What Will PayPal's Acquisition Of Xoom Mean For The Payments World?
By Christine Kern, contributing writer
Acquisition shakes up the payment world
In anticipation of its separation from parent company eBay later this month, PayPal has announced the acquisition of digital money transfer provider Xoom for $890 million in an all-cash deal.
Xoom is a cross-border P2P remittance provider that allows customers in the United States to send money to and pay bills for individuals around the globe using mobile phones, tablets or computers in a secure, fast, and cost-effective manner.
The proposed purchase of Xoom comes months after PayPal’s $280 million acquisition of Paydiant, a mobile payment startup. That deal was finalized in early April.
PayPal President Dan Schulman explained, “Expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money. Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace.”
Gilles Ubaghs, Senior Analyst, Financial Services Technology at Ovum, explained that PayPal is diversifying to shore up its global position, stating: “This includes an expansion of its consumer focused capabilities, highlighted by its acquisition of Xoom which gives PayPal significant presence in the cross-border remittance space, while also providing it with a significant foothold in key emerging markets. Xoom reportedly processed over $7bn in transactions in 2014 with a core US customer base of only 1.3 million consumers. Although PayPal has always had a strong presence in the P2P space this has primarily been for domestic transactions only.”
According to Ubaghs, a key component of PayPal’s broader strategy, particularly in light of competition from Apple, Google, Samsung, and others, is its growing focus on remaining technology agnostic and offering open stack solutions. Ubaghs explained “PayPal calls this its “Open Commerce Platform” incorporating PayPal Credit, its core wallet that offers rapid loans to consumers, in-app payments via Braintree, and in-store payments via Paydiant, through the development of merchant-led wallet and app loyalty programs.”
The deal is expected to be closed in the fourth quarter of 2015, likely months after PayPal separates from eBay, which is expected to happen on July 17.
SunTrust Robinson Humphrey analyst Andrew Jeffrey told the Wall Street Journal that PayPal will suddenly have the best “remittance franchise” that works globally, as well as the best risk-management technology in the industry for working with banks’ automatic clearinghouses.
This approach signifies a split from PayPal’s older strategy of bouncing from payment technology to payment technology to see what worked, and offers the company a clearer strategy of expanding capabilities across the payments value chain. By diversifying its portfolio, PayPal is shoring up its position leaving it well-placed for further market growth.
“Today, this primarily cash-based system of sending money abroad can be time-consuming, insecure and expensive,” wrote in-coming PayPal CEO Dan Schulman in a blog post. “There is no more personal payment experience than sending your hard-earned money home to help the people you love. Making international remittances simpler, safer and more affordable is something PayPal is excited to do for our customers.”
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