While Apple may have made the most anticipated announcement of September 2014, PayPal easily took the crown for the most unexpected a few weeks later. That’s when it told the world that it would split from its parent company eBay and go out on its own. That event got one step closer to reality last week with the filing of its Form 10 with the Securities and Exchange Commission (SEC).
In that document PayPal noted:
"In 2014, approximately 162 million active customer accounts processed payments on our platform. Total payment volume over the last 12 months increased by 26 percent to $235 billion, as more consumers and merchants trusted PayPal to pay and get paid."
With that many digital wallet customers, plus millions of retailers, an increasingly global presence, and a business model that essentially grew up with the Internet, an untethered PayPal will obviously exert a tremendous influence of the shape of things to come in payments and commerce.
However, since that big announcement in September of last year, the shape and direction of an untethered PayPal has been largely mysterious – leaving many segment watchers asking what MPD CEO Karen Webster asked two days after the split was announced – “Now what?”
Some of that was unveiled at NRF in January, when PayPal introduced a new suite of retailer-focused solutions including transactional credit and launched an mPOS partnership with Microsoft.
Yesterday, PayPal showed us a little more. It announced that it will acquire Paydiant – a white-label, cloud-based mobile wallet platform for retailers, banks and payment processors. And in the process, PayPal also dropped one big hint that PayPal is ready to do more than just enable mobile commerce through the PayPal digital wallet.
"We want to make sure we enable mobile commerce across a wide variety of platforms, including the PayPal wallet as well as merchant, or FI (financial institution) wallets,” PayPal’s GM of Retail Brad Brodigan told MPD CEO Karen Webster in an interview yesterday that took place shortly after the Paydiant news broke. Brodigan and Webster were joined by Paydiant Co-Founder Chris Gardner to talk about what this acquisition will mean – both for the two firms now joining up together, as well as the retailers they serve.
For its own part, Paydiant has built a fairly impressive customer roster for a company that has only been “at payments” since 2010. In that fairly short time, the firm has signed on some rather noteworthy household names as partners – powering the mobile wallet services for Harris Teeter, Subway, Capital One, FIS, Barclaycard and Vantiv — just to name a few.
"We spent a lot of time convincing big retailers and big banks to take a bet on little old Paydiant,” Gardner noted, when asked how their merchant partners were taking the news of their acquisition by PayPal. “It’s a validation of the decision that many of our customers made with us. It’s making them feel good about their bet."
No one however seems as happy about the bet they have made on Paydiant than PayPal.
"Paydiant had the right technology platform and the right team to help us provide simpler and more accessible digital payments,” Brodigan said. “We also have a common point of view as to how we see the future. We both believe in an agnostic technology platform that can support a variety of mobile payments."
And that is a deep seated agnosticism – it both goes to methods – be they QR codes or NFC – and even to whose wallet merchants want to use.
Which begged the natural question.
“Aren’t you concerned that the more white-label solutions you guys push out, the more you risk diluting the PayPal brand by cannibalizing it?” Webster asked.
“Not really,” Brodigan replied, explaining that the Paydiant acquisition would only help to buttress PayPal’s more expanded vision of enabling mobile payments broadly.
"I think it is very consistent with our strategy, which is that we will continue to provide our consumer the PayPal app as well as a series of experiences through those apps,” Brodigan explained. “Now with Paydiant, we can take advantage of their ability to deliver world class white-label solutions for their merchant partners. And it allows us to provide support for digital payments in the mobile wallet ecosystem for those brands that require a mobile design specifically for them."
And, Brodigan notes, Paydiant will really diversify the entire palette of what it can offer both its merchants and consumers.
"We really appreciate Paydiant’s capabilities like value added services because it gives us a tremendous opportunity to have differentiated wallet experiences for both merchants and consumers."
Which, Gardner noted, also helps PayPal tap into something that is deeply important to both retailers and financial institutions – the feeling that their customers are their own.
"I don’t think anything about his deal changes the fact that left to their own devices both retailer and financial institutions would like to keep their users at home. That doesn’t mean they have to exclude all other options or that they won’t work with other players in the space,” Gardner noted.
But by offering retailers an opportunity to build a customized wallet through Paydiant on the PayPal platform – that changes the retailer’s calculations about benefits associated with mobile wallets.
Webster agreed that this was certainly a pretty cool development for retailers who seek a “merchant-friendly” solution but questioned whether all of Paydiant’s customers had reason to be as enthusiastic; in particular, MCX – the merchant-branded payments network that Paydiant signed on last year.
While Gardner professed no specific knowledge, he did note that he thought even MCX had reason to celebrate.
"We expect and I think that you’ll see that MCX sees that this [acquisition] is unequivocally a good thing. At the end of the day it is business as usual- we’re going to deliver for all of our customers, MCX and otherwise,” Gardner affirmed. “Except the difference is now we have some muscle in our corner. If you look at this in the context of 162 million existing PayPal digital wallet users, millions of existing retailer relationships already on the e-commerce side and all sorts of new platform capabilities like the identity platform and two decades’ experience in risk management and fraud, it’s hard to find a reason that any of that stuff is a bad thing for any of our customers."
And while Webster agreed that this was a good thing for retailers, she believes that this is the beginning of the end for MCX. It would seem, Webster noted, that by acquiring Paydiant, PayPal could simply offer merchants all of the benefits that MCX was designed to deliver (gift card, private label, demand generation, data analytics, and most important cross channel and cross mobile ecosystem reach) without having to pay to build, operate and support a network. And, that if MCX merchants wanted a network that could do all of that, they could now just cut out the middleman – MCX – and they’d actually have a network, that also came ready built with 162 million customers with accounts ready to be used at those merchants.
Gardner wasn’t quite so ready to suggest that the acquisition meant the end of MCX. “I think at the end of the day you’ve kind of seen this slow and steady transformation,” Gardner observed. “MCX was an entity that started three or four years ago, long before we were involved, and it began as a holy war against the card networks. The messaging has shifted over time to be one more about platform capabilities, marketing services and things that drive consumer engagement. That’s not to say that there’s not an “anti-processing fee” bullet point in their mission, but it’s really shifted from that. If you look at it from the point of view of “we just want to help retailers sell more stuff,” then this is undoubtedly a good thing."
As for the specifics of when the marketplace can expect to see the fruits of a Paydiant-PayPal pair-up, both Brodigan and Gardner offered fewer specifics, noting only that their focus now is to develop products that they can push jointly to market, once the i-dotting and t-crossing of the acquisition is complete. But that whole process should be far faster than otherwise might be expected since Gardner did note the firms have been working together for the last six to nine months, so they did not expect the lag interval to be long.
And, for those of you who are interested in the “where did it all begin” elements of the story – PayPal met Paydiant when Brad met Chris at Innovation Project 2014, almost a year ago.
“You might soon be known as the Match.com of the payments industry,” Gardner told Webster.
Which, if we’re going to get credit for bringing companies like PayPal and Paydiant together, might not be the worst thing in the world.