PayPal Announces Acquisition of iZettle, Establishing Stronghold in Retail Payments Terminals

While most consumers still hold on tightly to their credit cards, the ubiquity of smartphones and mobile devices as well as the increasing interconnectedness between merchants, vendors and clients is promising a boost in alternative payment methods. Recently, PayPal made waves in the alternative payments industry by announcing that it closed a deal to acquire Swedish startup iZettle. How will the acquisition affect PayPal’s place in the market?

PayPal Completes iZettle $2.2. Billion Deal

On September 21st, PayPal confirmed that the acquisition of iZettle, which cost roughly $2.2. billion, has been completed. The iZettle team, including CEO and co-founder Jacob de Geer still in the lead of the new suite of iZettle services and Executive Chairman and co-founder Magnus Nilsson, are set to join PayPal. However, operations will still be kept separate as PayPal is waiting for the UK Competition and Markets Authority to conclude its review of the deal, which is the latest in a series of strategic partnerships for the company. Stockholm-based startup iZettle focuses on payment processing products and services, including a POS and an award-winning minimalistic card reader that processes chip, swipe and contactless payments at a 25% faster rate than its competitors. It takes payments by major credit and debit card issuers like Mastercard, Visa and Amex as well as e-wallets like Google Pay and Apple Pay.

As CNBC reports, both PayPal and iZettle expect to gain from this deal, as PayPal has experience with integrating providers like NetCents in the past. iZettle will no longer need to achieve a listing of its own, something which the company has reportedly pursued for approximately a year before the deal was closed. While it was in talks to secure a listing on the NASDAQ stock market, its valuation was estimated at roughly half the price that it took home with this agreement, which remains the biggest deal yet for PayPal. iZettle has been having trouble competing with larger companies, and its network of 500,000 merchants will benefit from PayPal adoption across 20 million retailers, including major players like Best Buy and Walmart. PayPal, which is valued at 94 billion, is active in 200 countries and iZettle in just 12 across Europe and Latin America. It is precisely these connections that made it so valuable to PayPal.

The deal will allow PayPal to push forward in the payment terminals industry among physical retailers – where its competitor Square already has the upper hand. Yet Square is only active among physical retailers in just five countries: the US, Canada, the UK, Japan, and Australia. iZettle estimates that its card reader will be used to process payments worth $6 billion in European and Latin American markets where it is present – which means that PayPal will be able to establish a stronghold there. And while Square is trying to find its way into the e-commerce sector, combining PayPal’s capabilities to process 25 currencies with iZettle’s products will allow it to offer an integrated payment solution that will most likely place PayPal as a frontrunner in the industry.

PayPal Faces Competition from Alternative Payments Providers

PayPal is probably the most recognizable brand name in the alternative payments industry, but lately it has seen the rise of other companies, like Neteller and Skrill, that are starting to make a name for themselves. In industries that regularly have to process money in order to fund clients’ accounts, alternative payments methods are increasingly diversified. Online trading brokers such as Plus500 accept payments in both PayPal and Skrill, while online casino Betway accepts PayPal as well as payments via Neteller and Skrill. Gaming is an industry that has embraced alternative payments. Major providers like Facebook accept PayPal and several other platforms like Neteller and Ukash according to country, while online players can shop for in-game merch for popular games like Dota 2 and Counter-Strike: Global Offensive through their Neteller, Skrill or PayPal account on online gaming shops like VikingDota.

Neteller in particular is used by a wide array of merchants, while Skrill is embraced by several retailers like online gifts service eGifter and popular freelance services marketplace Freelancer. Still, neither Skrill nor Neteller, which are both owned by Paysafe Group, currently seem unable to challenge PayPal’s dominance just yet, as they are often offered alongside the leading alternative payments provider. PayPal has been doing extremely well lately, with its stock price almost doubling in 2017 and rising nearly to a record high in late January 2018, with analysts at Forbes predicting that its market cap might overcome banking firm Goldman Sachs and maybe even touch the $100 billion milestone. Even though some expected it to take a hit after parent eBay decided to drop it as its primary payments provider in favor of Dutch firm Ayden, things have actually moved towards the opposite direction. While PayPal processed payments worth $53.7 in Q1 2014 against eBay’s total volume of $20.6 billion in the same quarter, following the split in July 2015 PayPal rose to a volume of $131.5 billion in Q4 2017 while eBay remained somewhat stagnant at $24.4 billion – 13% of PayPal’s volume in that quarter.

Will the acquisition of iZettle serve as the next building block to PayPal’s global empire and fortify it against competitors like Square?

This article does not necessarily reflect the opinions of the editors or management of EconoTimes