On Thursday, the online payment system PayPal announced its purchase of iZettle, a mobile-card reader and point-of-sale analytics system, for $2.2 billion.
The strategy is twofold for PayPal – first, this helps them breach the brick-and-mortar market by having a mobile card reader that is widely becoming popular in the US due to a similar firm called Square. Secondly, it allows PayPal to grow their international presence, as iZettle is used in half a million stores in Europe across 11 different countries.
iZettle will have to continue its growth to compete with Square, who processed 446 million payments in 2014. In 2016, Square (SQBK) had $686 million in revenue and forecasts revenue over $1 billion in 2018. This figure topples that of iZettle, which is projected to accumulate $165 million in revenue in 2018.
Although iZettle does not seem to be growing as quickly as Square, this is still a brilliant move by PayPal. It allows them to kill two birds with one stone – breaching foreign markets and obtaining a point-of-sales card reader system – and clearly, investors see that as well.
Moreover, PayPal’s (PYPL) shares rose 2% after the news struck, while Square’s fell by over 3%. PayPal’s stock is up by over 9% this year, and this acquisition will likely continue this upward trend.
This decision largely came into play due to eBay’s (EBAY) choice of opting out of their partnership for its e-commerce services. Instead, it chose Dutch firm Adyen.
Plus, the relationship is mutually beneficial – iZettle planned to announced its IPO within the year, but PayPal’s offer almost doubled what they hoped to be valued at in their IPO. PayPal will assist iZettle in breaching the electronic commerce market as well.
The Square-iZettle rivalry is similar to Nike-Adidas in terms of their geographical separation and dominance. With PayPal now on board, iZettle will expand rapidly in the UK and potentially even the US. This was a brilliant move by PayPal, and they will soon reap the benefits.
Featured image via Flickr/Håkan Dahlström
