PayPal's competitive challenges are back in the spotlight, BofA says

By Emily Bary

Analyst sees a number of recent payments developments underscoring industry's competitiveness

Recent announcements in the world of payments underscore the challenges facing PayPal Holdings Inc., according to a BofA analyst

Specifically, developments involving Apple Inc. (AAPL), Affirm Holdings Inc. (AFRM) and Mastercard Inc. (MA) highlight just how competitive the world of digital payments has become, BofA's Jason Kupferberg wrote in a Wednesday note to clients.

PayPal shares (PYPL) declined Monday, after Apple announced a new "Tap to Cash" function that will let users of its Apple Cash wallet service send money to other iPhone users just by tapping their phones against one another. PayPal's stock has continued to drop in the two sessions since.

"We believe Tap to Cash could have more competitive overlap with Venmo than with Cash App, based on end-user demographics," Kupferberg wrote. PayPal owns the Venmo peer-to-peer payment service.

Apple also announced a new arrangement with Affirm through which Apple Pay users will see Affirm's buy-now-pay-later offering within that service. While Affirm doesn't anticipate that the deal will help its financials in a meaningful way, its significance could prove more symbolic, in Kupferberg's view.

Read: Affirm's stock charges up after Apple announces payments partnership

"The announcement could strengthen AFRM's competitive posture in the buy-now-pay-later (BNPL) space against large players such as Klarna, Afterpay" and PayPal, which he said generates roughly 5% of its volume from BNPL offerings.

Finally, there's a longer-term competitive threat. Mastercard recently said that come 2030, it would "tokenize" all credentials in Europe - meaning that users wouldn't necessarily need to type in their card information and could instead opt to pay through biometrics like fingerprint authentication.

Mastercard "will also be introducing passkeys to replace passwords," Kupferberg wrote, as he reiterated his neutral rating on PayPal's stock. "While this initiative is long-dated, it reinforces the fact that competition for PYPL's core checkout button (and for PYPL's new Fastlane service targeted at guest checkout) could continue to intensify."

PayPal shares were off 2.2% toward the end of Wednesday's session, with its decline outpacing those of Visa Inc. (V) and Mastercard shares in the wake of Federal Reserve Chair Jerome Powell's news conference.

Elsewhere, there's been optimism about the Fastlane guest-checkout service - including from Mizuho analyst Dan Dolev, who upgraded PayPal shares based on that thesis in May and said that growing awareness of the opportunity there helped propel PayPal shares to their best day in months late last week.

BofA's Kupferberg, for his part, wrote that PayPal's management has been "making sensible strategic moves" but that the company "continues to operate in a highly dynamic and complex competitive landscape, which could ultimately impede the magnitude of top-line reacceleration needed to catalyze significant multiple expansion."

-Emily Bary

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06-12-24 1559ET

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