PayPal Challenges Square in the Merchant Space



Bringing a box to contain a rival

The move in May 2017 by PayPal (PYPL) to launch a new merchant-oriented service called Business in a Box can be viewed as a counter to recent aggressive moves by its rival Square (SQ).

PayPal and Square are battling for the control of the digital payments space, a lucrative market supported by the rise of e-commerce and merchants’ needs to operate more efficiently.

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A worried incumbent

Square (SQ) provides vendors with a set of tools that enable them to accept credit card payments and complete transactions more quickly than traditional processing methods. The 33% transaction volume increase and the 22% revenue improvement that Square reported in 1Q17 seem to show that merchants are buying into its narrative. In many cases, this buy-in is occurring at PayPal’s expense.

With ~203 million active customer accounts, PayPal is a powerful incumbent in the digital payments market. However, its incumbency also makes it vulnerable to escalating competition from Square, Apple (AAPL), Alibaba (BABA), and Samsung (SSNLF).

A pitched battle in the merchant processing space

Square is not only a threat to PayPal’s transaction support business but also to its business credit operation. PayPal is hoping that Business in a Box could help it turn the tide against Square in the battle for merchants’ loyalty.

Business in a Box offers merchants a suite of tools that support functions such as accounting, inventory tracking, and setting up an online store. Merchants can also access credit through PayPal’s Business in a Box service.

With a suite of vital tools to run an online business and access to business loans in one product, PayPal’s service could slow Square’s merchant onboarding.


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