PayPal and Apple Pay may soon be challenged by a new wallet from banks.
This was revealed by the Wall Street Journal, according to which a group of US banks led by Wells Fargo plan to create a new wallet for digital payments. In addition to Wells Fargo, also Bank of America (BoA), JPMorgan Chase and four other banks are reportedly participating in this project.
The new wallet will allow shoppers to pay online with an account linked to their debit and credit cards, in other words, exactly like Apple Pay, although it could mainly be PayPal that will be affected.
PayPal‘s is a true wallet that allows people to receive, store, and send fiat currencies digitally. Over time, additional features have been added as well, including linking to bank accounts and credit and debit cards so that funds can be drawn from those sources, and later cryptocurrency trading as well.
As the performance of its share price clearly shows, it was a resounding success in 2020 because of the lockdown that caused online payments to soar.
In fact, PayPal is by far one of the preferred forms of online payments in the West because of the high level of security it offers.
PayPal in the stock market
Before the pandemic, PayPal’s share price on the stock market had been as low as $120, but by February 2021 it had already surpassed $300, an increase of 150% in one year.
Beginning in July 2021, it began a long decline that not only wiped out all the gains of 2021, but even in late December 2022 brought the stock below $70.
This means that the crash of 2021 and 2022 was not just a reverse rebound after the 2021 bubble, but that there is definitely more to it than that.
A comparison with the Nasdaq 100 index shows that as many as two major problems weighed on PayPal’s stock.
After the February 2021 peak, PayPal stock lost 28% of its value in about two weeks. It returned to the $300 level only in July, but only for three days. This sharp drop in late February occurred while the Nasdaq bull run was still going on, as did the subsequent decline in September.
Thus the bursting of the bubble on PayPal stock occurred when the Nasdaq 100 was still rising. This bubble was most likely due to the lockdown itself, and its bursting was probably due to the end, or easing, of the lockdowns.
When the bubble on the Nasdaq also burst in January 2022, the collapse added to the one that had already been going on for four months on the PayPal stock, basically prolonging it for another year.
In other words, the speculative bubble on PayPal’s stock price ended as early as July 2021, while the one on the Nasdaq went on until December. Beginning in January 2022, the bursting of the speculative bubble on the PayPal stock was compounded by the bursting of the speculative bubble on the financial markets, making PayPal’s bear market last a full fifteen months.
The future of PayPal
Adding to these purely financial dynamics is also an economic one.
Before the boom in online payments generated by lockdowns, PayPal had no major competitors because it offered a service that was unique in its own way, with very few much smaller emulators.
But the very 2020 boom expanded PayPal’s market to such an extent that its competitors also grew quite a bit, both in number and volume.
So it is not at all surprising that even the banking sector has decided to get into this business, which is not online payments, dominated by credit and debit cards, but wallets that also allow people to store funds and perhaps use them or make them profit in some way.
At this point, it is to be expected that PayPal itself will react by offering new services again and again and leveraging its already very large user base.
Wells Fargo’s wallet project
According to what was revealed by the Wall Street Journal, the bank wallet that Wells Fargo is working on with its partners will be operated by Early Warning Services (EWS), which is a company owned by the bank itself that already operates the Zelle money transfer service. The new wallet, however, will operate separately from this service.
Also part of EWS are Capital One Financial (COF) PNC Financial Services (PNC), US Bancorp (USB) and Truist Financial Corp. (TFC).
The explicit goal of the new bank wallet is to compete with operators such as PayPal and Apple Pay, because banks fear losing control of their customer relationships.
Another goal is to reduce fraud, since these types of wallets allow card payments without having to type in a card number.
The assumption is that 150 million debit and credit cards will eventually be linked to customer accounts on the new bank wallet in the United States alone.
The fact that PayPal has also decided to enter the crypto sector directly for more than two years now reveals that this is one of the areas it is exploring to expand its offerings.
Since online payment services now all look alike, it is on the additional services that wallets such as PayPal’s compete.
These services certainly include crypto trading, but in the future it is possible that there will also be decentralized finance apps (dApps).
For those operating with traditional fiat currencies, there are huge obstacles in offering investment services. Whereas in decentralized finance effectively anyone can do it.
Given that there are now plenty of crypto services that allow people to invest their funds in exchange for annuities or interest, companies like PayPal have to ask themselves whether it is worth staying out of this world and letting decentralized rivals offer services that they struggle to offer.
However, fully regulated companies like PayPal may also have big problems offering DeFi services directly, but no one is prohibiting them from partnering with crypto services.
In fact, in December last year, a PayPal partnership was announced with MetaMask, which is one of the leading crypto wallets developed by the well-known company Consensys. It certainly seems that the future of this market also depends on the evolutions of the crypto sector, and the interactions between the crypto and traditional banking worlds.
It is worth not forgetting that one of PayPal’s main direct rivals, namely Stripe, has also been integrating crypto services for some time now, and collaborating with Twitter.