Can Apple, Visa and MasterCard Finally Disrupt PayPal?

Late last century and into the early part of this one, an Internet-driven technology shift enabled PayPal to become the leading online payment network, a position it has maintained and strengthened ever since. In the years that have followed, the traditional payment networks have launched a continuous stream of efforts to disrupt PayPal, all of which have failed. Late this year they will launch their most direct attack yet, by partnering with Apple to directly attack PayPal’s greatest strength: in-browser payments. So you might ask, why? Why do they keep trying? The answer has three parts:

  1. Because the future of payments is online. PayPal’s current position very desirable, even to industry heavyweights such as Visa and MasterCard.
  2. Because PayPal’s network is enabled by holding consumer accounts-on-file in a digital wallet, which presents a big risk to Visa and MasterCard.
  3. Because Visa and MasterCard lack the assets to win in online commerce.

This fall’s launch of Apple Pay’s in-browser service is Visa and MasterCard’s best shot to disrupt PayPal once and for all. Can they succeed this time?

The Future of Payments Is Online
The global retail sector is currently growing between 5 and 6% annually. In contrast, global e-commerce, the portion of commerce that is conducted online, is growing between 20 and 30% annually, and global m-commerce, the portion of e-commerce that is conducted via mobile devices, is growing 70+% annually. Retail is migrating towards e-commerce, and e-commerce is migrating towards the mobile form factor. As a result, by 2025 global online commerce will increase to $7.5 trillion, up from $2 trillion in 2016, so capturing market share in online commerce is the biggest network opportunity in existence, and PayPal is in the pole position.

The Wallet Is the Enabler
The historical track record of payment networks in online commerce is not stellar. None of their efforts to disrupt PayPal have gained traction, not MasterPass, PayPass Wallet Services, Serve,, Visa Checkout or any of the third-party solutions that the networks have tried to enable, such as Android Pay, Apple Pay or Samsung Pay. PayPal continues to flourish, achieving annual growth rates in the mid to high teens.

At the same time, several other companies have bested the traditional networks in on-line commerce and positioned themselves to challenge PayPal. They have done so by copying PayPal’s approach of storing accounts-on-file for repeated use and by tying themselves to rapidly growing marketplaces and merchants. Consider the examples of Amazon, iTunes, Google Play and Groupon, all of which have gained far more traction in their respective environments than have any of the network-supported solutions.

Then consider mobile. Nearly all mobile commerce transaction volume currently occurs with an account-on-file at a third-party intermediary such as PayPal, Google or Apple. Starbucks, the runaway success story of mobile commerce crossing over to in-store sales, is also powered by an account-on-file relationship. Dunkin’ Brands, Chase Pay, Target Pay, Walmart Pay and MCX are all high-profile mobile commerce initiatives that are based on the same model. Online commerce is currently dominated by account-on-file relationships, and there is no shortage of companies trying to bring that model to the point-of-sale as well. This represents a critical risk to Visa and MasterCard.

Through account-on-file relationships, a merchant, marketplace or payment provider can:

  • Manage direct consumer relationships
  • Manage direct merchant relationships
  • Manage person-to-person payments
  • Manage every aspect of the customer payment experience
  • Manage every aspect of the merchant’s acceptance experience
  • Manage chargeback processes and policies
  • Underwrite, vouch for, guarantee or in other ways stand-in for the consumer
  • Underwrite, vouch for, guarantee or in other ways stand-in for the merchant
  • Manage payment schedules/speed of pay
  • Manage payment types that are accepted and steer transactions to preferred tender
  • Brand or re-brand the transaction
  • Price or re-price the transaction
  • Incorporate promotional strategies, loyalty solutions and redemption constructs
  • Execute pay-for-performance marketing strategies
  • Collect and monetize additional data from the consumer, merchant or shopping cart
  • Plus do many other things that are too numerous to list here

Accounts-on-file enable the holder to control every aspect of a payment transaction, and they are therefore immensely valuable. They are a virtual necessity to enable online commerce. They’ve gained initial traction at the point-of-sale, and they are the building blocks for the payment network of the future. Therefore, the stakes in the digital wallet wars are extremely high, and the winner could dominate online commerce for the next decade or more.

The Networks Lack the Assets to Win
Visa and MasterCard have no accounts on file. They have no consumers, and they have no merchants. They are intermediaries that connect points-of-sale with banks via acquirers and processors. Thus far, their efforts to disrupt PayPal and others have revolved around disrupting account-on-file relationships by either bringing accounts-on-file to the networks, such as with, or by partnering with companies that have them or can get them, such as Apple and Google. To date these solutions have failed to gain any traction or slow PayPal’s growth by even a little.

Can They Succeed This Time?
So they will try one more time. The networks and Apple, working together, are poised to take another run at PayPal by launching a payment service that works directly in PayPal’s greatest area of strength: in-browser. They plan to do so by embedding the payment service in Apple’s iOS operating system in order to prompt consumers to enroll in the service when they update the operating system and to prompt use of the service at any time a payment page appears on the phone. They will offer payment security through biometric authentication and the use of disposable card numbers that cannot be tied back to the cardholder’s original account.

PayPal, on the other hand, has nearly 200 million active users with pre-established payment behaviors, broad acceptance, their own Express Checkout, biometric authentication, one-touch checkout experiences and payment security enabled by never passing any card number to the merchant at all.

So is this PayPal’s last stand? Or will Visa and MasterCard have to surrender the e-commerce front? In payments, the established player wins most of the time, and in this case that’s PayPal, so that’s where I’m placing my bets, but please feel free to share your thoughts in the comments below.


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