Paypal takes on Braintree challenge

Yesterday Paypal, the e-bay owned payments platform, announced that it was paying $800m in cash for Braintree, an on-line and mobile payments services provider with a good reputation for innovation and customer service, as well as a $12bn annual payments volume.

The attraction of Braintree to PayPal is not the size of the business, (Paypal enjoyed a payments volume of $43bn in Q2), but the innovation and chutzpah that Braintree brings. To this end, Paypal has stated that it will keep the companies and the brands separate. Braintree has a following in the edgy and iconoclastic e-commerce companies, where Paypal has missed out due to its size, sloth and possibly its “establishment” reputation.

Braintree bought Venmo, a mobile payments platform for $26.2m in August 2012. (a good return here for Braintree investors). Mobile now represents about one-third of Braintree’s business, with Venmo offering one-touch payments, a good customer experience and links with social networking, thus driving opportunities in Peer-to-peer payments.

In our recent report, “Setting the Scene for Mobile Banking”, we highlighted the progress of Paypal, with its advantages of scale and links with the e-bay business. With $20bn of mobile payments this year it is already the largest global mobile payments provider (if you don’t count the credit card operators) it is growing strongly, with the market, and should continue to generate good profits growth. Paypal’s overall payments volume is growing by 24% p.a.

However, the acquisition of Braintree presents Paypal with new management challenges. We have often seen an established company buy an innovative, sparky challenger and then destroy value. It will be interesting to see whether Paypal can avoid the usual pitfalls, retain Braintree’s dynamism and customer relationships and drive yet further progress in the growth areas of the payments business.

Posted by Peter Roe at '09:50' - Tagged: mobility   payments