Paypal Porter’s 5 Five Forces: 2022 Detailed Overview

Written by portersfiveforcesteam in Porter's Five Forces Analysis

Porter’s Five Forces Analysis of PayPal

 

Key Facts

 

Name PayPal
Industry Banking and Financial Services
Founded 1998
Headquarters San Jose, California, United States
CEOs Dan Schulman
Revenues US$25.37Billion,2021
Profit After Tax US$4.17Billion, 2021
Competitors Block Inc.,Visa Inc.,Shopify

 

 

Company Overview

 

The company PayPal Holdings, Inc. works on building technology platforms for online payments. Its products include Paydiant, Xoom, Braintree, Venmo, PayPal, PayPal Credit, and Venmo. In order to expedite the processing of financial transactions, the company runs a two-sided, proprietary worldwide technological platform that connects clients, which include both consumers and merchants. It enables users to transfer money between accounts, withdraw cash from their accounts, and pay for things using their accounts.Using funding sources such a bank account, PayPal account balance, PayPal Credit account, credit card, debit card, or other stored value products, the company also enables customers to transact with retailers. Through its PayPal website and mobile application, Venmo, and Xoom, it provides customers with person-to-person payment alternatives. The company’s headquarters are in San Jose, California,USA and it was established in December 1998. PayPal is now ranked 143 on the Fortune 500.

 

Porter’s Five Forces Analysis

 

Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School.

 

Paypal Rivalry among Existing Competitor

 

PayPal: For merchants and customers throughout the world, PayPal Holdings, Inc. is a top technology platform that facilitates digital payments and streamlines the shopping experience. Business is mostly conducted in two categories: first, merchants utilise PayPal to manage their operations, and second, customers use PayPal to access financial services and shopping resources. According to Annexture-1 and the graph, its revenue climbed dramatically from US$5.66 billion in 2012 to US$25.37 billion in 2021, 18% is the compound annual growth rate.

Block Inc, Its works with Square brand name, It provides solutions for credit card payment processing. It is an integrated commerce ecosystem that aids in the launch, management, and expansion of sellers’ enterprises. Once the Square Point of Sale mobile app is downloaded by the company’s sellers, they may swiftly and easily accept their first payment, usually in a matter of minutes. Sellers have access to services including next-day settlements, electronic receipts, payment dispute management, data security, and PCI compliance through its system. The business also provides finance, marketing, and point-of-sale services. The business is headquartered in San Francisco, California, and was established in February 2009 by Jack Dorsey and Jim McKelvey.

Its revenue has increased significantly from US$0.20 billion in 2012 to US$ 17.42 billion 2021 as shown in Annexture-1 and graph shown in Annexture-2. The compound annual growth rate is 64% that is significant as compared to competitors.

VisaInc. The business of Visa, Inc. is offering online payment services. Through the exchange of value and information across a worldwide network of customers, retailers, financial institutions, companies, alliance partners, and governmental organisations, it also promotes international trade. It provides global ATMs, debit cards, credit cards, prepaid items, and business payment solutions. Dee Hock established the business in 1958, and it has its headquarters in San Francisco, California, USA.

Its revenue has increased significantly from US$ 10.42 billion in 2012 to US$ 24.57   billion 2021 as shown in Annexture-1 and graph shown in Annexture-2. The compound annual growth rate is 10% that is lowest as compared to competitors.

Shopify:It runs a small- and medium-sized business-focused cloud-based commerce platform. Merchants utilize this company’s software to manage their operations across all sales channels, including brick-and-mortar and pop-up stores as well as storefronts on the web, tablets, and mobile devices. The company’s platform enables merchants to manage products and inventory, handle orders and payments, cultivate customer connections, and make use of analytics and reporting while giving them a single view of their business and customers. It emphasises subscription and merchant solutions. On September 28, 2004, Tobias AlbinLütke, Daniel Weinand, and Scott Lake created the business, which has its headquarters in Canada’s Ottawa.

Its revenue has increased significantly from US$ 0.02 billion in 2012 to US$ 4.76   billion 2021 as shown in Annexture-1 and graph shown in Annexture-2. The compound annual growth rate is 80% that is highest as compared to competitors.

 

Paypal Threat of New Entrants

 

  • Majority share of market :The largest FinTech segment in 2020 will be Digital Payments, with a global transaction value of US$5204 billion. The value of transactions in China, the world’s largest market for digital payments, is expected to exceed US$2,496 billion in 2020. In the area of digital payments, the total transaction value is anticipated to reach US$9,470 billion in 2023. And if we review PayPal, for the first time in our history, PayPal will surpass US$1,000 billion in yearly total payment volume by the end of 2021; as a result, it will already possess the largest market share, making it challenging for new competitors to enter the industry.
  • Capital Investment: Huge capital investment is required to operate in digital payment industry as market leaders total assets are as follows, PayPal assets are US$8 billionand Visa Inc. are US$85.5 billion.

 

Paypal Bargaining Power of Suppliers

 

In the case of the digital transaction business, supplier power is moderate because the main costs associated with accepting a customer’s funding source fall under the category of transaction expenses. When digital payment service provider withdraw money from a customer’s credit or debit card, bank account, or any funding source they have saved in their digital wallet, it must pay fees to payment processors and other financial organizations. If we review PayPal its transaction cost remains stable as percentage of revenue , e.g., US$6.79 billion 38% ,US$7.93 billion 37% and US$10.31 billion 41% of revenue in 2019, 2020 and 2021 respectively

 

Paypal Bargaining Power of Buyers

 

  • Branding: Due to existence of branding and reliability in customers mind bargaining power of customer is low, PayPal recognized brands includes PayPal, Venmo, Xoom, PayLater, Braintree,Zettle and honey across all services areas.
  • Large number of Users:.Due to the 426 million active accounts that PayPal has connected, customer loyalty has continued to grow over time as the number of users has increased.

 

Paypal Threat of Substitute Products or Services

 

  • Market share:When a company hold major share of market, threat of substitute product is reduced,PayPal led the market with a market share of about 42% as of September 2022.
  • Updationand Innovation:Along with much other advancement, Paypal maintained its leadership by enabling crypto payments and launching Zettle in the US.
  • Range of Services:In order to meet the needs of its customers, PayPal offers a wide range of services, including P2P, Checkout, Payment processing, payout, In-Person, Business & Risk Services, and Marketing Tools. By giving users access to such a diverse range of services, substitute product availability and competitive strength can be managed.

Annexure-1

Year PayPal Block Inc Visa Shopify
  Revenue US$ In Billion
2021                25.37                17.66                24.11                4.61
2020                21.45                  9.50                21.85                2.93
2019                17.77                  4.71                22.98                1.58
2018                15.45                  3.30                20.61                1.07
2017                13.09                  2.21                18.36                0.67
2016                10.84                  1.71                15.08                0.39
2015                  9.25                  1.27                13.88                0.21
2014                  8.03                  0.85                12.70                0.11
2013                  6.73                  0.55                11.78                0.05
2012                  5.66                  0.20                10.42                0.02

 

 

 

References

 

  1. PayPal Holdings, profile Forbes
  2. Block Inc, profile Forbes
  3. Visa Inc, profile Forbes
  4. Shopify Inc, profile Forbes
  5. PayPal Holdings, profile Fortune500
  6. Digital Payments report 2021 at statista
  7. Digital Payments – Worldwide at statista
  8. Market share of online payment processing software technologies worldwide as of September 2022 at Statista
  9. Annual reports 2016 to 2021Paypal
  10. Block Revenue 2013-2022 | SQ at MacroTrends
  11. Annual Reports Visa
  12. Visa Revenue 2010-2022 | MacroTrends
  13. Shopify Revenue 2013-2022 | SHOP MacroTrends
  14. PayPal Holdings Revenue 2013-2022 | PYPL at MacroTrends
  15. PayPal Holdings Total Assets 2013-2022 | PYPL at MacroTrends
  16. Visa Total Assets 2010-2022 | at MacroTrends

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