The digital payments space is the center of the fintech revolution that is experiencing fierce competition among startups and technology giants, such as Apple Inc. (NASDAQ: AAPL) and Alphabet Inc. (NASDAQ: GOOG). Founded in 1998, PayPal Holdings Inc. (NASDAQ: PYPL) is still the dominant player in first-person payments through its web and mobile app payment platforms.
In 2017, more than $450 billion flowed through PayPal’s payment platforms utilized by 227 million people around the world; however, as the battle for in-store and peer-to-peer (P2P) payments heats up, PayPal has had to look outside for fintech companies in order to remain competitive. Since 2013, PayPal has acquired many companies that keep it at the forefront of digital payments innovation. On June 21, 2018, Paypal announced that it would acquire Simility, a fraud prevention specialist, for $120 million. Simility uses AI-based technology to prevent fraud.
According to CNBC, Third Point bought PayPal shares in the second quarter. Third Point hedge-fund manager Daniel Loeb wrote in the note to clients on July 23, 2018, that "We see parallels between PayPal and other best‐in‐class internet platforms like Netflix and Amazon: high and rising market share, untapped pricing power, and significant margin expansion potential."
Loeb predicts PayPal's earnings per share will exceed expectations. He estimates that PayPal shares will rise to $125 within eighteen months.
On July 25, 2018, PayPal released Q2 earnings. The company reported $3.86 billion in revenues, reflecting a 22% year-over-year increase. The following are some of the top companies owned by PayPal.
In 2013, PayPal acquired Chicago-based Braintree Payments for $800 million. Braintree developed a payments gateway that powers and automates online payments for merchants and online businesses. Among its major customers are successful online companies such as Uber Technologies Inc. and Airbnb Inc. The company, which was founded in 2007, processed more than $50 billion in total authorized payment volume in 2015, more than double its volume in 2014. Braintree has helped PayPal become a global one-stop shop for merchant account services and payment processing.
PayPal’s acquisition of Venmo was actually a key part of its Braintree deal. Venmo, which was wholly owned by Braintree, is a mobile payment solution in the hotly contested P2P payments space. In the second quarter of 2016, Venmo processed nearly $4 billion in P2P money transfers, up 141% over the prior year. The Venmo payments app is popular among restaurant customers, who use it to split the tab between multiple diners. Although Venmo's payment volume represents a small portion of PayPal’s mobile payment volume, it is the fastest-growing platform.
The acquisition of Paydiant Inc. in 2015 for $280 million provides PayPal with a major entry into the mobile payments market. Paydiant’s platform provides big-name merchants, such as Wal-Mart Stores Inc. (NYSE: WMT) and Best Buy Company Inc. (NYSE: BBY), with the ability to integrate complete mobile wallet capabilities into their own mobile apps. The acquisition helps PayPal further develop its relationships with merchants and capture a bigger share of the mobile wallet space.
As part of a strategy to strengthen its international business, PayPal acquired Xoom Corporation for $890 million in 2015. Xoom has more than 1.3 million active U.S. customers using its platform to send international remittances, which amounted to $7 billion in 2015. PayPal is targeting emerging markets in India and China as key growth territories and sees the Xoom online money-transfer platform as a way to tap into the $600-billion global market for remittances. PayPal anticipates an enormous potential for mobile international remittances in the growing, worldwide migrant worker market.
PayPal also acquired Modest, a small, Chicago-based fintech company, to help it expand into an emerging branch of the e-commerce ecosystem called contextual commerce. Modest’s technology enables online merchants to drag and drop buy buttons to any application, social media page, email or blog post where a consumer might encounter their products. Instead of having to be redirected back to the merchant’s website or shopping portal, consumers can click the buy button wherever they are and complete the transaction.
The Modest acquisition serves PayPal’s desire to expand its e-commerce reach among merchants. The Modest technology team is working with PayPal’s merchant services provider, Braintree, to provide online merchants with a one-stop set of tools for embedding buy buttons wherever they can, while supporting the back-end payment processing.
PayPal announced the acquisition of Canadian bill payments platform TIO Networks in early 2017. The $233-million deal helped PayPal expand its footprint into bill payments by leveraging TIO's cloud-based, multi-channel payment platform. At the time the deal was announced, TIO served 14 million consumer bill pay accounts and had processed transactions worth more than $7 billion in 2016.
In order to boost PayPal Working Capital, its small business lending business, PayPal acquired Swift Financial for $183 million in August 2017. Delaware-based Swift Financial was founded in 2006 and, at the time of acquisition, had provided funding to over 20,000 small businesses. PayPal Working Capital since its 2013 launch had given access to over $3 billion in capital to more than 115,000 businesses.
In its biggest acquisition deal to date, PayPal acquired European fintech startup iZettle for $2.2 billion in May 2018. Sweden-based iZettle was founded in 2010 as a mobile credit card payment service much like Square but evolved into providing small businesses a gamut of services such as software support and financing solutions across Europe and Latin America. It raised $47 million (40 million euros) in its last funding round in December 2017, giving it a $950-million valuation, reported Techcrunch.
In June 2018, PayPal acquired Hyperwallet for $400 million. Lisa Shields founded the company in 2000 and the company is based in San Francisco. Hyperwallet helps small organizations by allowing them to seamlessly receive payments from online marketplaces. Hyperwallet's unique platform allows companies to send and receive payments in any currency to almost every country in the world.