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Is PayPal on the Ropes?

Posted on 5.26.2011

The hits are coming fast and furious to PayPal in what's adding up to be the most serious threats to the payment system giant to date.

Three of the most powerful banks in the U.S. – Bank of America N.A., JPMorgan Chase & Co. and Wells Fargo – have come together to create clearXchange, a person-to-person mobile payment system. Customers can transfer money using a mobile phone number or email address. This is a direct shot at PayPal, which has been the only real game in town for person-to-person payments; most notably on eBay but used in many other ways. Convenience and security are the selling points for clearXchange, and a massive customer base will help, too. Chase alone has 26 million active checking accounts.

"Our customers want easy, safe and innovative ways to send and receive funds electronically," the Wells Fargo spokesman says. "The most natural way to do that is with your bank, where you keep your money."

Then Google jumped into the fray by partnering with MasterCard to release Google Wallet, a mobile payments system that allows consumers to use credit and debit cards to pay on the go. Soon, all credit and debit cards will be integrated into the system. Whenever Google launches a competing product, the target is wise to worry.

But PayPal will not go down without a fight. They are suing, claiming Google stole trade secrets and employees, as well as reneged on a signed deal to use PayPal to process payments in the Android app store. Some of those former employees are also named in the lawsuit for providing Google with trade secrets.

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