PayPal is losing footing in the digital wallet market as rival wallets and changing e-commerce dynamics chip away at its formerly dominant position. Research cited by Bernstein points to a steep slide in PayPal’s share of digital wallets - from roughly 90% in 2017 to about 50% in 2023, and down further to approximately 40% today.
While overall e-commerce volume has continued to expand, rising at an estimated 7% annual rate since 2023, PayPal’s U.S. branded checkout volumes have not kept pace. Excluding Pay with Venmo, those branded volumes have increased only at a low- to mid-single-digit annual pace. Bernstein attributes this underperformance to persistent competitive pressure rather than a single structural factor.
Among the competitors gaining ground, Apple is estimated to hold about a 20% share of digital wallets. Shop Pay has grown quickly as well and now commands a share in the high-teens. Buy now, pay later providers, exemplified by Affirm and Klarna, have also expanded rapidly, further fragmenting the checkout landscape.
Industry trends favor newer wallet options and built-in merchant checkouts. Digital wallets as a category are expanding at roughly twice the pace of overall e-commerce growth, implying that most future gains will come at the expense of incumbents rather than from broader increases in guest checkout usage. That guest checkout channel itself is shrinking: Visa reports that guest checkout accounted for about 16% of its e-commerce transactions among top sellers, down markedly from 44% in 2019.
PayPal’s exposure to desktop purchases - a channel that has been contracting - adds another layer of vulnerability. Bernstein cautions, however, that desktop exposure alone does not explain the company’s market-share decline; the research group also notes weaker mobile visit trends since 2024.
Concentration of e-commerce activity is rising, which affects where volume flows. Amazon, Walmart and Shopify together are estimated to represent about 55% of e-retail volumes, up from roughly 49% in 2023. These larger platforms are growing faster than the broader market and increasingly determine which checkout solutions capture scale.
Shop Pay is identified as a direct threat in the small-business segment, with Bernstein estimating it will process about $110 billion in volume in 2025 and to be growing at an approximate 30% annual rate. That trajectory could pressure PayPal’s ability to set prices and could shave gross profit in its branded checkout business if the trend continues.
Market pricing for PayPal’s stock already incorporates some of these structural concerns. Bernstein notes that this valuation backdrop leaves room for strategic alternatives - such as asset spin-offs or activist investor involvement - to surface as potential paths to unlock shareholder value if operational performance stabilizes.
Context and next steps
- PayPal’s market-share decline is multi-causal: competitive gains, shifting checkout behavior, and platform concentration all play roles.
- Wider adoption of alternative wallets and merchant-owned solutions is accelerating, raising the bar for PayPal to defend branded volumes.
- Valuation perspectives already reflect these headwinds, making corporate actions a conceivable lever for value realization if growth steadies.