Memorandum

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SUBJECT:      BUSINESS CASE ANALYSIS OF PAYPAL

Five Forces Analysis of PayPal

Porter’s five forces model is the framework that is used predominantly in analyzing the competition levels in a given industry. This model helps businesses in crafting their operational strategy. The model draws various factors and other aspects that are used in the determination of competition and therefore assist in determining the levels of competition in an industry. Competition is seen to be existing in every other industry, and it is the strategies that are adopted that will help one business to be competitive enough. Analysis of the competition is determined by reviewing the five forces that were identified by Porter.

With the desire to change their tactical strategy and ensure that they are the market leader in the provision of digital currency, PayPal set out a plan which they use in the exploration of the market as well as in ensuring that they streamline their operations. Back in 2015, the company stood at a good financial position being the epicenter of digital commerce that was expected to account for approximately $2.3 trillion in the total global purchases. PayPal was founded back in 1998 at the time when e-commerce was the driving force for the digital payments. The market has grown significantly over the last 17years.

Bargaining Power of the Supplier

With the inculcation of such a relationship with the suppliers, PayPal has been in a position of addressing some of the critical issues such as offering mobile “in-app” payments which makes it convenient for the customers as well as shoppers who use the service as a platform for managing their digital currency transactions. Creating a wonderful two-way relationship between the suppliers is an excellent start in curbing the effects of reliable suppliers in the industry. Suppliers are deemed to very integral in the chain of business processes. There are no alternatives to the costs that arise due to switching. Therefore effective relationships need to be maintained between the organization and the suppliers so that useful terms and contracts can be established as a result.

The threat of New Entrants

With other firms getting to ascertain how lucrative the financial market is irrespective of the risks involved, they are likely to invest in the digital financial market and thus affecting the overall turnover by PayPal – this is a threat that is usually anticipated by any business. However, with the institution of various strategies that are geared towards customer retention such as the low-cost strategy, PayPal will still be among the global leaders in enhancing global transactions. The threat of new entrance should be taken with great weight since entrances dilute the sales. Establishing barriers to entry is the possible critical success factor in this case. Such barriers including legal barriers or patents if need be. The term is likely to mean that a business stands a higher chance of losing some of the integral customers and as such, therefore, the organization should be as careful as possible so that they do not miss the core base of their undertakings which are the customers. New entrants might enter into the market and eat into the shares of the organization.

Competitive Edge of PayPal

In 2012, the company launched a PayPal Mobile Payments stores. Users of PayPal could thus download the app on their smartphones, and they could use their phones directly in making purchases. They could scan the barcodes within the stores participating and then the code would be accepted, and payment authorized. One of the key strengths that elevated PayPal to a higher financial position is the acquisition of Paydiant. In an effort by PayPal to strengthen as well as broaden their position among the digital wallets that are competing with the company, the company acquired Paydiant for $280 million in April 2015. Paydiant offers a patented cloud-based payment platform that allows banks and merchants to deploy their secure mobile wallet solutions under their unique brands. Paydiant also addressed the issue of customer engagement broadly thus offering an in-store customer engagement technology, various marketing rewards as well as an array of other merchant features.

Opportunities for PayPal and Scorecard

PayPal has other significant opportunities that they could explore for the company to remain as competitive as possible. With the inception of various tactical strategies and with a more focused approach, PayPal has more opportunities of exploring the entire global markets. The company has a chance of merging with eBay such that they could conduct business even on a broader scale as this will enhance their market segmentation strategy as well as enable the company to remain competitive in the saturated market. Some of the competitors of PayPal include Skrill and Western Union.

Despite the vast assets and resources at the disposal of PayPal, careful planning, as well as significant changes, are needed so that the company could succeed on its own. The digital currency and payments industry has rapidly grown into newer segments that have developed to be very competitive. With an appropriate segmentation strategy by PayPal as well as the adoption of a more customer-focused approach, PayPal is likely to achieve significant growth in their business as well as observe considerable growth

Exhibit 1 Porters Five Forces Model

Exhibit 2 PayPal Balanced Scorecard

 
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