August 25, 2013
CVC Capital which is a large private equity firm bought a majority stake in Skrill for around $800 Million which is a digital wallet provider operating in UK. Investcorp is the other large private equity firm which has a minor stake in Skrill. The acquisition is good news to Investcorp as the acquisition brings in an 8-fold return to its initial investment and Investcorp still gets to keep its minor stake in Skrill. By buying a stake in Skrill, CVC Capital has officially entered in to the digital payments space.
Skrill claims to have over 35 Million users spread across 200 countries globally and has tie ups with 150,000 merchants which includes on-line gambling sites. Analysts and the users consider Skrill to be a direct competitor of PayPal. Skrill's business model is similar to Paypal's. A user enters debit or credit card credentials on skrill and each time a transaction is done, the email id of the user is used instead of typing in the card details. Skrill also has added a prepaid card to its services.
During a press release Peter Rutland, Senior Managing Director of CVC stated that 'Skrill is a high quality business that has demonstrated its ability to grow rapidly into a market leading provider of online payments serving the online gaming, gambling, digital media and e-commerce industries.'
LTP View: Such acquisitions in the digital payments space highlights the boom in alternative payment methods, supported by the proliferation of mobile devices. Acquisitions in the payments space will also encourage more Startups in the payments space heating up the competition. Increase in competition would mean that the larger banks will have to cut down on the time to update their current payment systems and customer interfaces to acquire new customers and retain the existing ones. Overall, this is a good sign for the consumers.