PayPal Holdings, Inc. (PYPL - Free Report) is the latest company to dive into the fast-growing digital payments market in India.
The payment processor company recently announced the launch of its domestic operations in India in a bid to expand its presence in the country.
The company’s price performance looks impressive. On a year-to-date-basis, the company has outperformed the industry. Shares of PayPal have gained 87.5% compared with the industry’s growth of 29.2%.
More to the Headlines
With the launch of PayPal’s domestic services, Indian customers can now use PayPal to shop online at some of India’s popular businesses. Merchants who will offer PayPal can process both local and global payments for PayPal’s 218 customer accounts through the payment gateway.
Reportedly, in this regard, the company is partnering with Government and state-owned banks on a number of initiatives including digital financial literacy program and eTourist Visa (eTV).
In order to carry out its operations effectively, PayPal has set up a customer service centre in India with multi-lingual support capabilities. It has also provided an on-ground sales team which will help in driving customer engagement and education.
The question should be, why not India!
Firstly, the country has huge growth potential. According to the trade body GSMA and the Boston Consulting Group (some websites say the study was done not by GSMA but Google), the digital payment market in India will grow rapidly over the next few years and touch $500 billion, constituting 15% of India’s GDP by 2020. By then, non-cash payment methods (cheques, demand drafts, net-banking, credit/debit cards, mobile wallets and UPI) will double to 40% of total consumer payments.
With 81% of Indian digital payment users preferring it to other payment methods, it’s currently expected that 90% of Indian consumers will are likely to use digital payments for both online as well as offline transactions. So it isn’t surprising that not just technology companies with their mobile wallets, but also telecoms, banks and e-commerce companies are jumping into the digital payment market in India.
Secondly, Narendra Modi, the prime minister of India, has attracted many global business leaders, namely Facebook.com (FB - Free Report) Alphabet (GOOGL - Free Report) , Amazon.com (AMZN - Free Report) and Alibaba Group Holding Ltd toward India. Since his appointment as the country’s prime minister, Modi has taken a number of steps to realize his Digital India dream.
Thirdly, the country has favorable demographics. India is home to around 1.25 billion people, or 18% of the global population. With only 26% of the Indian population accessing the Internet in 2016, the country was one of the biggest online markets with more than 348 million Internet users, second only to China. By 2021, the Indian Internet user base is expected to reach 555.3 million, or a 44% penetration. (Euromonitor estimates)
Increasing Competition in This Space
The Indian digital payments market is already crowded with Alibaba-backed Paytm being one of the dominant players in the country.
Apart from established players, a number of smaller players are also eyeing this lucrative market. These include Tencent-backed Hike Messenger, MobiKwik, Flipkart’s PhonePe, FreeCharge, Oxigen, Citrus Pay, PayU, ItzCash, Reliance’s Jio Money and Ola Money.
In September, Alphabet’s Google also launched a localized payments app for India, trying to gain a foothold in the country's rapidly-growing digital payments space.
There are also international players like Truecaller, Uber and Amazon Pay. Additionally, Facebook and WhatsApp are working with the NPCI for a UPI-enabled payments platform.
Although this industry is becoming highly competitive, PayPal is gearing up to make a mark for itself in the fast-growing digital payment space.
Strength in PayPal’s core business and growth of Venmo will help the company to cash in on the future of transactions. While Venmo is not a major money-maker for the company yet, it has gained popularity in the last few years and should help solidify PayPal as the mobile transactions company of today. Also, PayPal continues to ride on partnerships and mobile centrism. The company’s ongoing strategic partnership with Visa provides enhanced consumer choice, point of sale acceptance, instant money withdrawal facility and data quality.
We believe the continuous rise in demand for mobile payment solutions will help PayPal to grow and expand internationally, now in India too.
PayPal carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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