Payments companies are becoming increasingly interested in acquiring companies outside the industry as a way to stay relevant in a competitive market.
"The big picture is payments alone easily become a commodity," says Todd Ablowitz, president of Centennial, Double Diamond Group LLC. Payments companies "have to give their customers a comprehensive value that they are willing to pay for; many times the payment just becomes part of the experience."
Last month eBay Inc. subsidiary PayPal bought Iron Pearl, a startup that finds ways for companies to make their products more attractive to customers online. Also in April, OpenCoin Inc., which is building a virtual currency and payments platform to launch in May, acquired Simple Honey Inc. to address user experience. And last year, Square announced its purchase of New York design firm 80/20, which specializes in designing user interface.
These acquisitions – technology companies taking on user experience experts –will be more common as technology becomes more advanced, says OpenCoin CEO Chris Larsen.
"It could be a great technology but if it's impossible to understand, it's not going to fly," he says. "Getting people to care about [the technology] emotionally is critically important."
This is due to the rapid rise in competition in the payment marketplace, Larsen says.
With Square's purchase of 80/20, "Square is interested in having the best experience," Ablowitz says. "If they get a really outstanding set of designers … they get the look and feel and usability that is unparalleled and they believe they can monetize that."
In May last year, Groupon acquired Breadcrumb, which makes point of sale systems for iOS devices. This purchase allows Groupon to more easily introduce the startup's technology to existing merchant clients. Groupon also launched a mobile card reader in September.
Ablowitz says a lot of acquisitions have to do with software. "Software has a major renaissance happening right now," he says. "There are many solutions for customers that can be created using software and this marries beautifully with payments."
Not only is cloud-based software revolutionizing the industry but software as a service-based offering is also changing the game, Ablowitz says.
Payment service providers are always looking for niche merchant software providers to partner with, Ablowitz says. For example, software developed specifically for laundromats could add a simple payment feature.