PayPal Versus Square Stock — Which Is Right for Your Portfolio?

PayPal and Square stocks have surged in 2020. Many investors want to be part of the future that the companies represent. Amid the surge, the PayPal versus Square stock debate has been raging among investors seeking the best pick between the two fintech companies. 

The COVID-19 pandemic is accelerating the shift to online transactions, which bodes well for digital payment providers like PayPal and Square. People are shunning cash in order to avoid contracting or spreading the coronavirus. Also, the need to maintain social distance is reducing cash use. People have started doing more of their shopping online.  

Cash stands out as the greatest competitor for digital payment companies. Anything that helps diminish cash use is worth celebrating at PayPal and Square. The global digital payment market is on track to hit $8.1 trillion in 2023 from $3.9 trillion in 2019. Cash continues to lose ground, which is a trend that the COVID-19 pandemic has accelerated.

For investors stuck in the PayPal versus Square stock debate, it helps to know what each of the companies is doing and what the future might hold. Since PayPal started in 1998, it's a more established company than Square, which started in 2009.

PayPal separated from eBay and went public in 2015. The company runs several businesses within the fintech space. PayPal's namesake brand processes payments for merchants and consumers and has a global footprint. PayPal also owns Venmo, which is a peer-to-peer payment app that has been gaining new users rapidly. 

PayPal CEO Dan Schulman said that Venmo is the company’s crown jewel. In addition to letting people transfer money to one another, a Venmo balance can also be used to pay for purchases online and offline. More than 2.0 million merchants accept Venmo payments in the U.S., including big brands like Uber.  

PayPal’s other business is Xoom, which is focused on global money remittance. In 2018, global remittances topped $682 billion. They're on track to exceed $930 billion in 2026. Xoom has been expanding its market as PayPal moves to challenge global remittance powerhouses MoneyGram and Western Union. 

Also, PayPal acquired Honey, which is a tool that helps people save money on online shopping with discounts. Honey has helped PayPal expand its participation in the e-commerce space. PayPal has taken several steps to grow and diversify its business, which bodes well for the stock’s future. 

Square emerged out of the need to enable small businesses to accept credit card payments so they don’t miss sales. Many merchants around the world still transact mainly in cash. Square has a long growth runway in the space of processing card payments for merchants, especially as it enters more international markets.

Square has expanded beyond processing credit card transactions for merchants. Now, the company offers an array of payment, payroll, and tax solutions. Square also makes loans to merchants. In addition to the loans earning interest, the credit facility also helps Square build a loyal customer base.

Square owns the Cash App, which is a Venmo competitor in the peer-to-peer payments space. People can transfer money to family members and friends. They can also use Cash App to withdraw cash from an ATM using a linked debit card, invest in stocks, and buy bitcoin. Square has set its sights on more expansion. For example, the company has secured a license to open a bank, which will help boost its merchant loan business.

PayPal and Square are both doing well and have bright growth prospects. Does their success complicate the PayPal versus Square stock choice? With their stock prices nearly the same, the choice would largely depend on your preference. 

For example, PayPal stock may be a better buy than Square for investors seeking exposure to Venmo. On the other hand, Square may be a better buy for investors seeking exposure to Cash App and the cryptocurrency industry through a reputable company. 

PayPal operates in more than 200 countries, while Square has only entered five countries — the U.S., Canada, Japan, the U.K., and Australia. Investors seeking a company with a global footprint may choose PayPal stock over Square. Currently, Square’s limited geographic reach may mean greater growth potential in the years to come as it expands into more markets.

Finally, PayPal CEO Dan Schulman is just focused on running PayPal. In contrast, Square CEO Jack Dorsey is Twitter's CEO as well. He splits his time and attention between the two companies. If you want to invest in a company overseen by a dedicated top executive, then PayPal stock may be a better buy for you. Hedge fund Elliott Management challenged Dorsey’s dual CEO role, but settled after Dorsey committed to meeting certain growth targets at Twitter.