PayPal Is The Purest Pure-Play On Mobile Payments, Says BMO

In a report published Tuesday, BMO Capital Markets analyst Paul Condra discussed the U.S. online payment services industry, noting that strong and sustainable growth rates are expected over the mid-term as online commerce continues to grow.

Condra estimated the total revenue opportunity for gateway providers (firms that provide merchants with technology that functions like a "virtual point-of-sale terminal" that enables them to accept online payments) is expected to grow from $1.7 billion in 2015 to $2.4 billion by 2018. The corresponding compounded annual growth rate of 13 percent is roughly in line with online commerce growth expectations.

The analyst further stated that mobile commerce (25 percent of current online commerce) could grow at a compounded annual growth rate of 30 percent to 40 percent over the same time period, offering a "much stronger" growth opportunity for gateway service providers with higher exposure to this opportunity.

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One such gateway provider is eBay Inc (NASDAQ: EBAY)'s PayPal, which has the highest exposure to online and mobile payments, according to Condra. PayPal's entire business is virtually all online and boasts 165 million total active customer accounts. The company also owns Braintree, an online payments platform that processes transactions for Airbnb, Uber, StubHub and other notable names.

Condra said that Vantiv Inc (NYSE: VNTV)'s Litle business has the second-highest exposure to online and mobile payments at 5 percent of its total revenue. Visa Inc (NYSE: V) ranks third with its Cybersource system that represents 3 percent of total revenue.

Bottom line, gateway providers are necessary to facilitate most forms of online and mobile payments, and have played a vital role in ensuring the success of mobile service apps, such as Uber.