Amazon.com (AMZN) looms as a bigger threat to PayPal Holdings (PYPL) than credit card networks Visa (V) and Mastercard (MA) or Square (SQ), says a financial technology analyst. PayPal stock edged down on Friday.
Amazon payments pose a threat by allowing third-party merchants to improve checkout rates by letting shoppers pay with their Amazon account, contends MoffettNathanson analyst Lisa Ellis. Amazon also is making other inroads into the digital payment business as it expands into retail.
“In the payments sector, Amazon poses the most direct threat to PayPal, since its Amazon Pay checkout button is directly competitive with PayPal’s core PayPal checkout button business,” Ellis said in a report to clients.
“However, in payments, networks effects are the ultimate competitive moat, and Amazon Pay’s network is still at least 30 times smaller than PayPal’s network,” she added.
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How Amazon Pay Could Impact PayPal Stock
Ellis has buy ratings on PayPal stock, Mastercard stock and Visa stock. Ellis has a neutral rating on Square stock. PayPal, Mastercard and Visa are all fintech companies in the IBD 50 roster of growth companies.
Amazon stock fell 0.3% to close at 1,620.80 on the stock market today. PayPal stock fell 0.5% to 95.69. Visa gained 0.4% to 147.35. Mastercard slipped 0.2% to 221.87. And Square dropped edged up 0.4% to 74.40. The companies are among the best fintech stocks to buy and watch.
“For Visa and Mastercard, at a minimum, Amazon poses a customer concentration risk, and a risk that Amazon will use its digital wallet to enable and favor alternative funding methods within its platform,” added Ellis. “Additionally, Amazon poses a risk that it may develop its own closed-loop payment system.”
“Amazon is already doing far more in payments than is often perceived,” said Ellis. “In addition to the well-known Amazon Pay checkout button and Amazon-branded private label and co-branded credit cards, Amazon also offers merchant loans and lines of credit, currency exchange, and a checking account-like product called ‘Reload’.”
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