What Stripe’s Reported Interest in PayPal Could Mean

Amid reports that Stripe is considering an acquisition of some or all of PayPal, a broader question emerges: Is the once-dominant payments giant worth more in pieces than as a unified company?

Competition has been steadily eroding PayPal’s position for years. Zelle has surpassed Venmo in payment volume, while tech giants such as Apple and Google have expanded aggressively into digital payments, encroaching on PayPal’s core territory.

The pressure has shown up in the numbers. PayPal’s stock has suffered steep declines over the past year, and the company recently parted ways with CEO Alex Chriss after issuing a profit outlook that fell well of Wall Street expectations.

A Tricky Package for Buyers

News of Stripe’s interest first, first reported by Bloomberg, suggested that the company may be targeting only select divisions of PayPal rather than pursuing a full acquisition.

“Stripe is one of a handful of large companies, including industry leaders Fiserv and JPMorgan, who are rumored to be interested in acquiring PayPal,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “But it’s hard to see how selling the company as-is to a single buyer would maximize shareholder value.”

“What’s interesting about the business that PayPal has built are the components: branded checkout, consumer wallet, Braintree merchant processing and Venmo,” he said. “From our view there isn’t a single buyer that would benefit acquiring all of those individual pieces, and it’s likely that anyone buying PayPal in whole would likely spin off or shutter one or two divisions that weren’t a fit for their business.”

No Consumer Experience

A full merger would combine Stripe’s modern payment infrastructure with PayPal’s vast consumer and merchant base. Braintree already competes with Stripe in merchant processing and could likely be integrated into Stripe’s platform. Stripe could also leverage the PayPal brand to strengthen its branded checkout offerings.

However, Stripe lacks a consumer-facing businesses, raising questions about how it would manage assets like Venmo and PayPal’s digital wallet. Stripe’s merchant-first reputation also prompts concerns about its readiness to handle consumer issues.

“Stripe built its brand on ease of integration for businesses,” Apgar said. “All of their service and support is AI-based. Any merchant who has had a service issue with Stripe will tell you it’s a nightmare. Stripe’s feeling is that it’s cheaper to handle the resulting attrition than hire staff to build out human-based service. If you imagine this same approach in consumer-facing businesses like PayPal wallet and Venmo, they will burn those businesses to the ground.”

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Tags: BraintreeMergers and AcquisitionsPayPalStripeZelle