Ebay’s PayPal acquired nine companies since 2005 with a total disclosed value of $1,602 M for five of these deals. Most of the acquisitions were in the field of mobile payments, fraud management, payment gateways/processing, and developers platform. While the main business reasons behind the acquisitions were to enhance technology, expand market share and geographical presence, expand product line, and establish dominant market position.
A deeper insight into this reveals the following trends:
- Mobile payments: Paypal acquired companies like StackMob, Braintree, Card.io, Zong, and Fig Card all of which are in the space of mobile payments. With the profileration of smartphones and changing consumer behavior Paypal recognized the need for a mobile-first strategy. The recent growth of mobile money has also allowed millions of people who were otherwise excluded from the formal financial system to perform financial transactions relatively cheaply, securely, and reliably. They recently also updated their site with less content to suit mobile visitors.
- Fraud detection & prevention: Paypal acquired Fraud Sciences Ltd. which develops online risk tools. E-payments vendors are increasingly investing in robust, scalable architecture with enhanced straight through processing capabilities to reduce errors and prevent fraud. Fraud detection & prevention/verification softwares enable businesses to prevent and detect fraud sooner and more accurately and streamline fraud management operations for better resolution of financial crime in payments
- Expanding All the Non-Cash Categories: Paypal means non-cash payments. It pioneered the concept at the end of 1990s. And it has tried to up the game especially after the competition intensified and the onslaught of payment startups. Payment Processing for especially startups, SMEs is a big deal and acquisition of Braintree, Verisign’s payment platform signifies that. Ecommerce is the mainstay vertical of payments – the lowest hanging fruit there for payment processors (others are Govt. Services, Billing, etc.). To exert control over that vertical Magento acquisition made a lot of sense. Paypal is now set to revolutionzie the in-store payments which are also called proximity payments (read Beacons, wallet, etc.). Expect some inorganic growth in that area.
- Tapping into the Developer Community – Stackmob acquisition was special. PayPal wanted to make it easier for developers to create seamless payment solutions that span online, mobile, and in-store experiences. But it had previously neglected the developer community. It had to make some bold moves towards rectifying that, so Stackmob acquistion and the release of a new REST API. Not to forget Braintree acqusition as well in this regards.
Note - Date is announcement date of the transaction; Source: Company press releases, FA team analysis
- Paypal’s acquisition of Stackmob will aid the company to develop backend software for mobile apps, thereby enhancing PayPal’s mobile technology. Management believes this acquisition will support PayPal’s dominant position among mobile payment systems and increase its presence in mobile commerce apps
- Paypal acquired Braintree because the transaction will enable PayPal to accelerate and expand its business in mobile payments. It will also help them to enter into new markets in a very quick succession and with lot of confidence. The expertise and developers of Braintree will be an added advantage for PayPal’s in terms of creating innovative solutions for next generation commerce start-ups
- Paypal acquired Card.io to make a big push in the mobile payments space by creating new experiences to make it even easier for consumers and merchants to use the PayPal digital wallet
- Paypal acquired Zong as company expects that this will add complementary technology and talent that will help strengthen PayPal’s leadership position in mobile payments and digital goods
- Paypal’s acquisition of Fig Card Corporation supplements eBay’s strategy for its marketplace and PayPal business, by penetrating the mobile payment space and giving merchants the ability to accept mobile payments quickly, easily and cheaply
- Paypal acquired majority stake of Tradeshift. The transaction will aid Tradeshift customers to make direct payments of their invoices, which will lead to faster transactions and reduced rates for international transfers.
- Paypal acquired 49% stake of Magento. The transaction will enable PayPal to expand its relationship with Magento and offer its online retailers through Magento’s open source shopping solutions
- Paypal’s acquisition of Fraud Sciences Ltd is in interest of Paypal and eBay to enhance its fraud management systems and ensure safety of all its sites
- Paypal’s acquisition of VeriSign Inc (Payment Gateway Business)is in line with PayPal’s strategy to accelerate its merchant services business by expanding its customer base, improve the security of its community accounts and ensure the privacy of information
These points emphasize that company is continuously trying to offer innovative technology to its customers, expand its reach, and establish itself as a leader in the non-cash payment industry. Some of it is being achieved through the inorganic route - Paypal Acquisitions.
PayPal is an international e-commerce business allowing payments and money transfers to be made through the Internet and mobile. It enables people to transact money through their account balances, bank accounts, credit cards, or promotional financing without sharing financial information. PayPal has 143 million active registered accounts and is available in 193 markets and supports payments in 26 currencies. PayPal’s generated revenue of $6.6 bn in FY 2013.