PayPal has long been the king of peer-to-peer payments and a big player in online payments, but has had a very limited presence in stores. The company’s $2.2 billion acquisition of a fast-growing Swedish payments company called iZettle is a smart but expensive way to fill that gap. The deal will put it in clear competition with Square, a payments processor that has gained a huge following among small businesses, and big point-of-sale terminal providers such as Worldpay. PayPal is paying a high price for a small company in a market that is already fairly crowded—but it is the right move strategically because retailers increasingly want to be able to accept payment in any forms, online or in-store, quickly and easily.
iZettle technology is mobile or tablet based, with a small, light card reader that is cheap compared with full-blown checkout terminals. That gives PayPal a lower cost option that should be useful for its own small business customers, and gives it the cool factor to help it compete with Square, the payments company set up by Twitter ’s Jack Dorsey. Based in Sweden, iZettle has built a presence in Europe and South America that will allow PayPal to bring its platform to nearly 500,000 stores in 11 new countries including France, Germany, Brazil, and Mexico. PayPal is late to the innovations that Square helped pioneer and is paying a high price to catch up. But the cost is necessary to plug the gap and compete in a shifting customer environment geared towards convenience and accessibility.
What PayPal has done with this deal is a major step towards establishing itself as the biggest player in the world of alternative forms of payment. While the deal may be expensive and is not expected to be profitable until 2020, the long term benefits of such a deal will far outweigh the loss in the short term. PayPal will effectively increase its global presence and will adopt a platform that will add flexibility of services and strength in a highly competitive industry. In a fast-changing consumer market, such as the one we are in, it is vital to adapt accordingly as innovation and new competition can render your business’ products and services obsolete. It may be imperative to entertain M&A transactions in order to maintain your presence in the competitive field, as adding new product lines and research and development are not only costly but also time consuming. M&A transactions such as these are cost effective and time efficient.