PayPal taking the crown from American Express and Mastercard?

American Express (NYSE: AXP) saw a 20% drop of revenue year-on-year in Q3, with Travel and Expense (T&E) down by 75% year on year. The company’s SME businesses like contractors, lawyers, and architects are, meanwhile, holding the wall for them with the non-T&E expense (80% of SME spending is in non-T&E).

During these times when revenues are dropping, companies are scrambling to reduce their operating expenditures, AmEx invested about $200 million in small business campaigns across the globe. AmEx is associated more to business and leisure travelers, which can be observed from the list of their bigger partners like Hilton BA, Marriott and Delta showing weakness amongst peers in the payments industry. 

It is unlikely that a recovery will be seen even by the next quarter. Though the holiday season might provide some fillip, business closures are leading to uncertainty on when we might see a full-fledged recovery.

Cross border transactions, a high margin revenue source for Mastercard (NYSE: MA), had given nearly 40% revenue share to the firm before the pandemic. It is now down to 13.3% this quarter, and CEO Ajay Banga doesn’t seem too hopeful given the fact that the lockdowns have been reinitiated.

“… but we’re not out of the woods yet as we are seeing in places like Europe, restrictions being put back in place.”

Although, Mastercard has seen growth in revenue from services like data analytics, cybersecurity, loyalty indicating a surge in demand for products that would help merchants with the increased e-commerce interest amid the pandemic, this quarter it was around 25% of the revenue share.

With business travels mostly halted and personal travel – which represents a substantial portion of its total cross-border transactions –  being “tied to how they see the evolution of the COVID vaccine and therapeutics are taking place”, there is no definitive timeline for Mastercard’s profitability improvement.

PayPal (NASDAQ: PYPL), on the other hand, has seen its all-time high Total Payment Value this quarter. Mastercard’s survey shows there is a permanent shift towards electronic payments, indicating why PayPal’s New Net Additions (NNAs) is its second-highest quarter for organic customer acquisitions (a 32% increase year-on-year).

T&E contributed approximately 10% of its TPV, and is down by 40% year-on-year. However, PayPal is seeing growth in its other fintech services. Schulman, CEO says:

“Venmo and PayPal apps will undergo a fundamental transformation intended to dramatically increase their functionality and drive engagement”.

PayPal is also venturing into cryptocurrencies. Seven percent of PayPal’s volumes this quarter had come from eBay (NASDAQ: EBAY), which is transitioning away from PayPal to its own payment processing business. PayPal is not worried about the transition in the long term as Rainey, CFO said,“Once we are beyond this transition, we expect our volume and revenue growth rates to reaccelerate given the drag that eBay has been for the past five years.”

The e-commerce boom during the pandemic has contributed significantly to the payments industry. Even though there seems to be a shift towards electronic payments, bigger corporations with more exposure to discretionary spending are facing the brunt of the reduced spending.

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(Written by Shreya Chandra)