Not So Fast, Visa And Mastercard?

The other day, Peet's Coffee & Tea PEET announced it would be taking payments with cards loaded into Google GOOG Wallet and MasterCard MA PayPass™ contactless cards. The payments will start to be accepted by the end of the month. That led me to discuss the potential growth market for the digital wallet, and how it would affect customers, businesses, and the payment providers. There could be a boom in that market, as consumers change their payment habits, going from card and cash, to phone and home. Now today, Wedbush is out with a research report on PayPal, a division of eBay EBAY. It appears Wedbush thinks that PayPal is going to be the leader in the mobile payments space, as PayPal has a "superior position" in the space. In a research note, Wedbush wrote, "We believe EBAY is the best investment in the growth of mobile payments. We believe PayPal will capitalize on its superior position in mobile payments, extend its 25-30% growth for several years, turn into eBay's largest business by 2014 and lead to significant multiple expansion. We believe the rich integrated functionality PayPal is building around location/context/inventory-based offers, payment and funding flexibility during and after a transaction, wish list and shopping list functionality and e-receipt presentation, will be hard for any single competitor to replicate." Wedbush rates eBay shares at Overweight with a $48 price target, nearly 50% higher than where shares are currently trading. The research firm obviously sees the growth potential for PayPal in the "digital wallet" space, with PayPal's dominant brand and infrastructure being key to its position. MasterCard MA, Visa V and others are in this space as well, as these companies are fighting for potentially billions of dollars in fees as customers move to paying by their smartphone. When Apple AAPL gets into the digital payment space, the digital wallet revolution may truly take off. Google GOOG has already entered the space, and having the world's most iconic smartphone will truly be the next leg up in the space. Yet, PayPal is not going to let MasterCard and Visa win the battle without a fight. Not when there is billions at stake. ACTION ITEMS:

Bullish:
Traders who believe that the digital wallet revolution will include PayPal as the clear leader as Wedbush suggests might want to consider the following trades:

• eBay is set to report earnings tonight. Any indication from eBay on PayPal expansion into the space may benefit shares of eBay. Traders may want to consider taking a position prior to earnings.

• NXP Semiconductors NXPIis the leader in near-field communications, or NFC, chips. Google and NXP already have a working relationship for NFC chips, so it stands to reason that NXP would likely be part of this venture as well. Qualcomm QCOM also makes NFC chips, and has a strong relationship with Apple AAPL.

Bearish:
Traders who believe that the digital wallet may never come to fruition may consider alternate positions:

• NXPI is essentially becoming a one trick pony at this point. If NFC does not take off and consumers do not accept it, NXPI could be the company most affected by this.
  
  

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