e-Bay
(
EBAY
) announced recently that PayPal will team up with
Discover Financial Services
(
DFS
) to extend its offline presence across the United States. The
tie-up will give PayPal access to nearly 7 million merchant
locations with the potential of many more worldwide in the future.
Starting next year, the two companies will work together, enabling
merchants to use PayPal through their existing relationships with
Discover. With a user base of almost 113 million and a total
payment value of $34.5 billion, PayPal constitutes
almost 30% of our $50 price estimate for eBay
.
Check out our complete analysis of eBay
Aggressive efforts to expand PayPal's offline
presence
As part of the Discover deal, PayPal will issue payment
cards to its more than 50 million active users in the United States
over the next year. The new card will have a Discover Issuer
Identification Number, or IIN, a code that identifies the card
holder, and will allow users to buy from the merchants that are
part of Discover's network. All that the user needs to do is
swipe the card at the existing check-out machine and enter a four
digit PIN. With no new hardware or software involved for the
merchant, the deal could pay rich dividends for the company as the
costs involved promise to be low. PayPal will charge merchants
when users pay with the new cards, and, in turn, will pay Discover
for access to its network, on a per-transaction basis.
We expect the enhanced ubiquity of the payment service to
positively impact the number of transactions per account.
Additional transactions are expected to come from the recently
released device PayPal Here, which enables merchants to let
shoppers pay by card instead of cash. The device is aimed at small
businesses which are unwilling to bear costs associated with
keeping cash registers.
Though these initiatives would be quite significant for PayPal,
it will face tough competition from card companies such
as Visa Inc. (
V
), MasterCard (
MA
) and American Express (
AMX
). To be successful, PayPal will need to convince users that its
low hassle payment method is better than the old stale version of
transacting. Additional competition for PayPal will come from
Square, the brainchild of Twitter founder Jack Dorsey.
We currently have a $50 estimate for eBay, which is almost
7% more than the current market price.
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