PayPal’s online checkout empire is under siege as rivals squeeze its core business

NEW YORK — PayPal invented online checkout. Now, three decades on, it’s fighting to hold its ground.

The legendary online payments corporation is facing its largest threat in over 3 decades of existence. The core business of customers using the app to checkout when shopping online is hardly increasing, and new management has bluntly warned investors that “significant changes” are needed to fix the company’s difficulties.

PayPal has been one of the biggest success stories of the original dot-com era, but its territory has been steadily conquered by new and existing competitors, especially Apple, Shopify, the buy now, pay later companies like Affirm and Klarna, and peer-to-peer money transfer services like Cash App and Zelle, especially in the past five years.

That’s why PayPal stock is down roughly 40% in the previous 12 months. The stock soared during the pandemic as millions of Americans started shopping online for groceries and other essentials, but has fallen roughly 80% in five years as investors worried that PayPal missed an opportunity to capitalize on its name recognition and dominance in online payments and let its competitors steal market share that will be hard to regain.

PayPal did warn investors that profits in 2026 would be lower from the year before, but that’s not what has investors worried. The issues are primarily on how can PayPal expand and sustain its market with additional competitors.

PayPal’s branded checkout, its most profitable division by margin, gained merely 2% in the first quarter earnings report. The 2% growth in one of the fastest expanding industries sent alarm bells ringing among investors and shares plunged nearly 8% despite a slowdown in its European division and other discretionary purchases.

PayPal’s commercial challenges have led to some drastic changes at the top of the corporation. In February, the board dismissed CEO Alex Chriss and appointed Enrique Lores, former president and CEO of HP Inc. and a PayPal board member, as his successor. The strategy also includes reorganization into three divisions and an increased focus on artificial intelligence, Lores said. “I think we’ll be able to give you an update on the company’s turnaround plan in a few months,” he told investors at May’s shareholder meeting.

Apple and its Apple Pay service has been the biggest challenge to PayPal’s dominance. Apple launched its Apple Pay service in 2014, which allows Apple users to have their virtual credit and debit cards on their devices for online payments. The business also rolled out tap-to-pay technology for iPhones and the Apple Watch, letting Apple consumers pay for things in person at stores.

Analysts say that while PayPal has entrenched itself as a checkout button on innumerable merchant websites, the checkout button is becoming less useful when a client can store their payment information on their phone and pay with a fingerprint or a scan of their face.

It’s made customers go elsewhere from PayPal as a default payment method. PayPal held a market share of around 9% of e-commerce in the U.S. and worldwide in 2019, and Apple Pay was at 3%, according to analysts at UBS. Apple has already overtaken PayPal as the leading checkout option, six years later, and its market share is projected to increase as Apple expands Apple Pay to non-iOS customers.

And then there’s the rise of buy now, pay later companies like Klarna and Affirm. PayPal currently offers purchase now, pay later offerings, like its pay-in-four plan and longer-term monthly payment plans, but it trails behind its key competitors, including Affirm, launched by one of PayPal’s founders, Max Levchin.

PayPal has struggled to evolve beyond a desktop-based payment method, said Sanjay Sakhrani, an analyst who follows credit cards and payment systems at investment bank Keefe Bruyette & Woods.

Investors are worried that if the branded checkout business continues to lag behind its competitors, it might mean additional problems for PayPal down the road. Wall Street analysts have speculated whether Venmo or Braintree could be separated from the firm, noting that Lores was previously responsible for splitting HP into two independent companies.

Earlier this year, PayPal’s shares momentarily spiked on rumors—which were unconfirmed—that payments provider Stripe was considering buying all or parts of PayPal.