EBay Inc has agreed to acquire payments service provider Braintree Payments Solutions. The e-commerce platform would pay $800 million in cold cash to fund the deal. Most analysts think the acquisition is part of the company’s strategy to take advantage of growing opportunities from smartphone users.
The transaction is set to be completed in the last quarter of the year. eBay assured that it would not affect the total payment volume of its payments processing unit PayPal this year. It would also not pose any impact on the eBay’s annual revenue yet.
As expected, the deal would benefit eBay’s PayPal business because Braintree has an extensive customer data, an expanding network, and a lucrative source of revenues (transaction fees). Braintree presently processes over $12 billion payment transactions each year. More than 30% of those originate from mobile devices.
The strength of Braintree
To date, Braintree is among the fastest growing payments processing firms in the world. Aside from PayPal, it also competes with Square Inc, Stripe, Inc, and even Google Inc. Its growth has been robust in the past two years when its transactions have grown from $3 billion to $12 billion annually.
Braintree has a unit called Venmo that would further strengthen PayPal’s cash payments operations. Braintree purchased Venmo in 2012 for $26.2 million. Venmo apps facilitate virtual exchange of minimal amount of money without any charge between bank accounts and with the use of debit cards. Its latest ‘Touch’ service could store credit card data in mobile apps.
The PayPal business
For its part, PayPal has successfully expanded from being a payments processor for eBay to being a processor for many other payments online. Just like other companies in its industry, the greatest challenge for the business is to get into mobile payments and overcome the setbacks of doing so. It is aiming to create a simpler process that would be easier compared to swiping of credit cards. It also intends to be more widely adopted by more vendors and customers.
The acquisition of Braintree would certainly help PayPal win the competition especially in mobile payments. Since eBay bought PayPal in 2002, the payments processor has become an important profit center for the company. With more than 132 million regular users across the globe, the unit’s revenue is expected to even overcome the revenue of eBay from its online marketplace in the next few quarters.