eBay Is Doubling Down on Payments

NEW YORK ( TheStreet) -- The last time I wrote about eBay ( EBAY), there were concerns about its long-term growth potential and management's ability to harvest value.

I wasn't suggesting that the company was struggling, but it was clear to the Street that PayPal, eBay's dominant person-to-person payment service, was been doing all of the heavy lifting, growing 30% in the most recent quarter.

On Sept. 26, eBay decided it needed to protect that golden goose and picked off payment services system Braintree for $800 million.

We can't say whether eBay overpaid, because Braintree is a private company and we can't get a comprehensive look at its financials.

We do know, however, that Braintree processed more than $12 billion in transactions per year, which is more than what rival Square is reported to have processed.

One thing that made Braintree attractive was that one-third of its transactions were mobile payments.

eBay has been working hard to build its own mobile payment capabilities and inked a deal earlier this year with NCR ( NCR), which specializes in point-of-sale technology. The agreement allows for NCR's systems to integrate with PayPal's mobile services, which will enable customers to pay for goods and services using smartphones.

The deal will also present PayPal users the option of using NCR's Convenience-Go app at gas stations and convenience stores. Essentially, eBay's management has gone to great lengths to guard PayPal from emerging mobile threats ranging from Square to accounting software giant Intuit ( INTU), which is gaining traction with its GoPayment system.

Although PayPal has grown to interoperate with multiple financial networks around the world, the question, is to what extent Braintree can convince the Street that PayPal can become a long-term viable POS system.

I'm not suggesting that PayPal doesn't already work. But a person-to-person transaction is different from a purchase at Lowe's ( LOW) or McDonald's ( MCD).

To say it another way, I believe PayPal needs to see significant uptake and conduct more transactions in the realm of large retail operators if it wants to prove its worth. This is where buying Braintree became a no-brainer, pun intended.

In eBay's July quarter, management said it expected to do $20 billion of mobile commerce and payment volumes this year. Braintree already does one-quarter of that on an annual basis, the company has a strong list of places where its mobile payments are accepted, including Opentable ( OPEN), Rovi Heroku, TaskRabbit and several others.

It's also no coincidence that Braintree's impressive growth has paralleled the declines of traditional payment systems from the likes of VeriFone ( PAY) and Ingenico. eBay's management deserves plenty of credit here for seizing an opportunity to build on the cash powerhouse that PayPal has already become. But I don't believe it's time to rest. If Apple ( AAPL), with its fingerprint technology, picks off Square soon, it will be game over for PayPal.

As brilliant of a move it was to acquire Braintree, eBay's management will have plenty of other decisions to make. Not the least of those will be which companies it should buy next.

Square has to be at the top of the list. As with Braintree, Square makes it easy for small businesses to accept credit cards without installing a high-fee terminal. And given that Square is estimated to process close to $5 million worth of daily mobile transactions, which average close to $2 billion per year, it's another no-brainer.

At the time of publication, the author held no positions in stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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