Will PayPal Holdings Inc (NASDAQ: PYPL) Withstand the Rise of Cryptocurrencies?

January 24, 2018, 14:50 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

PayPal Holdings Inc (NASDAQ: PYPL) registered impressive performance last year given that its stock price rallied from about $40 at the beginning of the year to close the year trading at $80. However, last year was also the year when Bitcoin prices rallied by over 1500% starting from a levels below $1,000 to highs above $17,000 per coin.

Article Summary

PayPal performed extremely well in 2017.

The payments processor is likely to withstand the threat posed by cryptocurrencies.

The company faces stiff competition from Visa and MasterCard.

Here’s the trading report on PYPL.

The rising popularity of cryptocurrencies as digital means of payments that guarantee the anonymity of users, as well as the transparency of transactions among other benefits is likely to pose a competitive threat to PayPal. However, this threat is yet to materialize given that the company reported excellent earnings for its third quarter where it added over 8 million active accounts in the quarter.

There are essential differences between PayPal’s digital payments model and the cryptocurrency model, which give the digital payments company a slight advantage over cryptocurrencies. The main difference between the two models is that making payments in cryptocurrencies is quite complicated given that a person first has to purchase a specific crypto and then transfer it using a public key.

On the other hand, making payments through PayPal simply involves having the appropriate balance on your account or linked card before entering the recipient’s email address and transferring the necessary amount. The simplicity of receiving and transferring money through PayPal’s network is a major operating advantage, which the company should exploit in order to stay ahead of popular cryptocurrencies such as Bitcoin, Etheruem, Ripple and Litecoin.

PayPal’s main competitors are other digital payments processors such as Visa Inc (NYSE: V) and MasterCard Inc (NYSE: MA). The two payment processors are PayPal’s strongest competitors given that they are widely known and accepted and offer services that are quite similar to PayPal’s. However, PayPal has an advantage over the two companies since it protects the financial details of its users, especially credit and debit card information.  

Therefore, it is evident that PayPal continues to enjoy a wide moat against the threat posed by cryptocurrencies, but faces stiff competition from other digital payments processors. Given the company’s impressive performance last year, it is highly likely that the company will continue to outperform this year.

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