Applepay

Apple Pay’s Peer-to-Peer Socks PayPal Stock

November 17, 2015         By: Steven Anderson

It’s never good news when a major competitor announces plans to bring out a new product that will likely cut into your current sales territory.

When Apple Pay announced plans to bring out a mobile payment system that can work on a person-to-person basis—a “peer-to-peer” payment system as it’s called—it not only made Apple faithful take notice, it also put a serious kink in PayPal’s stock price shortly after the report emerged.

PayPal shares took a hit of fully 1.8 percent following the report, and though there was a bit of a bump in trading Thursday, as of Friday the stock was still trading well under its highs of earlier that week.

However, it was clear PayPal was prepared to take the hit in stride, telling CNBC via representatives that the company “…welcome(s) any development that encourages people to address the awkwardness of dealing with cash when paying friends and family back.”

The reports suggested that Apple was already in talks with several major banks, including Capital One, JPMorgan Chase, U.S. Bancorp and Wells Fargo. While Apple Pay is already accepted at several retailers and restaurants nationwide, it hasn’t allowed users the ability to readily trade money back and forth.

That particular missing feature was one looked to be addressed by several major offerings, ranging from Samsung Pay to PayPal.

While consumers overwhelmingly turn to cash to pay each other back for small loans and the like—73 percent turned to cash in an Aite Group study—mobile payment sources including Venmo and Square as well as general online and mobile banking also represented a significant part of the mix. PayPal represented the largest such non-cash venture, and that likely contributed to its stock loss.

For Apple Pay to bring in a peer-to-peer payment mechanism addresses one of the biggest perceived holes in the company’s operations, and also potentially addresses the possible competitive edge that services like Samsung Pay and Android Pay might have enjoyed over the company.

That’s good news for Apple, and bad news for all its competitors, particularly PayPal. PayPal enjoyed something of a special status for some time as being the biggest mechanism of peer-to-peer payments; with several new competitors coming in-including one that pretty much owns the iPhone market-that’s going to be a big sock in PayPal’s returns.

Still, this might ultimately be the shot in the arm that PayPal needs to create some new competitive advantages and ultimately drive better service for its current users. It’s got a real opportunity here to keep people in the fold, though it’s going to take one impressive competitive edge to win the day.