NEW YORK – PayPal, a division of internet auction giant eBay (NASDAQ:EBAY) announced on Wednesday they are preparing to launch a major expansion of their on-premise checkout service through a partnership through Alliance Data Systems (NYSE:ADS). The expansion will also include PayPal’s Bill Me Later lending service through private-label credit cards issued by ADS’ retail partners.
The announcement takes firm aim at the stranglehold that MasterCard (NYSE:MA) and Visa (NYSE:V) have on the global prepayment market by taking advantage of the growing interest in and proliferation of digital payment services. According to analysts Visa, own half of the overall prepayment market and MasterCard has roughly one third.
At the same time, the prepayment space is under intense competition from startups like Square (partially owned by Visa and valued at $ 3.2 billion) have entered the market and new technologies such as near-field communications (NFC) threaten to revolutionize the mobile wallet.
eBay’s payments segment, including PayPal, Bill Me Later, and Zong recorded year-on-year revenue growth of 20% in the last quarter primarily on the strength of Bill Me Later. The PayPal agreement looks to accelerate that growth as it will give the company a distinct advantage over the competition through a multipronged strategy that seeks to reach spaces where others are not competitive. While Square allows merchants to accept credit cards, PayPal is offering a broader range of payment options including checking account-linked PayPal, lending services such as Bill Me Later, or private-label credit cards.
In addition, there is the up and coming mobile wallet solution, which analysts believe will become a $ 35 billion industry by 2017. The sector includes Google (NASDAQ:GOOG), Isis – an alliance between AT&T (NYSE:T), T-Mobile (NYSE:TMUS), and Verizon (NYSE:VZ), and Merchant Customer Exchange (MCX) – an alliance between Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and a dozen or so other retailers.
An agreement with MoneyGram International (NASDAQ:MGI) to transfer money from PayPal accounts or receive the funds in cash at some 5,000 MoneyGram locations will help to differentiate PayPal. This program could be expanded to close to 40,000 locations by the end of the year. If that happens, PayPal could become a one-stop shop for millions of customers.
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