Most investors already know that PayPal (NASDAQ: PYPL) is now an independent and publicly traded company. After serving as eBay’s growth engine for years, the company is finally free to chart its own course. PayPal faces huge competitors like Apple Pay, Google Wallet, and even Visa Checkout. However, even with significant competition, there are at least three ways that PayPal can put cash in your pocket.
Time to Xoom Ahead
The first way PayPal can put cash in your pocket is, by letting you skip more expensive options to send money overseas. PayPal already has a worldwide presence because of its usage as an online payment system. However, the company’s ability to get into the $600 billion international money transfer market has been somewhat limited.
To address this weakness, PayPal expects to close its Xoom acquisition sometime in the fourth quarter of this year. Xoom allows its 1.3 million users to transfer money overseas. Xoom users sent about $7 billion to people in 38 different countries in the 12 months ended March 2015. Given that this would represent just over 1% of the reported global opportunity, Xoom has a long runway for growth.
PayPal’s cross-border total payment volume made up 22% of total payments in its most recent quarter. This percentage would suggest about $1.5 billion in cross-border payments. To further the idea of PayPal’s opportunity here, Visa’s total payment volume was nearly 20 times PayPal’s volume last quarter. Even with significantly larger volume, Visa still managed to grow its cross-border payments by 8% year-over-year.
Once the Xoom acquisition closes, PayPal will have the opportunity to market this service to its roughly 68 million U.S. active customers. In addition, there is a wrinkle that Xoom offers its customers that PayPal doesn’t address currently.
Xoom allows its customers to pay bills through the service. In order to use a PayPal account to pay a traditional bill, your options are limited. The company says you can pay “thousands” of recurring monthly bills with automatic payments. Unfortunately, this service relies exclusively on the company receiving payments to accept PayPal. If PayPal extends Xoom’s bill payment to its existing users, this would be a watershed moment. In fact, bill payment on a PayPal account could make the company a real threat to traditional banking relationships as well.
Ecosystem Friendly
The second way PayPal can put cash in your pocket is, by being ecosystem friendly and continuing to grow its earnings and stock value. This means that PayPal plays nice with multiple operating systems. Though many PayPal investors might worry that Apple Pay, or Google Wallet, could crush the company’s growth plans, this worry is likely overblown.
The most popular apps and services seem to have one thing in common…they are operating system agnostic. If you want to stream videos, use Netflix, Hulu, or Amazon Instant on iOS, Android, or Windows.
If you want to stream music, you can use Pandora or Spotify on any OS as well. Even companies that have been known for their walled garden approach to programming (Microsoft), have wised up. Office is available on multiple operating systems, because cross-platform compatibility increases the service’s market potential.
Apple Pay might be great, but millions of Android users will likely never see the service. In the same way, Google Wallet might be the best option, but a user will have to search it out in the iOS app store. PayPal has massive name recognition and already reports 170 million registered users.
Whether Apple and Google like it or not, it should be easier to convince users to take advantage of PayPal in stores, than to teach them a whole new system. In the fast growing electronic payments market, PayPal’s first mover advantage, and cross-platform compatibility, should be the one-two punch that keeps the competition at bay.
A Dividend With a Twist
The third way that PayPal can put cash in your pocket is, through a dividend. A unique way to play PayPal’s growth is actually through Visa. With PayPal, Apple Pay, and Google Wallet in many cases, they are simply the conduit through which a payment flows.
In a physical store purchase, there are multiple companies getting a cut of each transaction fee. The card issuer (Visa) gets a piece, the company tied to the card (Bank of America, Chase, etc.), the merchant processor (Heartland, First Data, etc.), and the digital payment platform (Apple Pay, Google Wallet, PayPal) all get a part of this fee.
Rather than trying to choose which company will win out in the end, why not choose a company (Visa) that should benefit across the board? If a customer pays through PayPal, Apple Pay, or Google Wallet on their Visa card, Visa makes money. If the customer swipes their physical Visa card, Visa makes money there too.
Since Visa pays a small dividend yield of under 1%, you won’t get a ton of cash in this scenario. However, it seems obvious that Visa stands to benefit no matter which service becomes the king of electronic payments.
The bottom line is, PayPal is expanding its international capabilities, works on multiple operation systems, and is expected to post impressive growth over the next few years. If you need a dividend, Visa could be an option. However, for growth investors PayPal seems like a solid choice to put cash in your pocket over the next several years.
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