Square and PayPal shouldn’t fear Google’s FinTech push

Alphabetof (NASDAQ: GOOG) (NASDAQ: GOOGL) Google recently launched a major overhaul of its Google Pay app on Android and iOS, and at least one analyst believes the upgrade could threaten Square (NYSE: SQ) and Pay Pal (NASDAQ: PYPL).

However, I think Square and PayPal probably won’t lose much sleep over Google’s latest efforts. Let’s take a look back at the evolution of Google Pay, why it is getting more attention now, and why it still probably can’t hurt Square or PayPal.

Woman on smartphone with money symbols above

Image source: Getty Images.

Track the growth of Google Pay

Google Pay debuted as Android Pay, a basic replacement for credit cards, in 2015. But in 2018, Google merged Android Pay with its mobile wallet, Google Wallet, to create Google Pay – which also offered a deeper integration with third-party applications. and websites.

The latest overhaul adds new personal finance tools, which allow users to link the app to their bank accounts, track their spending habits, search past transactions, apply online discounts to purchases, and more. . It has also expanded its support for contactless payments at gas stations and added in-app payments for parking fees in some cities.

Google Pay currently serves around 150 million users in 30 countries. That gives it five times the reach of Square’s Cash app, but it’s still eclipsed by PayPal’s 361 million active accounts.

Why are analysts raising red flags?

Piper sandler (NYSE: PIPR) Analyst Christopher Donat recently called the new Google Pay app a “threat” to Square and PayPal. Donat primarily cited the rise of Google Pay in the App Store charts as evidence of this growth.

Donat also noted that Square’s Cash app downloads slowed from nearly 80% year-over-year growth in April to around 12% in December. He claimed that recent downloads of PayPal’s Mobile Cash app were largely due to the recent addition of cryptocurrency purchases.

Why App Store Rankings Can Be Misleading

At first glance, it seems like a lot of people are downloading Google Pay. According to Sensor Tower, Google Pay is currently the leading fundraising app on Google Play and the 12th most popular fundraising app on Appleof (NASDAQ: AAPL) Application store.

However, Android users are already using Google Pay to process payments on its Play Store, so it’s no surprise that downloads for the Android version have temporarily increased after the last update. Additionally, Google recently announced that it will phase out web-based payments in early 2021, forcing those users to download the app instead.

Apple’s App Store rankings tell a different story. Google Pay briefly became the App Store’s first financial app in mid-December, according to Sensor Tower, but it fell from the top 10 by the end of the month. As of this writing, Square’s Cash app again ranks # 1, followed by PayPal’s Mobile Cash, IRS app, and Venmo.

This sharp decline indicates that the “new” Google Pay doesn’t have as much resistance – and its Google Play rankings could follow the same trajectory once initial interest wanes.

Why Square and PayPal aren’t worried

Google Pay seems to serve a lot of users around the world, but many of those payments are likely coming from the Play Store rather than third-party apps and stores.

According to McKinsey’s 2019 Digital Payments Survey, Google Pay is not one of the top three methods for in-app payment, online payment, or peer-to-peer payment. The only method it gained a foothold was in-store payments, where it still lags far behind Apple Pay.

Comparison of popular payment methods.

Source: McKinsey.

PayPal likely stayed well ahead of Google throughout 2020. PayPal’s total payment volume grew 36% year-over-year in constant currencies in the last quarter, marking its highest growth rate never recorded.

Meanwhile, Square’s Cash app edged out PayPal’s Venmo – its main peer-to-peer payment rival – in total downloads last year, according to Nomura Instinet. Square’s Cash app reached 30 million active users last June, up from 24 million at the end of 2019. PayPal said Venmo had 52 million active users at the start of 2020.

Millennials and Gen Z users also generally prefer Venmo and Cash App, respectively, to other payment apps. Venmo has become a popular way for millennials to split checks while dining out, while Cash’s expanding fintech services ecosystem has enabled Gen Z users to not only send money, but also buy bitcoin and execute free stock trades.

In comparison, Google Pay faces two major challenges. First and foremost, its Google brand immediately raises privacy concerns, even though the tech giant claims that a user’s financial data will not be sold to third parties or used for targeted advertising.

Second, Google has a long history of over-promising, under-delivering, and then dropping out of new apps. The new Google Pay looks innovative, but its interest in improving the app could quickly wane as users stick to Square and PayPal for both online and peer-to-peer payments.

The bottom line

Google launched Google Play more than five years ago. But over the past five years, Square’s stock has jumped 1,630%, with PayPal’s stock rising more than 530%.

The two fintech companies have wowed investors with their robust growth rates and forward-thinking expansion strategies. These trends aren’t going to end anytime soon, and I don’t think Google’s latest efforts will derail either company.