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Summary

PayPal’s acquisition of Paydiant and its decision to embrace NFC are timely moves that will strengthen its m-commerce play in bricks and mortar retail. Its progress in this area had been starting to slow in the face of growing competition from Apple, Google, and other providers. Paydiant has a strong lineup of retail customers for its white-label m-wallet platform, including the Merchant Customer Exchange (MCX) consortium of leading US retailers. Paydiant also has capabilities in mobile loyalty and related customer engagement applications; these capabilities are attractive to merchants and are among the reasons why PayPal was so eager to acquire the start-up. PayPal is demonstrating how it intends to behave after its imminent separation from parent eBay: it aims to be faster on its feet and more responsive to market developments and opportunities.

Paydiant brings new capabilities and customers to PayPal

PayPal has done well to acquire Paydiant, an attractive US start-up that has developed a flexible mobile wallet platform. Paydiant’s white-label m-wallet platform is proving popular with retailers and banks that want to provide their own m-commerce services rather than be part of third-party propositions such as Google Wallet and Apple Pay. Many banks and retailers are uncomfortable with the terms imposed by third-party m-wallet providers and prefer white-label solutions that give them more control over business terms, service definition, and the customer relationship. Adding Paydiant to its portfolio means that PayPal now has an effective channel to address such banks and retailers. Paydiant’s existing partners include Barclaycard, Capital One, Subway, and MCX. Paydiant’s activity is currently confined to the US, but with PayPal behind it the start-up’s prospects for expanding further afield are much stronger.

Alongside m-payments, Paydiant’s platform supports a range of m-commerce services, including loyalty and m-coupon applications. The start-up’s expertise in the broader m-commerce domain is a big draw for retailers and, in turn, PayPal. Although m-payments are of great value to retailers, they typically find loyalty and marketing-related applications just as compelling – if not more so. In the past PayPal has taken steps to strengthen its own capabilities in the latter area; for example, its latest mobile app introduced the ability to link loyalty cards to the service. Ovum expects PayPal to leverage Paydiant’s m-commerce technology to further enhance its mobile app and also the PayPal Here mPOS solution.

PayPal will be integrating NFC with the PayPal Here solution, starting in the UK and Australia in the summer of 2015, followed by the US later in the year. PayPal has resisted NFC until now, but believes the market and merchants are finally ready. It also admits that the move has been influenced by Apple’s decision to use NFC for mobile proximity payments in Apple Pay. PayPal’s U-turn on NFC has been accompanied by a cooling toward Bluetooth low energy beacon technology. PayPal was one of the first to support beacon applications, but will not be pursuing new beacon projects. This is because the technology is not moving as quickly as it hoped, and because merchants remain largely unmoved.

Appendix

Further reading

Samsung’s m-payments move will intensify the mobile wallet wars, TE0003-000830 (March 2015)

Digital Wallets: Positioning and Progress, TE0003-000806 (November 2014)

Digital Wallets: Ecosystem Dynamics and Monetization, TE0003-000809 (November 2014)

Digital Wallets: Service Evolution, TE0003-000810 (November 2014)

“Softcard hands over the reins to Google,” TE0003-000828 (February 2015)

Author

Eden Zoller, Principal Analyst, Consumer Services

eden.zoller@ovum.com

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