PayPal's Fintech Domination Is Being Questioned

Last year, Alphabet's GOOG GOOGL Google launched a major redesign and expansion of its Google Pay app on Android and iOS, threatening Square SQ and the market leader PayPal PYPL who are favored by millennials and Gen Z users. So, should PayPal feel threatened?

PayPal And Square- The Choice Of Millennials And Gen Z

Venmo became a popular way with millennials as it allowed them to easily split checks while dining out. Cash's ecosystem of fintech services made it easier for Gen Z users to not only send money but also to buy bitcoin and become traders without a fee. Both fintech companies dazzled investors with their robust growth rates and expansion strategies.

Google Pay

Back in 2015, Google Pay started out as Android Pay, a basic replacement for credit cards. In 2018, Google Pay was born out of Android Pay and Google Wallet, offering deeper integration with third-party apps and websites. The latest redesign added new personal finance tools, which allowed users to link the app to their bank accounts, track their spending habits, search through past transactions, apply online discounts to purchases, etc. But Google Pay faces two major challenges. First and foremost, its reputation immediately raises privacy concerns, despite the tech giant promising a user's financial data won't be sold to third parties or used for targeted advertising. Second, the tech giant has a history of over-promising, under-delivering, only to abruptly abandon its new apps.

PayPal Vs Square

Both Square and PayPal are growing rapidly and have generated massive returns for patient investors over the past few years. Their core business models are very much alike. Both models rely on flat fees to process payments. Both offer small business loans. They both allow consumers to make peer-to-peer payments through their platform while also providing debit cards that are linked to their online accounts.

However, when it comes to strategy Square is more daring and PayPal is more methodical.

Square Seems To Have Wilder And Grander Ambitions

There's no arguing that Square has been willing to take bolder risks. It expanded its ecosystem with online payroll management services and analytics tools and launched a suite of online banking services. It added Bitcoin BTC/USD purchases to its Cash App in 2018, two years before PayPal. It also added free stock trades to the app to challenge the soon-to-be-public Robinhood HOOD in 2019. It also plans to include Credit Karma's tax filing services in the near future.

PayPal boarded the crypto train last October without near-future plans to launch stock trading tools, dedicated tax filing services or expand into a full online bank. Despite that, during the last quarter of the year, PayPal experienced its strongest growth rate ever with its total payment volume rising 36% YoY so it's doing better than fine.

Who Is Growing Faster?

Between 2015 and 2020, Square's annual revenue grew at a CAGR of 49.6%. Even if we exclude last year's massive gain from bitcoin, its revenue growth amounted to an impressive CAGR of 31.2% during that half of a decade. Meanwhile, PayPal's annual revenue grew at a CAGR of 18.5% over the same timeframe.

Outlook

PayPal's growth is expected to be more predictable, as cryptocurrencies still aren't generating much revenue. It relies on its growth in active accounts that it expects to nearly double to 750 million, consequently doubling its annual stable revenue from processing fees to over $50 billion by 2025. Square's Cash App, which grew its monthly active users 50% to 36 million in 2020, is expected to continue expanding as Square's ecosystem of services continues to expand

PayPal is hoping to grow its earnings at a CAGR of 22% from 2020 to 2025 by counting on increased adoption of QR codes and contactless NFC payments, the expansion of financial services, and higher engagement rates to drive that long-term growth.

Just because Square is more courageous and ambitious does not necessarily mean it is better than PayPal who is known for its conservative approach. The bottom line is that both are great long-term investments on the booming fintech market, as is the tech titan Google.

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