Widely regarded as a titan of online payments in the United States, PayPal has built a significant business in Europe as well. But is its online payments business a strong foundation for the still-nascent mobile money market here?
"Making a payment via mobile app is one area where PayPal really makes sense for people, because it means not having to type in a long credit card number on your mobile," says Sarah Clark, PayPal's head of strategy for Europe, the Middle East and Africa. "As more and more companies do business via mobile applications, whether on the smartphone or the tablet, they are keen to talk to PayPal about how we can help."
PayPal had 60 million active accounts (which made a transaction in the last 12 months) in Europe, the Middle East and Africa at the end of 2013, Clark says. Most of these accounts are in Europe, with concentrations in the United Kingdom (19 million accounts) and Germany (15 million accounts), she says.
PayPal is focused on France and Italy, which have strong mobile penetration, she says. But some key markets like Russia, which has the largest online population of any country in Europe, are still catching up with e-commerce for various reasons, she says.
PayPal had 142.6 million active accounts worldwide at the end of 2013, according to parent company eBay Inc.'s earnings reports. All told, 52% of PayPal's $6.2 billion in global revenue in 2013 came from business outside the United States.
"Twenty-five percent of all PayPal business is cross-border that's people in the Turkey buying from an online store in Germany or people in Russia buying from an online store in the U.S.," Clark says. "When people are buying from a merchant they don't know based in another country, trust becomes a key determining factor in whether they complete the transaction."
Trust is indeed PayPal's greatest strength against competitors, says Eden Zoller, an industry analyst with Ovum in London.
"PayPal is a trusted consumer brand, and in payments trust is paramount to success," Zoller says. "It is even more important in the m-payments market, a comparatively new platform for commerce where consumers are even more concerned about the security of payments."
In the past year, PayPal has made some significant plays in shoring up its mobile services. Early last year, PayPal debuted a chip-and-PIN version of its PayPal Here mobile card reader in the United Kingdom.
The U.K. was an ideal market for PayPal Here's launch, given the nation's large PayPal userbase and high smartphone, says Zoller. However, "PayPal is later into the market and this space is very crowded," she adds. PayPal's rivals in Europe include iZettle, Payleven, Paym, Payza, Klarna and Skrill.
But Clark insists PayPal is in a stronger position than its competitors, especially in the burgeoning mobile market. "Every market has a local version of PayPal and the mobile space is very hot right now," she says.
PayPal's partners include McDonald's, which announced late last year that it would accept PayPal for orders made through its mobile app in France and Austria. Ride-hailing business Uber also uses PayPal for its mobile app.
In December, PayPal acquired Braintree, a U.S. company that provides technology to many leading online and mobile start-ups. The $800 million acquisition also gave PayPal Venmo, Braintree's mobile payments unit, which should also contribute to PayPal's mobile payments capabilities worldwide.
In addition to rivals like iZettle, which introduced its own chip-and-PIN reader just before PayPal Here launched, PayPal faces competition from European banks, Zoller says.
Bigger threats could come from Amazon.com, another competitor that is ramping up its offline capabilities, and potentially Apple if it formally enters the mobile payments market, as Zoller predicts it will. Apple has 800 million iTunes accounts worldwide, more than five times PayPal's number of active accounts.
To succeed, PayPal must focus on driving payments in physical stores and on mobile devices, Zoller says.
"Mobile payments is becoming a flashpoint and this is where PayPal will need to innovate and differentiate," Zoller says. "The problem is that PayPal faces strong competition from heavyweight players that have the same objectives, and who are basically doing similar things in terms of service development, particularly on mobile."