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

NEW YORK (AP) — PayPal helped invent online checkout. Nearly three decades later, it’s struggling to defend its turf.

The iconic online payments company is facing its biggest challenge in nearly three decades of existence. Its core business of customers using the app to check out when shopping online is barely growing and new management has bluntly warned investors that “significant changes” will be needed to fix the company’s problems.

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

As a result, PayPal’s stock has fallen nearly 40% in the past 12 months. The stock, which soared during the pandemic as millions of Americans started shopping online for groceries and other necessities, has plunged roughly 80% in the past five years as investors worried that PayPal missed an opportunity to leverage its name recognition and dominance in online payments and allowed its competitors to take market share that will be hard to recover.

Investors’ concerns are not about profitability, although PayPal did warn investors that 2026 profits would be down from the previous year. The concerns lie more with how will PayPal grow and maintain its market with increasing competition.

PayPal said in its first-quarter earnings report that branded checkout — the company’s most profitable business by margin — grew just 2%. While the company noted there had been a slowdown in its European division and other discretionary purchases, a growth of only 2% in one of the fastest growing industries alarmed investors and shares dropped nearly 8%.

The pressures on PayPal's business have led to some dramatic changes at the top of the company. The board ousted CEO Alex Chriss in February and replaced him with Enrique Lores, the former president and CEO of HP Inc., and a member of PayPal’s board. Lores announced a cost-cutting plan that includes reorganizing the company into three divisions and relying more on artificial intelligence. He told investors at May’s shareholder meeting he expects to update them on the company’s turnaround plan “in a few months."

The biggest threat to PayPal’s dominance has been Apple and its Apple Pay service. Apple rolled out Apple Pay in 2014, which allowed Apple customers to store virtual credit and debit cards on their devices to pay online. The company also integrated tap-to-pay technologies into iPhones and the Apple Watch to allow Apple users to pay for items at stores in person.

So, while PayPal has embedded itself as a checkout button on countless merchant websites, that checkout button has become less useful when a customer can store their payment information on their phone and pay using a fingerprint or a glance of their face, analysts said.

This has caused customers to drift away from PayPal as a default payment method. PayPal in 2019 controlled roughly 9% of e-commerce in the U.S. and globally, with Apple Pay having a 3% market share, according to analysts at UBS. Six years later, Apple overtook PayPal as the dominant checkout option, and its market share is expected to continue to grow as Apple rolls out Apple Pay to non-iOS users.

There is also the growing popularity of buy now, pay later companies such as Klarna and Affirm. While PayPal now offers buy now, pay later services like its pay-in-four plan, and longer-term monthly payment plans, it lags its major competitors including Affirm, which was founded by one of PayPal’s founders, Max Levchin.

“PayPal has had a lot of trouble evolving from being just a way to pay on your desktop computer,” said Sanjay Sakhrani, an analyst who covers credit cards and payment methods at investment bank Keefe Bruyette & Woods.