PayPal Holdings, Inc. (PYPL), a leading global Fintech company, is looking for ways to offer stock trading services for its U.S. customer base. This follows the launch of cryptocurrency trading just last year.
Rich Hagen, a veteran of the brokerage sector, was recently appointed by PayPal to manage Invest at PayPal, a previously unknown division of the company. The recent move is not a surprise, as the company’s goal to introduce more financial services was disclosed at its Investors Day event last February.
I am bullish on PayPal, because of the favorable macroeconomic conditions facing the company, and its push to become a more diversified financial services company. (See PYPL stock charts on TipRanks)
PayPal Taps a Fast-Growing Market
The stock market has piqued the interest of many young investors — primarily because of the popular free trading platform Robinhood Markets, Inc. (HOOD) — and PayPal is seizing the opportunity to expand its Fintech platform into stock trading.
Recent estimates show that retail investment in equities has ballooned of late, with more than 10 million new investors buying stocks for the first time in the first half of 2021, roughly matching the numbers reported in the corresponding period last year.
Trading has become a profitable business for digital payment companies, and PayPal, which has more than 20 years of experience in online payment processing, and approximately 403 million active users, has what it takes to make inroads into this lucrative business sector.
The company, however, will face stiff competition from existing and potential competitors such as Robinhood, Square, Inc. (SQ), and SoFi Technologies, Inc. (SOFI) that offer or are planning to offer similar types of products.
In addition to the competition, PayPal will also attract increased regulatory scrutiny, which might prove to be another challenge for the company. The Securities and Exchange Commission has previously expressed its concerns about the rising “gamification” of securities markets, and the use of behavioral prompts that mislead investors into stock trading without knowing the risks involved. The watchdog is actively monitoring retail stock trading platforms to identify potential regulatory breaches.
If PayPal goes ahead with its plans to launch a stock trading platform, the company may need to partner with or purchase a brokerage firm. The company has been in talks with industry partners about the deal, with some sources claiming that PayPal has spoken with Apex Fintech Solutions LLC and DriveWealth, LLC to form a partnership.
Furthermore, if PayPal intends to establish its own brokerage subsidiary, the company will be required to obtain regulatory approval, and would need to complete a new membership process with the industry’s main regulator, FINRA.
The entire regulatory process could take at least eight months, which makes it impossible for the Fintech giant to launch a stock trading service this year.
PayPal Has Long Runway for Growth
PayPal, which already offers cryptocurrency payments in the United States, is now expanding crypto services to the United Kingdom as well. The company announced its first global cryptocurrency trading expansion on August 22, allowing UK customers to buy and sell four cryptocurrencies — Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
PayPal will also allow users to monitor real-time crypto prices by logging into their PayPal account, via its website or mobile app. Although there are no fees associated with holding cryptocurrencies, transactions and currency conversions are subject to certain fees.
This global expansion of cryptocurrency services is likely to help PayPal attract a new userbase that is looking for ways to trade and hold digital assets.
PayPal launched Checkout with Crypto in the United States in March, allowing customers in the United States to pay more than a million online merchants worldwide using cryptocurrency.
It then rolled out cryptocurrency services on Venmo in April, for users in the United States. This is another novel feature that could attract new customers to its platform, as many banks and financial services companies are yet to offer payments in cryptocurrencies.
To ensure the safety and effectiveness of its crypto trading services, PayPal partnered with Paxos Crypto Brokerage for its crypto payments services in July, and acquired Israeli start-up Curv in March to assist customers in securing their crypto holdings.
Wall Street’s Take
Based on the ratings of 26 Wall Street analysts offering 12-month price targets for PayPal, the average PayPal price target is $337.70, which implies upside of 16% from the current market price.
PayPal is popularly known as a digital payment giant, but the company is actively expanding into other related business segments, such as stock trading and cryptocurrency trading.
This diversification strategy could help PayPal report stellar earnings growth in the next decade.
Disclosure: At the time of publication, Dilantha Da Silva did not have a position in any of the securities mentioned in this article.
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