Paypal Porter’s 5 Five Forces Model: Detailed Analysis (2021)

Paypal Company Overview:

Paypal was founded in December of 1998. The company’s headquarters is located in San Jose, California. The company has over 15 million customer accounts and processes transactions in 203 countries and territories, for PayPal account balances of approximately $4.9 billion. Paypal is the world’s largest Internet payment services company. Since its inception in 1998, PayPal has become one of the leading providers of online account-based e-commerce transaction services. PayPal allows customers to securely send and receive payments through the Internet, providing merchants with a cost-effective alternative payment option for their goods and/or services. PayPal is a major participant in the development and expansion of the e-commerce transaction platform, and currently manages over $4 billion in e-commerce transactions annually. Let’s go over the company’s Porter’s Five Forces.


Paypal Competitive Rivalry:


Paypal is the dominant player in the online money transaction industry. The company has always had more resources than its closest competitor, eBay. This is partially due to the fact that eBay owns 30% of PayPal’s shares and thus takes a good chunk of the profits. It also becomes harder for new companies to enter into this market since PayPal has already established its brand and image for quality service. 



Paypal Bargaining Power of Suppliers:



PayPal does not really have problems with suppliers since the number of suppliers is limited. Most companies that deal with PayPal on a regular basis are large corporations such as Capital One, Cisco, and Dell (Find here Dell Porter’s Five Forces Model). There are only a few suppliers for the company so if one drops out or raises their prices significantly, PayPal can always turn to another supplier for help. The idea of bargaining power is completely nonexistent because it does not have enough suppliers to make any significant changes in price. 



Paypal Bargaining Power of Buyers:



PayPal has a very large amount of bargaining power with sellers since it is the #1 money transaction site on the internet. Most online shoppers would rather use PayPal than any other source because it is reliable, convenient, and trusted. The list of buyers can be found in all different countries so there is not really a limit on who can purchase items through PayPal. However, the company does have a problem with buyers in the sense that some people do not trust PayPal enough to give them their credit card information. The company has been known to put a hold on accounts for no reason and this makes some customers very upset


Paypal Threat of New Entrants:


The threat of new entrants is a low threat of new entrants because it has always maintained a hold on the market. It is hard for any new company to compete with the company’s success in the industry, especially since PayPal has become synonymous with online money transactions. New companies would have to spend hundreds of millions of dollars on advertising and loss leader discounts just to get a similar name out there. However plenty of other companies like Google, Facebook, and Amazon are constantly trying to break into the market, so this could be a potential problem in the future. 



Paypal Threat of Substitutes:


The only threat of substitutes comes from other online money transaction companies. Credit cards and debit cards can be a substitute for PayPal since they are safer and more convenient. However, the company does not have to worry about this too much because there is no other option that is more efficient than PayPal. It is the only online money transaction site that is very trusted and provides its users with a high level of security. Other payment gateways like Google Checkout and Amazon Payments are getting decent traction in the market but are not as popular yet.



Paypal Porters Five Forces Conclusion:


PayPal has a very low amount of competitive rivalry because it is the dominant player in its industry. There are not enough suppliers to make a difference, only a few buyers to take advantage of, and no substitutes that can provide better services than PayPal. The company’s Five Forces analysis shows that it has all the benefits with very few threats to its business, so it should stay very successful in the online money transaction industry.



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