PayPal Makes Mobile Push Via Series of Acquisitions
PayPal Inc. revolutionized how consumers pay for goods online. Now it is in a battle with several other companies to determine what brand or product will dominate the now burgeoning mobile payment space. The eBay Inc.-owned company has made seven acquisitions in 2011 and its own product announcement to show it is serious about mobile and location-based payments.
PayPal knows that mobile could mean big business and is likely to grow rapidly. The company already has revised its estimates for its 2011 mobile payments volume three times this year. It most recently said it expected the volume to reach $3 billion, up from $750 million just last year. PayPal now processes $10 million in mobile total payments volume each day, up from $6 million in just March. That figure includes both person-to-person money transfers and m-commerce purchases. Though PayPal offers Mobile Express Checkout for merchants, PayPal Mobile Payments Library for developers and PayPal payment apps for smartphones, it has been able to make several more advancements through the rapid succession of acquisitions.
PayPal’s Buying Spree
In April, the company bought the Boston-based local payments and advertising company Where for over $135 million as part of eBay’s strategy to strengthen its position in mobile and local commerce. With the acquisition, eBay plans to integrate PayPal into the Where mobile app, which has 4 million users. Where started in 2003 with the idea of providing location-tracking for GPS-enabled cell phones. In recent years, Where has released a local search and recommendation app for mobile devices operating on iOS, Android and Blackberry-powered platforms and rolled out a location-based advertising network. More recently, it has gotten into the daily deals and merchant services further blurring the lines between online and local shopping. At the end of the day what PayPal hopes to do is to use the Where app to turn the smartphone into a mobile wallet.
A week later, PayPal made a small acquisition of $15 million for Fig, a USB-enabled mobile payments acceptance device that plugs into the cash register or POS terminal and enables consumers with the Fig app to pay for purchases via their smartphone. No credit card numbers, debit account information, or other potentially sensitive information is given to the merchant. The app also can manage loyalty programmes. Fig, which also was based in Boston, appears to be part of a long-term strategy for PayPal to move a step closer to in-store payment. Back in February, PayPal said it would conduct several pilot programs over the new year to enable consumers to use their PayPal accounts at the register. They didn’t say then how they would overcome technology barriers, but it appearing now that the Fig device that retailers can plug into machines might be that solution. Merchants are more likely to adopt a new payment system like Fig because it is affordable and improves the customer experience. Fig’s concept is similar to what Square is trying to do in giving consumers devices that would enable any smartphone to accept payments.
PayPal most recently added to its stable of mobile-payment services with the $240 million purchase of Zong Inc., a startup that lets users charge online purchases like online gaming and social networking websites to their wireless carrier bills. In order to make a purchase, the consumer would enter his or her mobile phone number onscreen and then Zong verifies that number. Subsequently, the payment is cleared on the customers’ existing mobile service account. PayPal acquired Zong for its massive international reach. Zong has relationships with more than 250 mobile carriers and serves 3.2 billion users in 21 different languages and 45 different countries, which would be a boon for allowing PayPal to serve consumers in emerging markets. This service will allow PayPal to expand its footprint in those countries where internet connection is poor and as a result mobile phones might be relied on more for online purchases.
Outside of these three acquisitions, PayPal has also made four others intended to help it move into the mobile space as well as launching its own app. Other acquisitions included: RedLaser, a smartphone bar code reader that drives comparison shopping; Milo, an inventory aggregation engine; GIS, an e-commerce, fulfilment and marketing services giant; and Magento, an open-source e-commerce platform that will become the retail version of PayPal X within the eBay family. This summer PayPal also announced that it will release an NFC-based PayPal mobile application that will rely on Samsung’s Electronics Nexus S phones operating on the Android platform to allow peer-to-peer payments. The payment widget will enable users to request and send money like can be done on the full PayPal website. It is similar to PayPay’s Bum Technologies-enabled iPhone app, but with NFC, which is all the hype in mobile payment technology these days. These acquisitions and product release are meant to make PayPal a greater force in the world of mobile payments.
Competition is Heating Up
It is not surprising PayPal has been on an acquisition spree. While PayPal is one of the longest-standing online payment providers, it faces steep competition in the digital payment space from both start-ups like Square and more traditional payment names like MasterCard and Visa. Each player is hoping to carve out a niche between mobile users and the goods and services they want to pay for with their phones. The two biggest splashes so far have been Isis and Google Wallet.
Isis, which is the mobile commerce joint venture spear headed by Verizon and T-Mobile USA, recently announced that the four US payment operators –Visa, MasterCard, American Express and Discover — had come on board. Isis also recently identified Austin, Texas as it second launch market behind Salt Lake City, Utah for when it begins NFC-based contactless payment trials in the first half of 2012.
Earlier this spring, Google also unveiled the Google Wallet, which aligns the search-engine behemoth with the U.S. mobile network provider Sprint and financial service providers MasterCard, Citigroup and First Data to enable subscribers to purchase goods and redeem coupons and loyalty reward via Android smartphones. Hours after the Google press conference introducing the mobile payment solution, PayPal filed suit claiming the web services giant misappropriated “trade secrets” when it hired away PayPal executives.
What the acquisitions mean for the payment space
These latest developments are another example of the variety of solutions being introduced within the mobile payment space. There likely will not be just one winner, but multiple payment options tailored to each consumer’s preference. But like anything related to consumer choice, any new solution must be different and must deliver something better than the existing way of doing it. PayPal is clearly serious about mobile and local payments and it is buying its way into the space as it cobbles together a number of acquisitions to create a viable payment option. Of course, it is still ambitious considering that PayPal is a digital product and doesn’t have the built-in connection with local businesses that have POS terminals like payment operators MasterCard and Visa would. What PayPal has been able to do is a bit more unique.
The acquisitions of Where, Red Laser and Milo is allowing PayPal to take advantage of scan and geo-search capabilities that level the playing field for local merchants who want to compete with the big retail giants. Fig also allows the transitions to happen via a mobile phone without merchants having to rip out and replace POS terminals thanks to a device that just plugs into registers and has low costs. Still one of the biggest stumbling blocks will be merchant acceptance of PayPal at large retailers. Price has been one of the deterrents merchants have had to PayPal and while PayPal may not have been hurt so much by the Fed rules, downward pressure to lower merchant fees doesn’t help its case. Then, there is the issue of integrating all of these pieces together into a cohesive whole. PayPal may not have the full answer for an offline and online retail platform but it will be able to disrupt about every facet of the traditional payment system. What PayPal does best is to use technology to improve the payment process and it may have found ways to do this for aspects of the mobile payment system.