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PayPal/Square Idea Proposal (PYPL, SQ)

PayPal/Square Idea Proposal (PYPL, SQ)

Will the COVID-19 pandemic cause lasting changes in the payments industry? If so, how will that affect PayPal and Square?

Report Available: July 24, 2020


Blueshift’s ongoing research found growing enthusiasm for SQ and PYPL as the coronavirus crisis pushed consumer spending habits toward contactless transactions and online shopping. SQ helped small businesses adapt to the changing landscape with its ecommerce tools, while PYPL showed signs of gaining online transaction market share from credit card networks. Both services are angling to get consumers to use their platforms for direct deposits as they beef up their competition with major banks and other payment services.



  1. SQ and PYPL have thrived as the coronavirus pandemic has upended consumer spending habits. Shares of SQ surged to all-time highs in early July, while PYPL’s stock has more than doubled since stumbling in mid-March. Much of the enthusiasm for the payment platforms is around the idea that the lockdown will accelerate key trends, such as the shift to online shopping, where PYPL is a dominant payment force; or the move away from cash for in-person purchases, which could boost SQ as a processor of card payments for small brick-and-mortar businesses. But it is not clear to what extent these shifts will be permanent or revert to more normal patterns post-COVID.
  2. For SQ, there was concern that it could suffer as the crisis battered small merchants — historically, two-thirds of SQ’s seller revenue came from in-person payments to small businesses. But the company was able to help merchants quickly set up web presences to allow for online ordering, curbside pickup, and delivery. Some small businesses that had not been customers saw the value in shifting from cash transactions to those requiring less contact, such as SQ’s iPad-based registers that allow a customer to insert or swipe their own card. On the consumer side of its operations, SQ said total net revenue generated by its Cash App soared by 197% in Q1 as users turned to the peer-to-peer app for fundraising and tipping during the coronavirus lockdown. Cash App, which now has an annual revenue run rate of more than $1 billion, added its largest number of net new-transacting active customers in March, growth that continued in April. One analyst predicted Cash App revenue, excluding bitcoin, will more than triple over the next five years as it morphs into a primary spending tool.
  3. For PYPL, the accelerating shift to online shopping has been a boon. CEO Dan Schulman said April may have been the company’s strongest month since its 2002 IPO. The platform added a record 7.4 million net new customers during the month, leading to a 43% increase in branded transactions. That figure represents not only strong growth but suggests an increase in market share: the major credit card networks, V and MC, reported approximately 20% increases in “card-not-present” spending during April. PYPL executives said the need for contactless payments is more important than ever and that governments and merchants around the world are asking them to expand PayPal and Venmo into in-store checkout flows. The company said it is seeing a significant increase in the use of Venmo to pay merchants, rather than just friends, though the 48% growth in Venmo’s total payment volume in Q1 was the fifth straight quarter of deceleration.
  4. For both SQ and PYPL, the holy grail is getting users to directly deposit paychecks into their Cash App or Venmo accounts. That would position the services as broader banking platforms where users could rely on their Cash App or Venmo debit cards for in-store purchases and use their balances for online bill paying. SQ said direct deposit volumes on its service grew by three times in April as customers stored more than $1.3 billion in aggregate balances on the Cash App during the month. Both services allowed U.S. consumers to have economic stimulus checks sent directly to their accounts.
  5. Despite the platforms’ recent success, the payment industry remains highly fragmented and competitive. Bank-issued credit and debit cards still dominate in-store purchases, while Zelle — a peer-to-peer Venmo rival from a consortium of major banks like JPM and C – continues to build momentum. Meanwhile, services like AAPL’s Apple Pay, KRX:005930’s Samsung Pay, GOOG/GOOGL’s Google Pay and AMZN’s Amazon Wallet are all vying for share of both in-store and online purchases.
  6. Sources in Blueshift’s October 9, 2019, report said the growth of SQ’s Cash App does not directly threaten PYPL’s Venmo, but Cash App has a better money-making model because of its toehold with merchants—through its card reader, loans, and other small business tools. Perks and loyalty programs will be key to getting consumers to use their app balances for retail purchases; that’s an area where SQ’s merchant network is an advantage.


To what extent will the COVID-19 pandemic result in lasting changes to consumer shopping and spending habits? How will that affect SQ and PYPL? Which platform is better positioned to take advantage of the changing landscape? Can either service convince consumers to use their platforms for direct deposit? How is the competition for in-store payments evolving? Blueshift will gather data and issue a market research report from independent sources in the following areas: Retailers, Payment technology developers, and Industry specialists.  


Companies: Square Inc. (SQ), PayPal Holdings Inc. (PYPL), Alphabet Inc. (GOOG/GOOGL), Inc. (AMZN) Apple Inc. (AAPL), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Samsung (KRX:005930)


Research Begins: July 6, 2020


To see other ideas Blueshift Research is currently working on, please click here.


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