Apple Pay could get a lot more useful next year. Source: Apple.

There's a growing number of ways to send money to your friends without having to hand them cash or write a check. PayPal (NASDAQ:PYPL) has been around the longest, but in recent years, with the rise of mobile devices, more and more competitors are popping up, and not just from small companies.

Google started letting Gmail users send money to one another via email a couple of years ago. Facebook (NASDAQ:FB) introduced peer-to-peer payments in Messenger earlier this year. And now The Wall Street Journal reports that Apple (NASDAQ:AAPL) is in talks with banks to offer a payments solution as well.

Removing the barrier to entry
The biggest advantage of PayPal and its subsidiary Venmo, which focuses on mobile peer-to-peer payments, is that it's built a large network of users. PayPal has 173 million active customers, and Venmo is estimated to have between 8 million and 15 million active users. In the past, this network has acted as a solid moat for PayPal, since a person had to have an account on the same service to send money.

However, big tech companies such as Facebook and Apple already have a network. Facebook has 1.55 billion monthly active users on its flagship product and 700 million using its Messenger app. If you want to send a friend money on Facebook,you can do it by simply typing the person's name into Messenger. No need to ask the person to sign up for a new service. (The user will just have to enter his or her payment information to withdraw the money.)

Apple has approximately 500 million iPhones in use around the world, and around 84 million in the United States. It has payment information for all of those users thanks to iTunes, and it already has existing relationships with the banks thanks to its early efforts with Apple Pay. Apple is reportedly looking to build on top of its existing Apple Pay system to build a peer-to-peer payments service that would compete directly with Venmo. It would allow consumers to send money from their checking accounts to recipients through Apple devices. 

Should PayPal investors worry?
There's at least some good news: PayPal doesn't currently make any money off Venmo, the primary target of these new mobile-to-mobile payment features. Nominal fees for credit card processing and some debit cards are sent off to the credit card companies. Venmo may be able to generate some interest from the float (the time between cash sent and cash withdrawn by users), but for all intents and purposes, Venmo isn't generating any significant money for PayPal.

In other words, the entry of big players such as Apple will have no negative impact on PayPal's existing financials.

However, PayPal told investors during its third-quarter earnings call that it will begin testing Pay by Venmo with merchants next year. The entrance of Apple could negatively impact on the user base and thus the potential revenue from Pay by Venmo. As a result, the heightened competition could weigh on Paypal's valuation, since that potential revenue stream is built into Wall Street forecasts.

More importantly, Apple is indicating that it's not done improving the functionality of Apple Pay. Earlier this year, it added rewards cards to Apple Pay, so users can leave their rewards cards at home and still get the benefits. The addition of peer-to-peer payments would be another improvement. Yet another logical step is to enable payments in its mobile browser, which would compete directly with PayPal.

PayPal says it sees 30% of payment volume come from mobile devices. With Apple customers outspending their market share, Piper Jaffray analyst Gene Munster estimates Apple devices makes up about half of that payment volume. And with mobile payments volume still growing quickly, Apple could cut one of PayPal's fastest growing businesses in half with an update to iOS.

So while Apple's potential entry into peer-to-peer payments shouldn't be a huge concern to PayPal investors, its continued work on Apple Pay could cause some issues down the road.

Adam Levy owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Facebook, and PayPal Holdings. 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.