PayPal (PYPL, Financial), the youngest company in one of the world’s most mature industries, has, so far, managed to keep pace with its larger rivals: Visa (V, Financial) and MasterCard (MA, Financial). But there is one key metric that is growing at a tremendous pace: one that is going to strengthen the company’s position even more in the long run. It is also a strength that could possibly help PayPal take the lead in the global payments industry; or, at the very least, close the gap with Visa in a meaningful way.
During the second quarter of the current fiscal, PayPal’s total payment volume touched $106 billion, of which nearly 34% came through mobile devices. Venmo, the social payment platform, processed $8 billion in total payment volume. Compared to last year, mobile payment volume grew 50% while Venmo’s payment volume grew 103%.
Mobile payment volume has been growing at a strong rate for PayPal in the last two years, growing 56% during the second quarter of 2016 and 50% during the second quarter of 2017. PayPal has now more than doubled its mobile payment volume in just two years. Mobile payments accounted for 34% of total payment volume during the recent quarter, as I mentioned, and that’s up from 28% during the year-ago period.
The sharp increase in the percentage of mobile payments processed during the periods in question is a clear indication that a large portion of PayPal’s growth is actually coming from the crucial mobile platform, which is extremely good news for PayPal. As global users steadily shift their loyalty toward mobile devices and shun desktops as a payment platform, the former will eventually be the platform of choice for financial transactions.
Large technology companies have known for a while that this transition is going to happen in the future, and that’s the reason why Apple (AAPL, Financial), Samsung (SSNLF, Financial) and Google, among others, launched their own payments processing applications, or mobile wallets. But, so far, none of these companies has been able to witness the kind of strong growth experienced by PayPal.
The further mobile payments increase their contributions to PayPal’s overall numbers, the more the company will keep prioritizing its investments toward the mobile platform, thereby increasing adoption rates even further. With more than one-third of its total payments already coming from mobile, it is only a matter of a few years before mobile starts accounting for half of all payments that PayPal helps transact. That’s a viable tipping point to take it to the top of the mobile payments world.
PayPal has already emerged as the leader in the mobile payments game despite heavy competition from financial payments companies as well as technology companies. The more mobile payments grow for PayPal, the harder it will be for other providers to compete, and it will be even harder for them to poach PayPal’s customers away.
In summary, financial transactions are increasingly moving toward mobile and, as you can see from the chart above, mobile transactions are set to explode in the next few years. This is not new customers coming in and making those payments, but current users taking advantage of e-commerce and smartphones to process their financial transactions.
If PayPal is able to stay at the top of the mobile payments world five years from now, it should propel the company to the top spot in the payments industry, or at the very least close the revenue gap it currently has with industry leader Visa.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
