PayPal vs. American Express — who will own the future of payments?
Hint: One of these companies has an excellent eye for acquisitions in new areas of payment processing.
There’s a lot of talk about a global digital-payments revolution, and how it will reshape the financial industry. The example of Sweden, where a mere 2% of the value of total transactions are conducted with cash, is often heralded as a portent of things to come.
But there’s a separate school of thought that this so-called cashless craze isn’t all it’s made out to be.
For starters, Sweden’s central bank Riksbank warned a cashless economy would give a small number of financial players outsized power as they process the lion’s share of transactions. And 2015 data from the Federal Reserve showed that cash made up roughly one-third of U.S. transactions despite many digital alternatives.
Furthermore, it’s pretty transparent that cost-cutting commercial banks have driven digital payments as much as changing consumer tastes — think of online banking and ATMs as cousins to self-checkout in grocery stores, or the rise of automated kiosks and mobile ordering at fast food restaurants.
As is so often the case, investing in the finance and payments sector demands a healthy dose of skepticism and distance. Instead of taking the entrenched mainstays on faith or worshiping blindly at the altar of “disruption,” it may ultimately pay off much more to try and take in the big picture.
The stories of PayPal PYPL, +1.33% and American Express AXP, +1.05% help illustrate this complicated dynamic in the payments industry, but in very different ways. Both companies are serious players in the transaction space right now, but their paths look to be diverging dramatically.
Here’s how American Express AXP, +1.05% and PayPal both are trying to navigate an incredibly complicated landscape of innovation and competition in mobile payments, and what investors can expect from both companies and some important competitors.
July 23, 2018 10:20 a.m. ET
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