NEW YORK – On Friday, eBay (NASDAQ:EBAY) announced that it has reached an agreement to acquire Braintree Payment Solutions LLC for $ 800 million in cash. The deal represents a massive gamble to position eBay as the provider of choice in the mobile payment solution race.
According to reports, the deal will give the company’s PayPal unit more extensive customer data as well as the lucrative transaction fees from Braintree’s expanding network. Currently, Braintree processes more than $ 12 billion in payments annually, a third of which is on mobile devices, for which Braintree charges 2.9 percent plus $ .30 per transaction.
Mobile payment is a fast growing industry which includes privately held start-ups such as Stripe and Square, as well as internet behemoth Google (NASDAQ:GOOG) amongst others. In just two years, Braintree has seen the volume of payments increase fourfold; part of the Braintree’s draw is the company’s client list which includes tech firms including the Google backed Uber Technologies, and Airbnb.
While spokespeople for Braintree did not comment on the deal, eBay CEO John Donohoe was excited about the deal, claiming that ‘Braintree has a great position in new economy companies. This will allow us to be a part of that.’ PayPal has attempted to push into mobile payments but analysts agree that the acquisition of Braintree will help to accelerate PayPal’s goal of gaining more revenue from mobile users.
However, competition in the mobile payment systems space is intensifying. According to Gartner, the market is expected to grow by 31 percent this year and should reach more than $ 1 trillion by 2017, if not sooner. Numerous start-ups have entered the fray, and it is only a matter of time before Visa (NYSE:V), MasterCard (NYSE:MA), and the Telco’s among others either launch their own solutions or buy up the smaller companies to gain market share.
While, eBay said PayPal is expected to have mobile payment volume of more than $20 billion this year, they have less than 10 percent of the total market. The Braintree acquisition is expected to close in the fourth quarter and will not affect eBay’s revenue guidance; however, the cost of acquisition should reduce earnings per share by a penny to three cents for the fiscal year. Shares of eBay closed down 1.52 percent on Friday at $ 55.78.
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