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Investors may have sold off PayPal ( PYPL ) too quickly last week, an analyst says, after new Apple ( AAPL ) Pay features called into question PayPal’s longtime dominance in payments. Mark Palmer of BTIG wrote in a research note Monday that Apple Pay has a relatively small reach — Apple’s iOS has a 14% global market share — and PayPal is no stranger to competition, successfully fending off offerings from Amazon.com ( AMZN ), Facebook ( FB ) and Alphabet ( GOOGL ) over the years. Reports surfaced Wednesday that Apple Pay will be included in the Safari browser in time for holiday shopping this year. Doing so will help solve the perennial problem with mobile commerce: Shoppers prefer to buy on desktops and browse on mobile devices. PayPal, an IBD Leaderboard stock, fell 5 cents to 38.87 in early afternoon trading on the stock market today . The stock temporarily dropped nearly 8% intraday from an alternate 40.03 buy point Thursday, but closed down about 4%. PayPal’s 38.62 entry still holds for now. It has an IBD Composite rating of 93, where 99 is the highest. Despite the fact that PayPal executives have told IBD on several occasions that Apple Pay growth will actually help the company’s prospects — many of the merchants using Apple Pay process the payment through PayPal subsidiary Braintree — Palmer says that such an argument is a “stretch.” That’s because PayPal earns less if Braintree processes an Apple Pay transaction vs. if the customer uses PayPal. “With that said, we do agree that Braintree could serve as something of a mitigate to the competitive challenge posed by Apple Pay,” Palmer wrote. But threats to PayPal are nothing new, and the company has been fending off competition since it first launched in the late 1990s. Alphabet’s Google Checkout made its debut in 2006, Palmer says, and Amazon Payments launched in 2007. Facebook has also launched Facebook Credits. None have unseated PayPal as payments king. “None of these offerings has diminished PayPal’s growth trajectory, as most recently demonstrated by its 29% foreign exchange-neutral increase in total payment volume during Q4, 2015,” Palmer wrote. Square Shift To Flexible Loans From Cash Advance Digital cash register maker and payments processor Square ( SQ ) said Thursday that it planned to transition its lending business, Square Capital, to flexible loans from its current cash-advance program. In a separate research note, Palmer questioned whether observers who suggested the company’s continued push into lending would drag its valuation down. Palmer, in the note, said that he didn’t believe that was the case because Square CEO Jack Dorsey — also top boss at Twitter ( TWTR ) — sees the lending business as part of a suite of products that add value to small businesses, not a stand-alone operation. To wit, in addition to the loans, Square offers marketing products and other financial services such as payroll that make small businesses (the bulk of Square’s customers) more efficient, Palmer wrote. Because of Square’s large base on merchants and the ease with which it can market loans, it can offer lenders extremely low acquisition costs, Palmer says. Its credit decisions based on the trove of transaction data have also produced a low default rate thus far. “As part of a cohesive bundle of services, SQ’s loan product should be regarded not as an anchor on its valuation but rather as a facilitator of increased growth, in our view,” Palmer wrote. “In the end, we see little reason Square Capital’s loan growth can’t approach the rates demonstrated by the company’s core payments business while enhancing its profitability.” Image provided by Shutterstock . Scalper1 News
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