Square and PayPal Shouldn't Fear Google's Fintech Push

Google is expanding Google Pay with new features, but it still faces an uphill battle against the two growing fintech companies.

MÁS INFORMACIÓN →

Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google recently launched a major redesign for its Google Pay app on Android and iOS, and at least one analyst believes that upgrade could threaten Square(NYSE:SQ) and PayPal (NASDAQ:PYPL).

However, I believe Square and PayPal probably won't lose much sleep over Google's latest efforts. Let's take a look back at Google Pay's evolution, why it's attracting more attention now, and why it probably still can't hurt Square or PayPal.

Tracking Google Pay's growth

Google Pay started out as Android Pay, a basic replacement for credit cards, in 2015. But in 2018, Google merged Android Pay with its mobile wallet, Google Wallet, to create Google Pay -- which also offered deeper integration with third-party apps and websites.

The latest redesign adds new personal finance tools, which let users link the app to their bank accounts, track their spending habits, search through past transactions, apply online discounts to purchases, and more. It also broadened its support for contactless payments at gas stations, and added integrated payments for parking fees in select cities.

Google Pay currently serves about 150 million users across 30 countries. That gives it five times the reach of Square's Cash App, but it's still dwarfed by PayPal's 361 million active accounts.

Why are the analysts raising red flags?

Piper Sandler (NYSE:PIPR) analyst Christopher Donat recently called the new Google Pay app a "threat" to Square and PayPal. Donat mainly cited Google Pay's rise on the app store charts as evidence of that growth.

Donat also noted that downloads of Square's Cash App had decelerated from nearly 80% year-over-year growth in April to about 12% in December. He claimed that recent downloads of PayPal's Mobile Cash app were largely driven by its recent addition of cryptocurrency purchases.

Why the app store rankings could be misleading

At first glance, it certainly seems like a lot of people are downloading Google Pay. According to Sensor Tower, Google Pay is currently the top finance app on Google Play, and the 12th most popular finance app on Apple's (NASDAQ:AAPL) App Store.

However, Android users already use Google Pay to process payments on its Play Store, so it isn't surprising that downloads of the Android version temporarily surged after the latest update. Furthermore, Google recently announced that it would eliminate web-based payments in early 2021, which forced those users to download the app instead.

Apple's App Store rankings tell a different story. Google Pay briefly became the App Store's top finance app in mid-December, according to Sensor Tower, but it dropped out of the top 10 by the end of the month. As of this writing, Square's Cash App ranks first again, followed by PayPal's Mobile Cash, the IRS app, and Venmo.

That abrupt decline indicates the "new" Google Pay doesn't have that much staying power -- and its Google Play ranking could follow the same trajectory once the initial interest wears off.

Why Square and PayPal aren't worried

Google Pay seems to serve a lot of users worldwide, but many of those payments likely originate from the Play Store instead of from third-party apps and stores.

According to McKinsey's 2019 Digital Payments Survey, Google Pay isn't one of the top three methods for in-app payments, online payments, or peer-to-peer payments. The only method where it's gained a foothold was in-store payments, where it still trails far behind Apple Pay.


Comparison of popular payment methods.

SOURCE: MCKINSEY.

PayPal likely remained well ahead of Google throughout 2020. PayPal's total payment volume rose 36% year over year in constant currency terms last quarter, marking its strongest growth rate ever.

Meanwhile, Square's Cash App pulled ahead of PayPal's Venmo -- its top rival in peer-to-peer payments -- in total downloads last year, according to Nomura Instinet. Square's Cash App hit 30 million active users last June, up from 24 million at the end of 2019. PayPal stated Venmo had 52 million active users at the beginning of 2020.

Millennial and Gen Z users also generally favor Venmo and Cash App, respectively, over other payment apps. Venmo became a popular way for millennials to split checks while dining out, while Cash's expanding ecosystem of fintech services made it easier for Gen Z users to not only send money, but to buy bitcoin and execute free stock trades.

By comparison, Google Pay faces two major challenges. First and foremost, its Google branding immediately raises privacy concerns, even though the tech giant says a user's financial data won't be sold to third parties or used for targeted advertising.

Second, Google has a long history of over-promising, under-delivering, and then abruptly abandoning its new apps. The new Google Pay sounds innovative, but its interest in improving the app could quickly wane as users stick with Square and PayPal for peer-to-peer and online payments.

The bottom line

Google launched Google Play over five years ago. But over the past five years, Square's stock surged 1,630% as PayPal's stock rallied over 530%.

Both fintech companies dazzled investors with their robust growth rates and forward-thinking expansion strategies. Those trends won't end anytime soon, and I don't believe Google's latest efforts will derail either company.

Should you invest $1,000 in Alphabet Inc. right now?

Before you consider Alphabet Inc., you'll want to hear this.

Investing legend and Motley Fool Co-founder Tom Gardner just revealed what he believes are the 10 best stocks for investors to buy right now... and Alphabet Inc. wasn't one of them.

The online investing service he runs, Motley Fool Everlasting Stocks, has beaten the stock market by over 3X.* And right now, he thinks there are 10 stocks that are better buys.

Puntuación
Posición en Iberoamérica
1
Juan Esteban Saldarriaga
Vice President at Alianza FinTech Iberoamerica | Co-Founder Rapicredit | ColombiaFinTech.co
24.4
5
3
Diego Molano
Consultor internacional en temas de TIC e innovación
19.4
18
4
David Velez
Founder and CEO at Nubank
17.0
27
5
Martin Schrimpff
Co-Founder of Zinobe | Founder of PayU | Founder Pagosonline.net
15.6
32
6
Ángel Sierra
Director Ejecutivo en Asociación FinTech e InsurTech de Chile | Member of Alianza FinTech Iberoamerica
14.8
39
7
Paula Cardenas
Business Manager at AEFI | Founder Member FinTech IberoAmérica
14.5
42
8
Clementina Giraldo
FinTech & AgTech in Latin America
11.8
60
9
Juan Francisco Schultze-Kraft
Board Member – Vicepresident at Colombia FinTech | PayU Legal
11.4
63
10
Daniel Rojas
CEO & Co-Founder at Rocket.la
10.1
69
11
Alan Colmenares
Digital Transformation Enablement – Latam at Microsoft
7.3
89
12
Laura Gaviria Halaby
Global Head FinTech Acceleration at Citi | Chief Acceleration Officer at TheVentureCity
6.3
101
13
Diego Alejandro Guzman Guevara
CEO and Co Founder at Bankity
6.2
104
14
Andres Ramirez Sierra
CEO at Banlinea LATAM
6.2
105
15
Daniel Navarro
CEO & CoFounder at NIMMÖK
6.1
109
16
Fernando Sucre
CEO at ComparaMejor
5.9
110
17
Andres Villaquiran
Founder & CEO Alkanza
5.3
119
18
Carlos Castañeda Olaya
Open innovation leader at Accenture | Country Manager at Wayra
5.2
123
19
Marisol Camacho
Director of Corporate Relations at Bancóldex | Director of Mindset at iNNpulsa Colombia
4.6
131
20
Felipe Valencia
Partner at Veronorte
3.7
143
Conoce más de estas Fintechs
Las empresas Fintech mencionadas en este artículo ya no hacen parte de la Asociación. Por lo tanto, Colombia Fintech no puede dar una recomendación positiva o negativa de la calidad de sus ex miembros, ni asume ninguna responsabilidad por ello.
Las opiniones compartidas y expresadas por los analistas son libres e independientes, y de ellas son responsables sus autores. No reflejan ni comprometen el pensamiento u opinión de Colombia Fintech, por lo cual no pueden ser interpretadas como recomendaciones emitidas por la Asociación. Esta plataforma es un espacio abierto para promover la diversidad de puntos de vista sobre el ecosistema Fintech.