PayPal (PYPL, Financial), the online payment unit of eBay (EBAY, Financial), has officially announced its intention to acquire Paydiant, the mobile wallet provider, at a deal valued at $280 million. This step is taken by the online retail giant mainly to counter competition from Apple's (AAPL, Financial) Apple Pay. PayPal has not made any comment on the value of the transaction so far. The acquisition is expected to close this month or the following month.
PayPal Backdrop
PayPal was established in 1998 and is provides a digital wallet internationally. The ecommerce business deals with services like electronic checks, money orders, money transfers, etc. In 2002, PayPal became a wholly owned subsidiary of eBay, the e-commerce company. eBay spined-off PayPal as a separate company in 2014. Analysts estimate the value of PayPal to be around $40 billion out of eBay's market cap value of $70 billion. Paydiant, on the other hand, focusses on the reinvention of the mobile payment division. They cater to the mobile payment needs of huge names in the market like Subway, Harris Teeter Supermarkets Inc. (HTSI, Financial), Capital One Financial Corporation (COF, Financial), etc.
Number Mix
The net total payment volume (TPV) of PayPal increased by 24% in the fourth quarter 2014. The volume of merchant services grew by 33%. The mobile payment unit registered around 4.6 million new accounts. Therefore, the revenue showed a raise of $2.2 billion. The company's constant innovation efforts and investment paid off when PayPal showed an increase of 25% growth in transactions.
The Acquisition Map
Now that PayPal has announced its intentions of acquiring Paydiant, the company will have a strong foothold in partnering with business merchants. These merchants can create their own choice of branded wallets. Mobile payments, offers, loyalty, gift cards, branded credit cards can then be offered to the customers. The merchants now have a choice of using QR codes or NFC as a method of mobile payment. PayPal in a statement said that this acquisition will result in the creation of a wonderful payment experience for customers.Â
Paydiant, the Newton mobile payments software company, ran into troubled waters in the past few months. The company had laid off Boston workers a few weeks earlier. Founded in 2010, Paydiant has also shown signs of developing as a key player in the mobile payment division. The acquisition will help PayPal to obtain Paydiant's technology. The mobile development team belongs to PayPal now along with Paydiant's founders Kevin Laracey and Chris Gardner.
Bill Ready, the head of the merchant division of PayPal, said that major retailers will want to have their own choice when it comes to accepting mobile payment methods. He refused to make a comment on Paydiant’s relationship with MCX. Most likely, the relationship between Paydiant, the payment startup and MCX will not be hampered. In 2014, MCX's clients, Rite Aid and CVS, were embroiled in a controversy after they accepted Apple Pay but later failed to provide support. MCX wished to launch an app that would enable consumers to use bank account hookup, store-branded card or any other cheap payment method. However, Apple Pay supports debit and credit cards. These traditional methods of payment seems unconvenient for the retailers as thye have to shell out more money for processing.
Peer Pressure
Google Inc. (GOOG, Financial), just recently has inked a deal with three of the biggest wireless carriers, AT&T Inc. (T, Financial) , T-Mobile US, Inc. (TMUS, Financial) and Verizon Communications Inc. (VZ, Financial) to pre-load Google Wallet on their smartphones. Apple started Apple Pay for in-store payment and to pay within apps in a secure way. Samsung Pay was introduced by SAMSUNG (SSNLF, Financial) as a means for electronic payments. The acquisition of Paydiant will surely put PayPal at a higher competitve position.
