Analysts: Don't expect one winner to conquer mobile payments market

Summary:PayPal's new partnership with Discover expands options for customers, but analysts don't seem convinced that it's the golden ticket.

PayPal announced a new deal with Discover on Wednesday, which would expand PayPal's mobile commerce reach extensively.

Essentially, merchants in Discover's payment network can accept PayPal payments, while in turn customers can use their PayPal digital wallets where accepted.

This marks yet another step in a crowded race of mobile and e-commerce providers ranging from the likes of Square to Google to get their digital commerce solutions accepted everywhere and anywhere as soon as possible. Right now it seems like the idea is the company with the most partnerships and availability with merchants is the one that is going to come out on top once mobile payments becomes mainstream.

But analysts would argue that's not necessarily the case. In a memo last week, Piper Jaffray argued that while mobile commerce is a crowded space, that doesn't mean there will be one winner to take it all.

At present there are a number of entrants in mobile payments including: PayPal, ISIS, Google Wallet, Square and likely Apple. We believe that while the competition is aplenty, the continued attention to the space will drive consumer interest and eventual adoption. Further, Gartner estimates that mobile payments will grow from $172B this year to $600B in 2016. If PayPal were able to grab 17% of this market it would equal PayPal's current off platform payment business (PayPal used in ~20% of global online transactions).

Nevertheless, Piper Jaffray analysts remained optimistic for PayPal, arguing that the eBay-owned enterprise "has a strong payments position" with 113 million customers and millions of merchants already in the system along with relationships wiht 16 physical retailers nationwide.

Stifel Nicolaus analysts also concurred in a memo published after PayPal's announcement on Wednesday, citing PayPal's strong existing customer base.

But there's also something else that is very advantageous for PayPal with the Discover partnership: it doesn't require any additional hardware or software. One of the major hindrances for mobile payments is that many merchants (especially small business owners) don't want to pay to upgrade their payments systems in fear that customers won't even bother to use them, resulting in a huge waste of money.

But if mobile commerce solutions and support can be rolled out without any extra requirements, then PayPal might actually have an edge after all.

Topics: E-Commerce, Mobility

About

Rachel King is a staff writer for CBS Interactive based in San Francisco, covering business and enterprise technology for ZDNet, CNET and SmartPlanet. She has previously worked for The Business Insider, FastCompany.com, CNN's San Francisco bureau and the U.S. Department of State. Rachel has also written for MainStreet.com, Irish Americ... Full Bio

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