INSIGHT: Payment Startups – Top 5 Acquisition Targets

Payment startups

An intense struggle has occurred in the payments market, as established companies and newcomers alike try to ride the growing wave of consumers who are comfortable paying for items not just online, but on their phones and tablets too. A number of new services have entered the market in the last year and with consolidation inevitable, StrategyEye took a look at the top five potential acquisition targets.

iZettle

iZettle is seen by many as the European equivalent to Square, offering a plug-in card reader that allows merchants to accept transactions using an iPhone, iPad or Android-based device. The difference between iZettle and its US counterpart is the nature of the credit card market in Europe, namely that most consumers are armed with cards that make use of chip-and-PIN technology, rather than magnetic strips and signatures. According to iZettle, it has overcome the security challenges associated with chips, and the problems in launching in numerous European countries that all have different payment methods and speeds at which they embrace technology shifts.

This makes it a prime candidate for any firm looking to enter the payments market without the hassle of securing partnerships or dealing with security. There is a possibility that US rivals could be interested in an acquisition, but currently this seems unlikely as most US m-payment startups are still at a comparatively early stage and are focussed on establishing their business in the US. A major player with an existing interest in payments looks more likely, and if it were looking to expand its Google Wallet payments service to Europe, Google would be a potential fit.

SumUp

SumUp is one of Europe’s latest entrants to the mobile payments space. Its CEO Daniel Klein is the man behind Skrill (formerly Moneybookers), giving him a decade of experience in payments (and negotiating deals with acquirers). SumUp offers merchants a small card reader that plugs into their mobile phones and takes payment, which pits it against iZettle and Square.

Since SumUp’s launch, competition in Europe has deepened, with Rocket Internet’s Square clone Payleven, and US mobile payments service Braintree both expanding in the region. However, it remains ahead of direct rival iZettle, which is still largely focused on the Nordics, compared with SumUp’s presence in the UK, Germany, Austria and Ireland. Both providers appear to be fighting it out in the UK market, with iZettle launching a UK pilot programme. SumUp’s attraction as an acquisition target will likely depend on the legwork it is putting into its merchant relationships, with American Express a potential interested party, given SumUp’s focus on small businesses and American Express’s existing interest in the same organisations.

Payleven
Payleven is an imitation of Square, produced by notorious clone specialist Rocket Internet, which has copied the likes of Groupon, Fab, Wrapp and Etsy, among many others. Just like Square, Payleven offers a small card reader that plugs into smartphones, giving merchants a quick and cheap way to process payments.

Historically, Rocket Internet does not produce innovative startups, instead focusing on well-executed takes on existing ideas that either result in hefty profits or a lucrative acquisition. Its tactic is to produce something that is known to work, and then take it to untapped markets such as Africa, before then selling to bigger players looking to gain international footholds. In 2010, the firm sold its Citydeal business to the very firm it was cloning, Groupon.

Payleven however is not targeting the US, focusing instead on Europe and possibly on Asia too. As Europe becomes fierce with competition, success in Asia could attract established Western players in a number of industries looking to expand. Given VeriFone’s apparent jealousy of Square’s progress in its home market, it could be a potential candidate as a buyer, especially given its interest in Asian expansion.

WePay
WePay is attempting to entice some of PayPal customers, gunning for the 95% of small businesses that it claims do not yet accept online payments. It has raised about USD20 million in funding and says it is signing up 1,000 new businesses each week, while processing “hundreds of millions” in payments annually. The firm has some way to go before it receives the status PayPal currently possesses, but its momentum could make it attractive both to payment startups that don’t yet focus on online payments or the growing number of social media firms mulling e-commerce as a way to monetise their businesses.

WePay could make sense as an addition for mobile-focused Square, though at this stage in Square’s life, it may not be looking to buy anyone. It could also make sense for a site such as Pinterest, which has seen phenomenal growth over the last year, but appears to be struggling to find a way to make money. Pinterest’s most obvious route is to edge towards becoming an e-commerce platform, given the product-oriented nature of its content, and the acquisition of a growing payments business would be a key step in that direction. Other more established e-commerce platforms could be potential acquirers too.

TrialPay
TrialPay focuses on driving e-commerce and social gaming revenues by offering consumers a free product if they buy a product from one of TrialPay’s 10,000 merchant partners. The company claims to have around 100 million users, of which 70 million use the service at least once a month, with a footprint in 180 countries. The firm has also attracted USD40million in investment from Visa.

In addition to attracting investment from Visa, TrialPay also powers offers for Facebook’s virtual currency, Credits. With Facebook famously attempting to drive up its relatively meagre payments revenues, TrialPay could prove a tempting acquisition, or at least the team and tech behind it, as seems to be the social network’s M&A strategy.

TrialPay’s focus on deals and commerce of course makes it an interesting target for players such as Groupon and Amazon, should they feel that the service’s partners and user base could benefit them. Groupon in particular has been particularly active in recent months, as it strives to move beyond simply deals to become “the OS of commerce”. Backed with a total of USD56million from investors such as Greylock Partners, Visa and DFJ, and a presence in a number of spaces from advertising to commerce to payments, TrialPay is an increasingly attractive target for the right buyer.

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