PayPal (NASDAQ: PYPL) is making some serious moves.
The company is aiming to snag up more of the market. It’s looking to gain a greater presence in stores and to compete with Square’s (NYSE: SQ) popularity with small merchants.
This has been a continual effort for the company. In the past, it’s been trying to infiltrate retail stores, but it’s never had much luck. But a recent $2.2 billion purchase of Swedish startup iZettle just might put the company further ahead as a market leader.
This is PayPal’s biggest acquisition ever. The company is very serious about having an even bigger presence in payment services. This is PayPal’s chance to expand and grow even bigger.
iZettle offers payment services in Europe that are similar to Square’s. The company had been preparing for its public listing on the Nasdaq Nordic. What the company was looking to make on that market debut was nowhere near what PayPal offered iZettle. In fact, the acquisition price was double the valuation that iZettle was aiming for with its initial public offering.
iZettle will be bringing to the table its small wireless chip readers and its other payment processing products. It recently launched a new product that allows small businesses to build their own online stores.
The company’s platform has expanded into other services and offers solutions for inventory management, customer flow, and loyalty programs.
In a recent interview, Jacob de Geer, iZettle’s chief executive, said:
I think it’s important to clarify that since we started the company in 2010 we’ve been doing a lot of work with PayPal and the team at various capacities in terms of cooperation and partnerships…
We’ve been struggling all along to get to the vision we’re aiming for in terms of helping small businesses and competing with the giants, and PayPal has in the area of 20 million merchants whereas iZettle has 500,000.
Both companies are familiar with each other’s operations and vision, which will make for an easy acquisition to build a stronger and more cohesive business.
A Huge Reason Behind PayPal’s Big Purchase
The payment market is getting hotter every day. Banks have incorporated a payment tool called Zelle to make it easier for customers to transfer and receive money.
We’ve seen apps like Venmo and Square really take off in the past few years. These payment platforms make it a lot more convenient to send money to someone without any hassle.
We are constantly on our phones, and they’re one of the biggest tools that connect us with people and the world in so many different ways. So naturally, it makes sense for the mobile payment market to take off.
It definitely makes it easier for me to split the bill with friends when we’re out to dinner. Instead of figuring out how much one person owes or handing over a bunch of credit cards to the server, we can simply send money over to one person instantly with just a few taps on our phones.
Even Apple, Google, and Samsung, as well as variety of tech startups, want a piece of this profitable pie. They have been creating their own payment platforms.
PayPal is a little different from these companies. It doesn’t just want a piece of the pie… it wants the whole pie.
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Chief operating officer for PayPal, Bill Ready, had this to say about the iZettle acquisition:
This phenomenon of in-store payments via mobile for small businesses, it’s a global phenomenon and there have been many players in the space. Most of them though have been constrained to one or only a few countries…
What I think is quite distinctive about this team is their ability to go serve small businesses on a multinational basis.
iZettle is available in 12 countries in Europe and Latin America, whereas PayPal operates in more than 200. Without a doubt, the acquisition is going to give PayPal a stronger technical presence in Europe.
Ready said:
Europe contains many of our most important markets, we have huge presence in Europe already from a commercial perspective. But one of the things we think is fantastic is that this is going to create a European center of excellence for us on a technical perspective.
PayPal is worth almost $94 billion. It’s been working with major retailers, like Best Buy and Walmart, all around the globe. Its presence with those major retailers has been established. Now it’s time for the company to gain the trust of more small- to medium-sized businesses.
And that’s exactly what it plans to do with this acquisition.
PayPal is Strengthening its Online and Offline Presence
The rise of e-commerce has significantly reduced foot traffic in brick-and-mortar locations, but they’re still a huge part of the retail market. Brick and mortar won’t be disappearing anytime soon, or at least not in the next decade.
Euromonitor International forecasts that 83% of physical goods and 91% of food service orders will still be made in physical outlets in 2022.
That means PayPal is missing out on a huge chunk of the market by not reaching offline purchases. As competition continues to heat up in this market, this is PayPal’s time to strengthen and solidify its online and offline presence.
And that’s why this acquisition couldn’t come at a better time. On Friday, when PayPal announced the $2.2 billion acquisition, its shares rose 2.02% to $80.79.
Until next time,
Monica Savaglia
Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
