America used to be behind on digital payments. Not any more

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Investors have decided the moment has come to appreciate the value of online payment companies. Take PayPal, a digital-payments firm that counted Elon Musk and Peter Thiel as early bosses, and which was set up in 1999 to allow users of Palm Pilots, a forebear of smartphones, to “beam” each other money. It was later bought by eBay, an online marketplace, which spun it out in 2015 for $45bn. Today it is worth $280bn, more than Citigroup and Wells Fargo, and is America’s 19th-most-valuable company. It is also more valuable than Ant, the global industry’s original gorilla, which has fallen out of favour with regulators in China in recent months and been forced to cancel its initial public offering.

Part of the digital firms’ ascent reflects the fact that they have achieved scale. PayPal, the biggest of them, combines an online wallet used by 350m consumers with a gateway accepted by 30m merchants. That generates big network effects, which the firm has sought to encourage further by crafting tie-ups with other firms that have many users, like Mercado Libre, a Latin American marketplace; UnionPay, a Chinese credit-card scheme; and Google. The company expects its number of users to double by 2025. Square, which has carved out a niche by targeting independent merchants and consumers underserved by conventional banks, operates a similar model (the chairman of The Economist’s parent company is a director of Square). By contrast Adyen and Stripe, which are pure online acquirers, have no consumer brand.

Read more on: economist.com

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