Adyen, Braintree and Stripe face off

The processing giants are battling for market share in the U.S., with some cutting prices in their fight to win over merchants.

As the digital payments race to land and retain merchant clients intensifies worldwide, PayPal’s Braintree appears to be at least holding its own against European rivals Adyen and Stripe.

It may even be thwarting Adyen’s growth in its home market, or taking share from the rival, according to one analyst group that surveyed recent earnings from Braintree and the Dutch company. Adyen provides payment services that allow merchants around the world to process payments online or in-person. PayPal and Stripe provide similar processing services.

“It’s a fairly competitive space and I think the competition is only intensifying,” Mizuho Securities Senior Associate Ryan Coyne said in an interview this week. “If competition is going to continue to increase, I think PayPal is in a good position to set the price, and could drive some gains.”

Adyen is about the same size as privately-held Stripe, based on publicly available information regarding their payments volume. Both are approximately twice the size of Braintree, a Chicago-based business purchased by PayPal a decade ago.

After Adyen reported a slowdown in its growth last week for the first half of the year, the value of the company dropped by nearly 40%, the equivalent of about $20 billion. Its efforts to expand in North America, where it has encountered stiff competition from Braintree, contributed to the troubles.

“Braintree's aggressive land-grab strategy in the US proved successful amid Adyen 1H23 results,” Mizuho Securities analysts said in an Aug. 18 report commenting on those results. “It likely contributed to the sharp deceleration in Adyen's North America revenue growth.”

PayPal has been grappling with its own challenges. While the Braintree business has been expanding at a heady clip, that business yields lower profit margins than its slower-growing legacy PayPal checkout business. As a result, overall margins for the company have sagged this year.

Bolstering profit margins will be a challenge for PayPal’s new CEO stepping in next month after long-time leader Dan Schulman exits the San Jose, California-based company.

While Braintree's first-half total payments volume growth remained stable at about a 30% increase over the year-earlier period, on a foreign exchange neutral basis, Adyen’s North American revenue growth slowed from a 45% increase in the second half of last year, to about a 23% rise in the first half of this year, Mizuho’s report showed.

Executives at Adyen lamented the slowdown in a call last week to discuss the first half results with analysts.

“If you look online, where we started the company, we see lower growth than what we hoped for, and the reason for that is that we've seen increasing competitive pressure in North America,” co-CEO Pieter van der Does said on the Aug. 17 webcast.

Adyen executives doubled down on those sentiments in an accompanying letter to shareholders, explaining that the North American economic environment, including high interest rates and rising inflation, led big business clients to seek cost savings over growth.

Adyen started its business servicing small and mid-sized businesses, but has expanded to serve larger clients, including ride-hailing company Uber, fastfood chain McDonald’s and clothing retailer Gap.

“Enterprise businesses prioritized cost optimization, while competition for digital volumes in the region provided savings over functionality,” Adyen said in the Aug. 17 letter. “These dynamics are not new, and online volumes are easiest to transition back and forth. Amid these developments, we consciously continued to price for the value we bring.”

Those standings among the rivals show up in data collected by Mizuho’s Coyne. Stripe, which has dual headquarters in Dublin and San Francisco, reported processing about $817 billion in total payments volume last year while Adyen reported processing 426 billion Euros for the first half of this year, so just over 800 billion Euros on an estimated annualized basis, or between $800 and $900 billion, with Braintree’s annual volume at about $400 billion, he said.

Analysts at Wolfe Research also called out the rising price competition in the U.S. market last month, pointing to losses for Adyen. “We also note that some competitors have recently called out merchant wins that were historically marquee customers of Adyen,” a July 7 note from Wolfe Research analyst Darrin Peller and his colleagues said.

And the competitive trends may continue, with Adyen standing pat on pricing, the Wolfe team suggested in a follow-on report last week regarding that company’s financial results.

“We believe these and other competitive dynamics contributed to the softer volume trends, particularly in the U.S., and see further risks associated with recent volume shifts,” the Aug. 18 Wolfe report said. Adyen “management remains steadfast on pricing, viewing recent competitive practices as unsustainable.”

A spokespeople for PayPal and Stripe declined to comment. Adyen didn’t immediately respond to a request for further comment.