The digital payments space is at the center of the fintech revolution that is inspiring fierce competition among startups and technology giants such as Apple Inc. (AAPL) and Alphabet Inc. (GOOG). Founded in 1998, PayPal Holdings Inc. (PYPL) is still the dominant player in first-person payments through its web and mobile app payment platforms.
PayPal launched as a security software company called Confinity, founded by Peter Thiel, Max Levchin, Luke Nosek and Ken Howery. The money-transfer service which would become the independent company called PayPal was first developed as a portion of Confinity in 1999. In 2000, Confinity merged with Elon Musk's online banking site X.com, which later changed its name to PayPal before going public in 2002. PayPal was acquired by eBay for a reported $1.5 billion shortly thereafter and remained in this configuration until it was spun off in July of 2015.
As of May of 2019, PayPal is led by President and CEO Dan Schulman, Executive Vice President and Chief Operating Officer Bill Ready, Chief Financial Officer and Executive Vice President of Global Customer Relations John Rainey, and Executive Vice President, Chief Business Affairs and Legal Officer Louise Pentland.
PayPal has become known for its significant number of partnerships with companies across a diverse array of industries. In recent months, PayPal has partnered with Instagram to create the "Checkout on Instagram" feature, effectively turning the popular social media service into an e-commerce platform.
PayPal's Revenue Growth
According to PayPal's 2018 Annual Report, the company serves 267 million active accounts, processing $578 billion in payments during 2018 and across 9.9 billion transactions. In 2018, PayPal reported net revenues of $15.45 billion, up from $13.09 billion for 2017. Total assets for 2018 were $43.33 billion, up from $40.77 billion the previous year.
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. In recent years, PayPal has acquired many companies that keep it at the forefront of digital payments innovation. Below, we'll take a closer look at some of PayPal's top holdings.
1. Braintree Payments
In 2013, PayPal acquired Chicago-based Braintree Payments for $800 million. Since its founding in 2007, 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 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.
[Fast Fact: Venmo is the fastest-growing payments platform among PayPal's services.]
PayPal’s acquisition of Venmo was actually a key part of its 2013 Braintree deal. Venmo, which was wholly owned by Braintree, is a mobile payment solution in the hotly-contested P2P payments space. The Venmo payments app has become incredibly popular among customers in a variety of settings, and particularly for customers in restaurants who use the service to split up a tab. Although Venmo's payment volume represents a small portion of PayPal’s mobile payment volume, it is the fastest-growing platform. By the end of Q1 2019, Venmo had more than 40 million active accounts. During that period, Venmo processed about $21 billion in total payment volume, representing a year-over-year incrase of 73%.
The acquisition of Paydiant Inc. in 2015 for $280 million provided PayPal with a major entry into the mobile payments market. Paydiant’s platform provides big-name merchants, such as Wal-Mart Stores Inc. (WMT) and Best Buy Company Inc. (BBY), with the ability to integrate complete mobile wallet capabilities into their own mobile apps. The acquisition has helped PayPal further develop its relationships with merchants and capture a bigger share of the mobile wallet space.
4. Xoom Corporation
As part of a strategy to strengthen its international business, PayPal acquired Xoom Corporation in 2015 for approximately $890 million. Founded in 2001, Xoom had more than 1.3 million active U.S. customers who use its platform to send international remittances totaling $7 billion during the year PayPal acquired it. 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.
In 2015, 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.
6. TIO Networks
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.
[Fast Fact: iZettle is PayPal's largest acquisition to date.]
PayPal acquired European fintech startup iZettle for about $2.1 billion in cash 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. The company anticipated $165 million in revenues generated through $6 billion in payment volumes for 2018. PayPal acquired iZettle in large part to expand its in-store presence, particularly with small businesses.
In June 2018, PayPal acquired Hyperwallet for approximately $399 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.
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.
PayPal has adopted a fairly aggressive acquisitions strategy, particularly since it separated from eBay in 2015. The company asserts its dominant role in the world of payment processing services in part by acquiring potential competitors before they can pose a significant threat. In the process, PayPal gains exposure to new markets and broadens its platform capabilities.