PayPal has done well in online payments and has made someheadway in merchant acquiring but has failed to find itself a role in thepayments ecosystem because it has avoided working with banks and has taken alow-touch approach to working with merchants. By low touch, I mean thatthe primary approach PayPal has taken with merchants is to offer a low-cost online card acquirer solution. Yes, PayPalhas been active in providing additional merchant services, such as loyalty andcredit solutions, but these tend to resonate primarilywith small merchants, not midsize and large merchants.
Paydiant, on the other hand, has been working with MCX toprovide merchants a mobile wallet that can lower mobilepayment acceptance costs and implement a loyalty and incentive platformto drive greater spend and shops. Paydiant has also been establishingrelationships with banks for both mobile enablement of their ATM fleets as wellas offering banks a mobile wallet that bypasses the restrictive natureassociated with the implementation of solutions from the branded networks,which have partnered directly with mobile carriers and device manufacturers tobecome their sole token service provider—thus limiting the banks’ ability toestablish similar relationships and making it more difficult to move aportfolio to another network.
So the acquisition of Paydiant is either (1) a profitableinvestment by PayPal that delivers a better mobile wallet and loyalty componentthat will better appeal to midsize and large merchants while also enablingPayPal to better integrate into the MCX business plan, or (2) a major expansionof PayPal’s strategy to provide value to those organizations that are beingmarginalized by the branded networks EMV and tokenization implementationstrategies, which includes midsize and small banks, ATM networks, PIN debitnetworks, and issuing processors not actively helping the networks with theirimplementation.
If PayPal utilizes Paydiant technology and partnerships tospeed up PayPal’s sales into midsize and large merchants, then the Paydiantacquisition will pay off as a tactical purchase. But if PayPal throws itsweight into expanding the Paydiant strategy, then PayPal is positioned todeliver meaningful products and services that cut across merchants banks, PINdebit networks, and issuing processors. This approach would requirePayPal to rethink its current issuing strategy, but that would be a smallsacrifice for gaining a much larger foothold in the payments industry.
Watching how PayPal evolves utilizing Paydiant technologyand brain power will be fascinating.