Xoom Acquisition Shows PYPL Strategy

If anyone doubted PayPal’s intention to move beyond its retail payments and merchant services roots and enable the seamless management and movement of money for consumers around the world, those doubts were quashed yesterday (July 1).

PayPal announced that it will acquire international money transfer provider, Xoom, for $890 million in an all cash deal.

Xoom’s “anytime, anywhere” money transfer platform enables U.S. consumers to send money to friends and family in 37 different “receive” countries and pay bills via mobile phones, tablets and computers. Xoom’s proprietary “funds-out” network will allow PayPal to build out a key part of its consumer value proposition — digital money transfer and management. PayPal currently has 68 million active users in the U.S.

PayPal President Dan Schulman remarked that “expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money. Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace.”

Cross-selling Xoom’s capabilities will expand the set of offerings that PayPal’s existing user base in the U.S. can leverage, not to mention fast track its ability to enable global money transfer in attractive “receive” markets such as Mexico, India, the Philippines, China and Brazil. The acquisition could also help both companies create the scale and integrated product set that supports the development of new business models for how money is moved digitally between consumers, businesses and merchants.

For Xoom, leveraging PayPal’s vast international network will enable it to expand its own payments portfolio and keep its customers “sticky” to its money transfer platform.

“Becoming part of PayPal represents an exciting new chapter for Xoom, which will help accelerate our time-to-market in unserved geographies and expand the ways we can innovate for customers,” said John Kunze, president and CEO of Xoom. “Being part of a larger, global organization will help us deliver the best possible experience to our customers, while maximizing value for our shareholders.”

Xoom has registered more than 1.3 million active customers, who have sent roughly $7 billion using the service.

The decision has been approved by the board of both companies, along with eBay’s board. Once the acquisition closes — which is anticipated to be in the fourth quarter of this year — Xoom will continue to operate as its own service but under PayPal’s umbrella. At $25/share, the acquisition represents a 32 percent markup on Xoom’s three-month, volume-weighted average price, according to the news release on the transaction.

Xoom’s shares surged more than 22 percent yesterday (July 1) after the news broke.

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