PayPal Investors: Get To Know CurrentC

In a report published Tuesday, Susquehanna analyst James Friedman maintained a Positive rating and price target of $50 on Paypal Holdings Inc (NASDAQ: PYPL). Collaborative payments solution, CurrentC, is expected to be launched in a limited manner in Columbus, Ohio, in the near future.

According to the Susquehanna report, "The retailers that constitute the MCX consortium generate ~$1 trillion in revenues annually, representing a quarter of total US sales. We estimate ~55%-or ~$600 bln of MCX consortium sales is through credit/debit cards. This represents a $9 billion revenue stream for the networks."

According to Nilson, credit/debit volumes are estimated to increase from 51 percent of the payment mix in 2013 to 64 percent by 2018. This increase will lead to rising costs that retailers have to bear for such payments.

The analyst expects the MCX consortium to either reward or steer customers in some other way towards CurrentC, in-line with recent legislation that supports retailers.

There are three main supply chain vendors for CurrentC, with the digital wallet platform being PayPal's Paydiant, Fidelity National Information Services (NYSE: FIS) providing a custom network through NYCE, and Gemalto providing the chip.

"Paydiant's wallet enables QR codes, NFC, and Bluetooth payments, and supports loyalty programs. We also believe PYPL's ACH expertise may be informing the design," Friedman mentioned.

A full launch of CurrentC is expected three years after the product is first introduced into the market. With the soft launch expected soon, the analyst believes that there could be some hiccups in the form of security issues, concerns by partners regarding additional investments, etc, while expecting a stronger collaboration between CurrentC and PayPal, going forward.

"Our view is that a rewards program is key to encourage utilization," Friedman stated, while adding, "SFG estimates a rewards program, at 25-75 bps, would be a key component of CurrentC's appeal."