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Is PayPal really a monopoly?


Pay with your phone while drinking your coffee

How many running online businesses can you think of that do not offer PayPal as a payment method? The long history of PayPal is not the main reason for its success. Rather it’s the well-judged strategic decisions that lead PayPal ahead and keep its high stature among the top 10 payment processing platforms.


But let’s look at PayPal’s history. In the late 90s paying online was still considered hazardous and extravagant. Back then, it was quite a mystery if the goods would be delivered or if a faulty payment would be refunded. In 1999, PayPal was launched as a platform for transferring money. While zealously keeping its reputation as a secure payment method, the company turned into a game-changer in the years to come and molded consumers’ behavior. People have started to vaguely realize that in this same universe, there is an alternative way of payment to conventional banks, and it is called PayPal.


PayPal’s glory blossomed in 2002 after eBay acquired it for $1.5 billion. Quite expectedly the company produced impressive revenue and a tremendous customer base. It gained a banking license in 2007, which granted it far more access into EU countries. It also moved its headquarters to Luxemburg thus preparing to bite an even bigger share of the European market.


Although PayPal has experienced some testing times, it had already become a textbook example of managing strategic growth and building a powerful network. In 2021 its revenue was $25.3 billion. PayPal broke the $1 trillion barrier in payment volume in 2021 for the first time.


In 2021, PayPal had 426 million users, who transacted at least once per year. The more users that sign on to PayPal, the more necessary the service becomes for retailers to accept, which creates a lucrative cycle for the payments company.


But after PayPal has a market share of 30 %, can we say that it can influence our business with its decisions? What if, PayPal finds good reasons in its Acceptable Use Policy to deprive you of its services, and politely asks you to close your PayPal account, or literally kicks you out with a two-month notice? It totally makes sense that you will try to redirect your payment activity to another payment provider. But it is also true to say that such a measure on PayPal’s part directly impacts your company’s share price if you are listed. It might as well have an avalanche effect with other payment providers or card networks declining your partnership. Well, here we already encounter a problem with unpredictable outcomes!


In a case we, VR Team, solved for our client, we created a number of detailed scenarios with the possible costs and expected outcomes in order to lead the company elegantly out of the situation with minimal damage.


So, can we say that PayPal is a gigantic monopoly?


PayPal holds a monopoly on online payments. It is a recognizable name that customers trust. It dominates the electronic payment services market with services worldwide, transacting in about 25 currencies. Can PayPal influence market prices? Yes. Does it offer unique products that have no substitute? Not at all. PayPal is by far not the only payment platform. The diverse range of features, as well as the name recognition, makes PayPal a good option for merchants to consider. But there are alternatives like Stripe, Square, and Adyen that are also well-positioned and have their niche of clients.


Let me take you through a comparison of these in the next blog article.

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