The credit card swipe takes just 17 seconds to happen, and it costs us consumers nothing. But this inconsequential ritual of our daily lives has an enormous financial impact on the stores and businesses where we make purchases. You see, every time that plastic card slides through a payment terminal, the merchant doing the sliding is taking it on faith (it'll take 24 to 72 hours to get paid) and taking it on the chin (by surrendering 3.5 % of its profit to processing fees).
Depending on your point of view, that's either a miraculous or a badly antiquated system. According to Motley Fool Director of Analyst Learning Buck Hartzell, it's poised for a change. The credit card transaction system we use today first appeared in 1979, when Visa (NYSE: V) introduced the electronic data-capturing terminal. The product of a massive investment of time and resources, the system proved to be a strong competitive advantage for Visa and the other established credit card players for many years.
But today, 30 years and $280 billion in revenue later, changes are afoot in the payment-transaction processing market -- and investors should be paying attention. Think there's a hot new software or telecom company poised to emerge in this space? Maybe. But Hartzell says it's more likely that the upstart will be a former tech darling we already know: eBay (Nasdaq: EBAY). Remember when eBay acquired PayPal for $1.5 billion back in 2002? Since then, the company has used PayPal primarily to grow its auction business. But with that line now approaching maturity, PayPal is suddenly free to fulfill its own destiny -- to become a giant in the payments business.
Leveraging its impressive foundation of 84 million active accounts, PayPal is preparing to make a run at the dinosaur-like magnetic stripe system still favored by banks and card companies. Having recently opened up its platform to developers to devise new ways to use the Web to facilitate traditional and micro payments, PayPal is hatching a disruptive innovation that ought to have Visa, MasterCard (NYSE: MA), American Express (NYSE: AXP), and others shaking in their shoes. And with innovations in smartphone and mobile data coming fast and furious these days, it's just a matter of time before a wide array of payment apps is unleashed for our iPhones and BlackBerrys -- all using PayPal.
Watch the video here:
Please enable JavaScript to view this video.
More from Fool TV:
