PayPal eyes servicing SMBs with $2.2B iZettle acquisition

18. June 2018.

PayPal made the largest acquisition in its history Thursday when it announced an agreement to purchase iZettle, commonly referred to as the European Square, for $2.2 billion.

Sweden-based iZettle, which had been prepping for an initial public offering, will now become part of PayPal’s strategy to help more small businesses get involved in the digital economy.

“We think this fits with our global reach and how we want to service small businesses,” Bill Ready, PayPal’s COO, told CNBC Friday morning in an interview. “What we think the iZettle team has done has been quite distinctive. They’ve managed to do that not just in-store [payments acceptance] in a single country or a couple of countries. They are doing that in 12 markets around the world.”

For PayPal, the acquisition marks another chapter for a company that has increased its purchasing power since it split from eBay in 2014.

At the time, many industry observers believed the move would give the digital payments company the ability to become more nimble in the market and achieve true powerhouse status alongside the traditional card networks and payments processors.

The iZettle acquisition helps to bolster PayPal’s standing in the industry, particularly in the physical retail space, an area where it once tried to gain a foothold.

“This is not the first time PayPal has attempted to push into physical retail,” Michelle Evans, head of digital consumer research at Euromonitor, said in an e-mailed statement. “Having a presence in physical retail is important, even in the digital era. Despite all the headlines about the rise of e-commerce and the shrinkage of store footprints, it is important to note that the physical channel remains the dominant one for transactions.”

PayPal at the moment does have its one Square/iZettle competitor with PayPal Here, which the company pushed heavily in late 2014 and into 2015. While the product still exists, there’s no word yet on what happens to PayPal Here with the iZettle acquisition.

While the mainstream media has framed PayPal’s iZettle acquisition as a way for the company to compete with Square, the reality of the situation is that the companies were already competing in areas such as payment processing and ancillary for merchants, particularly small businesses. The aforementioned Here product put PayPal and Square into closer competition.

PayPal’s latest acquisition will find the company battling Square, Adyen and other merchant acquirers worldwide to service small businesses with both in-store payment acceptance and e-commerce.

“This is really about small businesses and small businesses using mobile devices to blur the lines between online commerce and physical commerce,” Ready told CNBC. “We see a global phenomenon of small business coming into the digital economy in many ways.”

As for iZettle, the PayPal acquisition obviously means the company will no longer seek an IPO.

Jacob de Geer, iZettle’s founder and CEO, told CNBC the company had been preparing for an IPO for the last year.

“We’ve been struggling all along to get to the vision we’re aiming for in terms of helping small businesses and competing with the giants, and PayPal has in the area of 20 million merchants whereas iZettle has 500,000,” he told CNBC.

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