Only weeks ahead of its demerger from its parent company, eBay, PayPal has announced the all-cash acquisition of cross-border P2P remittance provider Xoom for $25 per share (equivalent to $890m). This latest deal follows other recent notable acquisitions, including mobile wallet platform provider Paydiant for an estimated $280m in 2015 and new-breed payments gateway provider Braintree (with its domestic P2P brand Venmo) for $800m in 2013. Freed from the shackles of eBay with no debt, $5bn in cash, and new shareholders through its public listing on Nasdaq, PayPal will likely remain highly acquisitive as it seeks to expand its global capabilities.
PayPal is diversifying to reinforce its global position
With significant momentum behind it following its separation from eBay, PayPal is pursuing a global strategy to expand both its payments capabilities and geographic spread. This includes an expansion of its consumer-focused capabilities, as highlighted by its acquisition of Xoom. The acquisition gives PayPal significant presence in the cross-border remittance space and a foothold in key emerging markets. Xoom reportedly processed more than $7bn in transactions in 2014, despite having a core US customer base of only 1.3 million consumers. Although PayPal has always had a strong presence in the P2P space, this has primarily been for domestic transactions only.
Central to PayPal’s broader strategy – particularly in light of the growing competition it faces from newer entrants such as Apple, Google, and now Samsung – is its growing focus on remaining technology-agnostic and offering open-stack solutions. In the PayPal roadshow presentation released in advance of its listing on Nasdaq, PayPal talked about its “open commerce platform.” This incorporates its core PayPal wallet, rapid loans to consumers via PayPal Credit, in-app payments via Braintree, and in-store payments via Paydiant through the development of merchant-led wallet and app loyalty programs.
This approach signifies a switch from PayPal’s older strategy of seemingly trying every new payment technology and seeing what sticks; it provides the company with a clearer strategy of expanding capabilities across the payments value chain. PayPal will face significant challenges in the coming years, but by diversifying its portfolio it is reinforcing its position and ensuring that it is well placed for further market growth.
2015 Trends to Watch: Payments, IT0003-000628 (November 2014)
“Payments innovation needs to go global for true disruption,” IT0059-000009 (April 2015)
“Android Pay is the next step in Google’s mutating payments strategy,” TE0003-000834 (March 2015)
“An independent PayPal will be a stronger business,” TE0003-000802 (October 2014)
Gilles Ubaghs, Senior Analyst, Financial Services Technology