2015 is already shaping up to be the year when mobile payments move out of Starbucks and into the mainstream. Apple (AAPL 0.70%) released its payment service last fall, and Samsung (NASDAQOTH: SSNLF) and Google (GOOG -0.97%) (GOOGL -1.19%) just announced payment platforms of their own at Mobile World Congress.
Meanwhile, digital payments leader, PayPal, is not sitting idly by as more competitors move into its territory. While the soon-to-be-separated eBay (EBAY 1.23%) subsidiary has had trouble shifting to mobile, its latest acquisition will help defend its turf. The payments company recently acquired Paydiant, the company behind the CurrentC app, designed by Wal-Mart, Best Buy, CVS, and other members of the Merchant Customer Exchange.
Strategic retail partners
With Paydiant, PayPal is buying access -- access to its technology, employees, and most importantly, its customer relationships like those with the megaretailers who originally developed CurrentC. That is something its newly minted competitors lack.
Paydiant differs from the new platforms Apple, Samsung, and Google offer. Instead of making a consumer-facing payments platform, Paydiant partners with retailers to develop payments apps specific to their business. That way, retailers are able to collect valuable data on their customers.
Apple Pay, Samsung Pay, and Android Pay either do not collect data or keep the data to themselves. As such, retailers are not incentivized to accept those forms of payment.
Samsung seems to have worked around some of these issues by acquiring LoopPay, which has the technology to emulate the magnetic strip on credit cards. However, users will have to purchase an accessory in order to use the service. Even so, retailers are unlikely to advertise their acceptance of Samsung Pay, as they are unable to collect data.
With Paydiant, PayPal is acquiring access to the gatekeepers, who will actively promote its product in stores. PayPal already has several similar partnerships with retailers, but point-of-sale purchases still make up a tiny percentage of its total transactions. The retailers behind CurrentC account for $1 trillion of total payments volume, so the partnerships represent a huge opportunity.
Growing its presence on mobile
PayPal accounted for $46 billion in mobile payments volume in 2014. That is still a relatively small percentage of its total payment volume ($228 billion), as well as the global market for mobile payments, which is estimated to grow to more than $700 billion in the next three years. Still, that $46 billion represented 68% growth over 2013.
Paydiant is not the first acquisition to shore up the PayPal mobile business. The company bought BrainTree in 2013, which competes with companies like Stripe for backend payment processing and also offers peer-to-peer mobile money transfers through Venmo. That acquisition helped PayPal achieve the aforementioned 68% growth in mobile payments last year.
With the upcoming spin-off from eBay, PayPal is moving into a better position to partner with both online and physical retailers for a share of the rapidly growing mobile commerce market. The eBay-PayPal relationship created a conflict of interest for other retailers, as they would be sending revenue and data directly to their competitor. Without eBay looming over the shoulder of every PayPal transaction, the digital payments leader could see renewed growth in adoption after the spin-off.
A year of consolidation
PayPal bought Paydiant. Samsung bought LoopPay. Google took over Softcard. This year is bound to see even more consolidation in the industry as tech giants battle for position in the growing mobile payments market.
PayPal dominated online payments on desktops but has had trouble transitioning on its own to mobile, enlisting the help of smaller start-ups. It has struggled even more with its point-of-sale efforts, but Paydiant (and overall market trends) is poised to improve its position in 2015.