However, the service has grown greatly over the last decade. PayPal, with its 128 million active users, is accepted at nearly every online merchant due to its simplicity for both the merchant and customer. Just last year, $128 billion in transactions went through the company’s payment service.
Through the partnership, PayPal and Discover Financial Services (NYSE:DFS) will be teaming up to reach a goal of 2 million accepted processing points by the end of the year. The transition will be simple for retailers. The won’t have to make any hardware or software upgrades to accept the PayPal payments, they’ll simply have to let customers know of the new option with in-store signage. Going forward, the partnership bodes well for both companies as two different tailwinds will be powering the growth of this partnership.
The first, as mentioned above, is the growth within the plastic payments market across the globe in combination with rising interest rates. The second is the huge potential the deal has in helping the underbanked population in developing countries. While the underbanked population has been overlooked for the last decade, the sheer quantity of these people make the market attractive to any company as far as I’m concerned.
Recent research shows that 3 billion of us are either unbanked or underbanked due to inadequate infrastructure, primarily in the developing world. However, the smartphone population is rapidly growing within these countries. PayPal would fit perfectly as a mobile banking or wallet application for those who have little access to a traditional bank. Moreover, through the partnership with Discover Financial Services (NYSE:DFS), these same customers could use their mobile devices as their wallets for payments at merchants who accept Discover plastic.
Last month, average APR rates ticked up slightly while delinquency rates dropped. Discover reported a 1.58% delinquency rate for May, which came in under the typical 3%-5% rate reported by credit companies. Discover trades at an attractive 10 times its earnings with analysts estimating 9.8% earnings growth going forward. With valuations far below that of the S&P 500, buying Discover Financial Services (NYSE:DFS) here looks like a good bet.
Wrap up
A couple of major tailwinds are set to help these payment services companies. Rising interest rates here at home will help Visa Inc (NYSE:V), Discover Financial Services (NYSE:DFS), and even PayPal. However, emerging markets may be the key driver of growth in the years ahead. All three companies have great potential to capture consumers in the developing world who may be underbanked.
The article Tailwinds Set to Benefit Credit Companies originally appeared on Fool.com and is written by Nathaniel Matherson.
Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends eBay and Visa. The Motley Fool owns shares of eBay. Nathaniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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