Traditional payment methods are increasingly evolving into digital payment methods. PayPal is one of the leading names today in the world of digital payments and arguably, the most popular one due to its competitive PayPal fees and numerous other benefits.

Paypal earned its prominence by partnering with eBay and is widely recognized by most, if not all, online vendors today. It offers several features to help companies efficiently process and manage their finances and transactions. With digitalization increasing and e-commerce booming, the demand for platforms like PayPal has also been skyrocketing. Consequently, more competitors of PayPal are entering the market. This growing market saturation will likely make PayPal face challenges in the future:

1. High Competition

PayPal shared its plan to grow their average revenue per user (ARPU) by integrating new features and having the user hooked to platforms like Venmo, which provided peer-to-peer payment services to over 83 million users in the U.S. in 2021. However, Venmo faces intense competition in the market and threats from platforms like Zelle and Block’s Cash App.

Zelle alone grew its transaction volume by 59% in 2021, which amounted to $490 billion. Compared to this, Venmo only increased by 44%, which amounted to $230 billion. The competition is rising, and PayPal may be knocked out of its leading position at this growth rate. 

2. Frequent Layoffs 

PayPal is reportedly laying off its employees and closing certain operative departments, especially within the research and development team. This team was in-charge of PayPal’s cryptography, quantum computing, and distributed ledger technologies that enabled PayPal to be ahead of its competitors. The reason behind the layoffs was to boost PayPal’s ARPU and reduce the inefficiencies within the company. However, these layoffs can potentially drain the company of its talent. Innovation can be hindered, and the company may face problems if it continues to let go of its existing employees.

3. Inability To Meet Investor Targets

PayPal claimed in an investor presentation that the growth in active users will double by 2025 as compared to 2020. The number was supposed to increase from 377 million users in 2020 to 750 million active users in 2025, enabling PayPal to increase its revenue from $21.5 billion to $50 billion and gain massive growth.

However, PayPal’s active users only grew by 13% in 2021, with revenue growth of  $25.4 billion. It dropped its goal of increasing users in the last quarter, leaving investors confused and disappointed.  The under-delivery of results and inability to meet investor targets can lead to withdrawal of support from investors if frequent results are not delivered. This can also result in a large loss of goodwill for the company. Such decisions will likely have challenging consequences for PayPal. 

Endnote

PayPal is still one of the leading names in the world of digital payments and FinTech. However, it must evolve with time to keep up with the rising competition and meet the goals it has set to sustain its shareholders’ interests. If PayPal fails to do so, it may find itself falling behind in the market’s race. 

PayPal’s stock is depleting each day as the company keeps on over-promising and under-delivering. However, PayPal can still maintain its position by focusing on innovation and partnering up with competitive supporting businesses. This can help PayPal give their business a much-needed boost and assist in gaining back investors’ confidence.