Investors worried about PayPal’s mobile ambitions - report

Investors worry about PayPal’s real-world ambitions

28 MAR 2013

PayPal faces questions at its March 28 analyst day about its expansion from online into payments in the physical world. The move will lead to additional costs for the company, which has raised concern among investors. 

The company’s offline strategy has powered parent eBay’s share price but some analysts and investors are now worrying that mobile payments will deliver growth for PayPal at the expense of margins, according to Reuters.

In January, eBay said PayPal’s 2013 margins would be 24 per cent, lower than the previous prediction of between 25 per cent and 26 per cent.

The parent also mentioned in a regulatory filing that a new fee on digital wallets levied by MasterCard could increase costs and reduce profit margins. The new MasterCard fee is to come into effect in June.

Chris McWilton (pictured), MasterCard’s president of US markets, recently said “PayPal rides for free on the back of other business models”, according to the Financial Times.

And recent comments by Visa suggested that the rival credit card provider was planning to impose a similar fee although it has since played down this possibility.

Even without the additional wallet charges, the instore business will be less profitable than the online one, said analysts.

PayPal has signed up a number of large retailers in the US to accept PayPal payments in their stores but, in a bid to persuade retailers to join the scheme, it is taking a smaller cut of sales. This measure, say analysts, is undercutting the likes of Visa and MasterCard.

Brian Nowak of Nomura said PayPal’s point-of-sale business is only 30 per cent as profitable as its online activities.

Author

Richard Handford

Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including...

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