I’m a big fan of PayPal, but as they approach 100x earnings I’m on the look out for risks. While PayPal is BEST positioned as the ONLY company to solely focus on eCommerce payments AND A UNIQUE ability to “own the rules”as a 3 party network, they are not without significant risk. 2020 has 2 major threats that can hit them very very quickly.
#1 Apple Pay in Browser
I’ve been writing about this for 5 years and it is finally here. While I was certainly off in my projected 2016 timing, I was not off in the user experience. Take 2 minutes to do the following
- Open a safari browser on your phone or desktop computer
- Navigate to https://applepaydemo.apple.com/
- Press the “pay” button
- If your interested in more detail, go to the Stripe demo
Investors should know that it takes a merchant about a day to add this functionality (assuming they use Stripe or Shopify). In 2016, I outlined: Apple’s revenue, safari penetration and merchant drivers. The primary drivers are customer experience, speed, and conversion rate. PayPal has been winning here on all of these.
The issue investors face is that eCommerce volume could change very very rapidly as the barriers to conversion are low and in the hands of consumers.
#2 EMVCo SRC now Click to Pay
Today, EMVCo announced that Secure Remote Commerce (SRC) has been renamed Click to Pay. I wrote a long blog on the topic in 2018 (SRC and W3C). As I projected, Visa walked away from “Visa Checkout” and Mastercard from “Masterpass”.
- Mastercard Overview
- Bank of America Merchant Services
- Merchant Perspective – Overview of SRC – Charge Back Gurus
- Detailed technical overview (implementation) is provided by Stripe.
While Apple’s standards are proprietary, SRC is an open standard. Where Apple Pay has your credentials under your control (in your phone or mac), SRC stores them centrally with the Digital Card Facilitator (DCF). Think of the DCF as “Visa Checkout”.. but with the branding gone. Now there will be one “Click to Pay” button for Visa, Amex, Mastercard, .. not the NASCAR branding with 20 options to pay.
Apple Pay in Browser is currently limited to Safari browsers. Browser marketchare provided by Statcounter, shows (in US) that Safari is currently 53% of mobile web and 18% of desktop for a average share of 35% of all web interactions. Take away? Safari is not a limitation, with strong penetration in the affluent.
A primary challenge for SRC is “first use” registration. Where Apple Pay has none. It is important for investors to understand that this option also takes less than a week for the merchant to add, with no change in processor, no new agreements, and with the potential for reduced chargeback/holds. Top challenge? Getting the merchants on board (see article). Expect to see pilots in next 2 months.
Implications for PayPal
While the pandemic has greatly expanded eCommerce, and PayPal’s TPV, they are faced with global competition for the “buy button” with no switching costs. Investors need to stay on top of payment volumes going through both Apple Pay and SRC/Click to Pay to assess consumer/merchant adoption. This new competitive environment may impact investment assumptions that justify Paypal’s current 100x multiple.
Volumes can shift very quickly, particularly given that both Apple and the Merchants are in the “drivers seat”. If there is any data pointing to improved conversions of either Apple Pay or SRC/Click to Pay I would expect Merchants to move within 6 months. The next hurdle would be customer awareness.. for example, how long will it take consumers to recognize the new Click to Pay Icon