While many Americans still love credit cards, digital payment apps are becoming more accepted. Ascent, a Motley Fool personal financial service, in 2023 surveyed 2,000 Americans and found that 28% trust digital payment methods. more than using cash, debit card, or credit card. Nearly half trust digital payment apps as much as traditional payment methods.
These findings help explain why digital payment services have not taken off. apple (AAPL -0.75%) and PayPal (PYPL -4.61%) It has grown significantly in recent years. Here’s why these stocks are great for providing exposure to the fast-growing digital payments market.
1. Apple
Apple Pay has been around for nearly a decade, but it took a few years to emerge as a contender in the digital payments market.Most Americans who use digital payment services still use PayPal or blockCash App, but there are important reasons why Apple could close the gap.
Apple Pay is more popular among younger people. Only 16% of baby boomers use Apple Pay, but that number jumps to 31% of millennials (ages 28-43 in 2024) and 47% of Gen Z (ages 12-27).
It is becoming common for children under the age of 10 to own their own smartphones. Children are now exposed to the Apple brand earlier than ever before. This is a big advantage for the iPhone maker, which generates more revenue each year from apps and services. Apple Pay will become the default payment method for these young users as they age, giving the tech giant a bright future in the digital payments industry.
Apple Pay revenue, which is included in the company’s Services division, rose 16% year over year in the quarter that ended in September and accounted for a quarter of Apple’s total revenue.
According to Insider Intelligence, there were an estimated 50.8 million Apple Pay users in the U.S. in 2022, which is expected to reach 67 million by 2026.
Apple’s ability to generate solid profits across its products and services and its brand appeal to younger generations make it a payments stock to consider in 2024.
2.Paypal
PayPal is by far the most popular digital payment service, with 85% of Americans saying it’s their favorite app. With approximately 430 million consumer and merchant accounts, PayPal is a well-known brand. The company processed $1.5 trillion worth of transactions in the third quarter, which he translated into $7.4 billion in revenue, an 8% increase year-over-year.
Additionally, PayPal continues to accelerate its revenue growth as customer account usage continues to increase. This also has a positive impact on profits. The increase in payment volumes increased the leverage of PayPal’s overall expenses, including customer support, and led to a 20% increase in adjusted earnings per share growth in the third quarter compared to the same period last year.
The stock is still trading at a deep discount to its all-time highs, and is down 17% from last year. PayPal isn’t expanding as fast as it did in the pre-pandemic era, when it averaged double-digit revenue growth every year. Wall Street is concerned about increased competition from the likes of Apple Pay, which may be contributing to PayPal’s slow growth in active customer accounts.
However, the frequency of transactions with existing customers continues to increase, and PayPal is still profitable and growing its business. Discounted stock prices can present a great buying opportunity for value seekers. PayPal remains the most trusted and widely used digital payment app. Investors can currently buy the stock at a forward price/earnings ratio of 10.5x, but this top fintech stock could be significantly undervalued, especially if PayPal can resume customer account growth in 2024. There is sex.
John Ballard has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Block, and PayPal. The Motley Fool recommends the following option: His March 2024 $67.50 Short His Call on PayPal. The Motley Fool has a disclosure policy.