PayPal Steps Up Mobile Wallet Game with Paydiant Acquisition

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By agreeing to acquire mobile payment provider Paydiant, e-commerce giant PayPal has vaulted itself back into the in-store mobile wallet landscape in which Apple, Google, Samsung and others have commanded recent attention.

PayPal also now finds itself in a position to potentially have a key role in the CurrentC mobile wallet development of the Merchant Customer Exchange, of which Paydiant provides the underlying technology.

By acquiring Paydiant and using its platform, PayPal can become "an even stronger business partner for merchants" to create branded wallets and accelerate mobile in-store payments, PayPal president Donald Schulman announced in a March 2 blog.

"Similar to PayPal, Paydiant's technology agnostic approach means that merchants can use any mobile payment technology, QR codes or Near Field Communication, that best suits their business," Schulman said.

The acquisition also validates the market for bank- and retailer-branded mobile wallets through PayPal's customer base and Paydiant's white-label solution, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

"Every PayPal account is registered with a credit or debit card, as well as Automated Clearing House, so it really opens up new channels for distribution to the banks and retailers," Crone said.

PayPal's move into branded mobile wallets comes at a time when competitors are looking for responses to Apple Pay's high-profile debut in the marketplace. In the past week alone, Google Wallet acquired Softcard technology and gained a presence on multiple Android handsets, while Samsung unveiled its Samsung Pay option in its newest line of phones, the result of its acquisition of LoopPay.

"As PayPal prepares to spin off from eBay later this year, they are clearly making a bet and doubling down on being the merchant-focused option in the ecosystem," said Chris Gardner, CEO of Paydiant.

In addition to providing technology for MCX, Paydiant also handles mobile payments for Subway.

With Dunkin' Donuts, 7-Eleven and Wendy's being among the MCX participants, it was believed that Paydiant would have a role in a mobile pay option at those quick-serve or convenience store locations.

"The fact that we have traction with large retailers with MCX and outside of MCX, I am sure that was part of what was attractive about us to PayPal," said Gardner, who could not disclose financial terms of the deal.

PayPal has millions of existing merchant relationships through its online payment processing business and have decided the "way to continue tackling this space is in the in-store payments world," Gardner said.

Previous in-store partnerships with Discover haven't resulted in significant inroads for PayPal at the physical point of sale, though those companies say this remains a long-term process.

"PayPal fits in beautifully with our white-label approach," Gardner added. "The merchant maybe plays with the other guys [mobile pay providers], but they certainly want to be able to do this themselves with their own app."

Gardner did not speculate on whether the deal could help PayPal cozy up to more banks for the relationships that are essential for any large-scale retail payment options, or whether it means MCX can more easily continue on a path to sidestep traditional card networks and issuers.

"For us, it is business as usual with our customers," Gardner said. "We have to continue to do right by our customers, but it is nice to have the muscle of the one of the original digital payment companies in our corner."

Apple had the advantage of its millions of iTunes accounts when it launched Apple Pay, making the provisioning of payment credentials an easier process. PayPal can now do the same with its millions of accounts in presenting a white-label mobile wallet option to banks or retailers and seeking immediate scale on consumer adoption, Crone said.

"PayPal one-ups that game, because they have all three accounts – credit, debit and ACH," Crone added. "Now any bank or any retailer can offer all payment types through a wallet. MCX would also be able to offer bank-branded wallet use through PayPal at its retailers' stores."

In addition, through Paydiant technology, PayPal will be able to offer its customer base cardless cash access at an ATM, Crone said. "That's a big new play for PayPal, banks and other ATM deployers."

The announcement regarding Paydiant comes 14 months after PayPal completed its acquisition of mobile pay and person-to-person payment provider Braintree. Braintree has since operated as a separate service within PayPal, offering Venmo as its P2P mobile pay product.

The Paydiant acquisition makes PayPal "somewhat more appealing" to retailers, but the company still has a "very high hurdle to climb" in establishing an in-store presence, said Philip J. Philliou, president and CEO of TruBeacon, a competitor of Paydiant.

"TruBeacon's belief is that banks and retailers, working through MasterCard, need to be the facilitator of mobile payments and rewards," Philliou said. "Our business is built around that premise and we are having success working with retailers, cobranded credit issuers and credit unions."

A combined PayPal/Paydiant mobile wallet will provide merchants with an open payments platform that supports all mobile operating systems and has global reach into 200 markets with more than 162 million active digital wallets, Schulman said.

Paydiant will continue to operate out of its Boston-area headquarters. PayPal, headquartered in San Jose, Calif., also operates an office in Boston.

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