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PayPal Is Falling Behind Shopify and Stripe in Social Commerce

By Adam Levy - Sep 23, 2015 at 3:02PM

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It's missing the boat on one of the biggest growth drivers of mobile retail.


Shopify powers the new Shop section of Facebook's Pages. Image source: Shopify.

It's no secret that smartphone owners prefer social networking over shopping on their mobile devices. Clunky interfaces and forms designed for desktop viewing make shopping on smartphones unpleasant for most. Several companies have popped up recently to help solve the issue of mobile commerce, including Braintree, a company PayPal (PYPL -1.15%) acquired in 2013.

But it doesn't solve the problem that many people aren't downloading or using shopping apps; they're opening Facebook (META -1.39%) and Twitter (TWTR 0.20%) and Pinterest. All three companies have made pushes into social commerce this year, and PayPal's competitors are helping while PayPal sits on the sidelines.

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None of these social networks has built out its own payment-processing system. They rely on other companies for that. Shopify (SHOP -4.28%) is powering the official buy buttons on Facebook and Twitter.

Facebook recently revamped Pages to feature products and services for businesses. Businesses using Shopify will be the first to gain access to the buy button to sell items to users without forcing them to leave the app.

The implementation similarly allows users to buy an item in just a couple of taps. The company recently rolled out a new feature called Collections, which allows brands and influencers to show off a selection of products available to purchase right through Twitter.

Twitter also recently started enabling users to donate to political campaigns with a tweet. That feature is powered by Square, the payments company that Twitter co-founder and interim-CEO Jack Dorsey founded.

Pinterest, which introduced Buyable Pins in June, uses Stripe to power its payment processing. Despite its smaller size with just 100 million monthly active users, Pinterest accounts for the second most e-commerce referral traffic after Facebook.

Stripe's plan to take control
Although Shopify is sitting in the catbird seat when it comes to social commerce, Stripe has a plan to overcome its deals with Facebook and Twitter. Stripe recently released a set of tools called Relay, which allows merchants to easily sell their products in other mobile apps. Twitter is one of the launch partners for Relay, and Stripe offers an API for developers to use in their own apps.

This universal approach may prove very effective. It reduces the hassle of setting up buy buttons for each individual platform a retailer is looking to sell its products through. If Facebook starts working with Stripe's Relay, it could pose a significant threat to Shopify's position in social commerce, although Shopify will retain its position in the new Shop section of Facebook Pages for the foreseeable future.

Why this all matters
PayPal's absence from social commerce isn't that significant right now. Social referrals still account for only about 2.5% of total mobile e-commerce. However, that share is growing rapidly, increasing threefold over the past year. With the introduction of buy buttons and the new shop section on Facebook pages, that number is sure to continue growing rapidly next year.

What's more, more and more Internet browsing time is shifting from desktop to mobile. With the potential improvement in mobile and social commerce, that means we could see a significant shift in e-commerce dollars from desktop to mobile. While PayPal's Braintree does a good job in stand-alone apps for its retail partners, PayPal is still behind the curve when it comes to mobile commerce.

With Shopify and Stripe already embedded in the top social platforms, breaking into social commerce may be more difficult for the seasoned payments processor. As a result, the company could miss out on one of the biggest growth drivers in mobile commerce.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns and recommends Facebook, PayPal Holdings, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$38.07 (-4.28%) $-1.70
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
META
$167.89 (-1.39%) $-2.36
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$43.02 (0.20%) $0.09
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$95.15 (-1.15%) $-1.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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