PayPal Acquires Paydiant: An Opportunity for PayPal To Shine
Date: March 3, 2015
PayPal has done well in online payments and has made some headway in merchant acquiring but has failed to find itself a role in the payments ecosystem because it has avoided working with banks and has taken a low-touch approach to working with merchants. By low touch, I mean that the primary approach PayPal has taken with merchants is to offer a low-cost online card acquirer solution. Yes, PayPal has been active in providing additional merchant services, such as loyalty and credit solutions, but these tend to resonate primarily with small merchants, not midsize and large merchants.
Paydiant, on the other hand, has been working with MCX to provide merchants a mobile wallet that can lower mobile payment acceptance costs and implement a loyalty and incentive platform to drive greater spend and shops. Paydiant has also been establishing relationships with banks for both mobile enablement of their ATM fleets as well as offering banks a mobile wallet that bypasses the restrictive nature associated with the implementation of solutions from the branded networks, which have partnered directly with mobile carriers and device manufacturers to become their sole token service provider—thus limiting the banks’ ability to establish similar relationships and making it more difficult to move a portfolio to another network.
So the acquisition of Paydiant is either (1) a profitable investment by PayPal that delivers a better mobile wallet and loyalty component that will better appeal to midsize and large merchants while also enabling PayPal to better integrate into the MCX business plan, or (2) a major expansion of PayPal’s strategy to provide value to those organizations that are being marginalized by the branded networks EMV and tokenization implementation strategies, which includes midsize and small banks, ATM networks, PIN debit networks, and issuing processors not actively helping the networks with their implementation.
If PayPal utilizes Paydiant technology and partnerships to speed up PayPal’s sales into midsize and large merchants, then the Paydiant acquisition will pay off as a tactical purchase. But if PayPal throws its weight into expanding the Paydiant strategy, then PayPal is positioned to deliver meaningful products and services that cut across merchants banks, PIN debit networks, and issuing processors. This approach would require PayPal to rethink its current issuing strategy, but that would be a small sacrifice for gaining a much larger foothold in the payments industry.
Watching how PayPal evolves utilizing Paydiant technology and brain power will be fascinating.