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Monday, May 21, 2018

PayPal acquires iZettle in omnichannel push

Nonbank payments giant PayPal entered an agreement to acquire iZettle, a small business payments platform with a market footprint that includes major European markets as well as Mexico and Brazil. PayPal has agreed to pay $2.2 billion for the Stockholm, Sweden-based firm, two times the firm's estimated market value.

iZettle earlier this month announced plans to list on NASDAQ Stockholm; the initial listing price for its stock offering was expected to generate about $1.1 billion, according to published reports. The move comes at a time when PayPal is expanding its global footprint with small and midsized businesses across channels.

"The deal for iZettle will give PayPal more of a brick and mortar presence in the form of iZettle's 400,000-plus active users in markets throughout Europe, Mexico and Brazil," said Thomas McCrohan, Managing Director at Mizuho Americas, a subsidiary of Japan-based Mizuho Financial Group Inc. iZettle reports 413,000 active users, and estimates 28 million potential small business customers within its current market footprint.

"Small businesses are the engine of the global economy and they are increasingly demanding a partner that can provide a one-stop solution to help them compete and win online, in-store and via mobile," said Dan Schulman, President and CEO, PayPal. "Upon closing, we will gain in-store capabilities in 11 markets, near-term in-store-expansion opportunities into other existing PayPal markets, and the acceleration of omnichannel commerce solutions in Australia, U.K. and U.S."

Competitive market

iZettle, a relative upstart (it was founded in 2010), became a notable player in the payments space with its launch of the first miniature chip card reader and software for mobile devices. PayPal, too, offers a miniature chip reading device for Android and iPhone devices, but according to online reviews the latest iZettle device processes transactions about 25 percent faster than PayPal chip card readers.

Despite the apparent advantages – better technology and expanded brick-and-mortar opportunities – McCrohan suggested PayPal paid too high a premium for iZettle. "[T]he price paid appears expensive, and acquiring iZettle does not alter how smaller merchants perceive PayPal as a tender type given the plethora of options already available for purchases in-store," McCrohan wrote in a research note to clients.

He added that the "increasing roster of mobile payment competitors, particularly those from large and established companies, are a growing risk to the company."

Once the acquisition closes, iZettle will operate as an integral part of PayPal's merchant services business, Schulman noted, adding that iZettle founders Jacob de Geer and Magnus Nilsson will be joining PayPal to help leverage opportunities for market expansion. Subject to regulatory approvals, the transaction is expected to close during the third quarter of 2018. end of article

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