Digital Wallets Are Hot This Holiday – One Surprise Winner

Peak holiday shopping is right around the corner – and early projections suggest the consumer is STILL hot.

U.S. consumers are projected to spend an average of $902 this holiday season, up 3% from 2023.

2024 Holiday Spending Trends

The big trends investors should watch this season:

Digital Wallet Adoption

When it comes to how consumers are paying for their holiday splurges, digital wallets are gaining prominence. Projections indicate they will surpass debit cards in North American point-of-sale (PoS) transaction value by 2027.

Online Shopping Growth

Nearly half (48%) of consumers plan to increase their online spending this holiday season compared to last year, with Gen Z shoppers leading this trend.

Fast-Paced Timeline

A shorter time frame between Thanksgiving and Christmas means consumers are looking for speed and convenience. This could benefit retailers with an in-store (and online) presence and a seamless connection between both experiences.

LikeFolio has identified one digital wallet provider pulling away from the pack when it comes to consumer momentum – and it might surprise you…

PayPal Pulls Away from the Pack

Growth in digital traffic to PayPal (PYPL) and Venmo sites outpaces that of payment platforms under Block’s (SQ) umbrella (Square and Cash App).

PayPal site visits are increasing by 24% year over year. This marks a significant multi-year turnaround for one of the largest players in the payments space.

PayPal stock has had a nice boost in the back half of the year, too, currently trading almost 50% higher than a year ago.

Reason for Optimism

PayPal trended last week after launching a “Pool Money” feature, which lets users contribute to shared expenses and spend the pooled funds – reminiscent of the popular crowdfunding platform GoFundMe, but for everyday needs.

This product launch fits a broader push by PayPal to simplify spending through new products and partnerships.

In September, PayPal integrated its debit card with Apple Wallet (AAPL), entering the in-store payment space with PayPal-funded Apple Pay, expanding beyond online-only transactions.

PYPL also deepened ties with Shopify (SHOP) last September, enabling PayPal wallet transactions via Shopify’s checkout process to create a seamless experience that removes payment hurdles, like manually entering card details.

Both companies are aiming to bring a digital checkout experience to in-store purchases, an area ripe for growth.

Shopify’s strong week offers further context, with shares up 25% following a solid earnings report and bullish holiday forecast. Third-quarter gross merchandise volume (GMV) topped $69 billion, up 24% year over year, driven by its appeal to major retailers like Reebok and Vera Bradley (VRA).

Macro Tailwinds at Its Back

Key macroeconomic tailwinds could give PYPL an added boost – digital wallet adoption is on the rise, as you saw earlier, but so is digital ad spend.

PayPal is launching “PayPal Ads” this holiday season, granting advertisers access to its extensive user base – 400 million PayPal users and 90 million Venmo users – and leveraging data from over 225 billion transactions.

This move into data monetization aims to boost revenue and profitability. PayPal’s approach mirrors other financial firms launching ad networks, such as Shopify, Klarna, and Chase.

Bottom line: LikeFolio data suggests PayPal is making it easier for consumers to spend money on/with both of its platforms. We’ll be tracking throughout the holiday season, but right now, this name looks like an early winner.

By the way, have you seen the gains from our last early holiday spending winner? Since we featured Affirm (AFRM) in our October 30 issue of Derby City Daily, the buy now, pay layer (BNPL) stock has rocketed 32%.

If you need more proof this digital wallet trend has legs, there you have it.

Until next time,