the day. 

So what

PayPal has shed more than two-thirds of its value over the past year and over 70% since its highs in July. The fintech leader's shares soared during the early stages of the pandemic, when fears of COVID-19 drove many people to shop more online. But e-commerce growth has slowed as the economy has reopened, with most coronavirus-related restrictions now lifted and people returning to shop in stores once again.

A person turns the key on the door to a retail store.

Image source: Getty Images.

Moreover, macroeconomic factors are denting consumer confidence. Conflict in Europe has led to a surge in energy and food prices. This has exacerbated what were already high levels of inflation in the U.S. and many international markets. With their costs rising, many people are being forced to pare back their discretionary spending.

Now what

While troublesome, these macro challenges will likely abate over time. E-commerce sales should resume their upward trajectory as more businesses offer fast, convenient, and often free shipping options. The Federal Reserve has already begun raising interest rates to tame inflation. And companies will find a way to remedy their supply chain issues.

However, PayPal faces a more menacing long-term threat. Amazon recently unveiled its Buy with Prime service, which gives Prime members the ability to shop on e-commerce sites other than Amazon.com and still receive the free shipping and returns options they would have when shopping on Amazon. Buy with Prime also allows members to use their payment and shipping information in their Amazon account to make purchases, thereby providing a similar level of speed and convenience at checkout to they would enjoy when using PayPal.

If Buy with Prime proves popular with online shoppers, PayPal could soon face an intense battle for checkout market share with the mighty Amazon.