The past couple of years have seen eBay quietly assembling the elements to turn its PayPal arm into an all-embracing payments platform, spanning online, physical and mobile purchases. Its latest acquisition is an $800m cash deal for Braintree, a global payments provider.
Braintree specializes in providing payment processing for smaller retailers, mainly online or mobile start-ups. Customers include restaurant reservation service OpenTable and room rental site Airbnb. It will become a unit of PayPal, which eBay expects to process $20bn in mobile transactions alone this year, expanding from its traditional dominance of the web purchases field. That $20bn could be boosted by more than half by the new unit – Braintree expects to process $12bn worth of purchases this year.
‘We’ve made a significant investment in mobile over the past couple of years,’ said eBay CEO John Donahoe in an interview with Bloomberg. ‘It’s a natural fit.’
PayPal, which eBay acquired in 2002 for $1.18bn, is rapidly becoming the crown jewel for a company which made its fortune in online auctions, but has not always made the wisest acquisitions ‘ its ownership of Skype, prior to selling the firm on to Microsoft, was ill-starred. PayPal contributed 40% of eBay’s revenue last year, putting $1.6bn in the pot and achieving year-on-year growth of 20%, well above its parent’s overall 14%.
As mobile payments gather pace, and users look to buy good in physical shops with their handsets too, PayPal and eBay are positioning themselves to control every link in the chain, from the actual transaction to the back end, plus broader services such as location aware marketing tools for retailers.
As it battles to fend off start-ups like Square in the in-store payments area, PayPal has been very cold on NFC, despite the enthusiasm of cellcos and web giants like Google ‘ itself trying, but largely failing, to take the helm of the payments ecosystem. It prefers technologies that do not require new installations by merchants or consumers, such as Bluetooth Low Energy, which powers its new Beacon device for wireless payments using handsets.
‘This deal makes reasonable sense strategically as it expands PayPal’s distribution and removes a competitor,’ Mark Mahaney, analyst at RBC Capital Markets, wrote in a research note.
The deal is eBay’s largest since it bought GSI Commerce for $2.4bn in March 2011, though it has been working with Braintree for over a year. Braintree itself made an acquisition last year, of payments start-up Venmo, whose technology allows customers to authenticate themselves in one app and then be recognized in others. Apparently that tool was a significant attraction for eBay too and the one-touch payments which Venmo authentication enable is now expected to be extended to other eBay businesses.
Braintree is eBay’s twelfth acquisition since it bought Magento, the basis of its expanded ecommerce business, in March 2010, and most of its purchases have been directed at creating an end-to-end commerce platform, dubbed X.Commerce, for all kinds of businesses. It is the thirty-third since buying PayPal back in July 2002.
Magento brought an open source commerce software platform that allowed merchants to build online storefronts based on easily customizable templates, which is now fully integrated with PayPal services and those of another acquisition, GSI, a digital ecommerce and marketing firm. Other deals in the area have included RedLaser, Milo, WHERE and Fig Card, which add many aspects of social/local shopping, a key driver of mobile commerce. RedLaser specializes in comparison shopping; Milo links customers to a local inventory of products; WHERE added a location-based advertising network plus a local deals service and guides; and Fig Card is a competitor to Square in offline payments.