PayPal agreed to pay about $800 million in cash for Braintree, a Chicago-based start-up that was founded in 2007 and has about 4,000 merchants using its service. Braintree’s platform helps process payments for start-ups such as Airbnb, TaskRabbit and Uber.
Braintree, headed by Bill Ready, also owns Venmo, which lets users pay each other for free through a mobile app.
PayPal paid so much for Braintree for three main reasons, according to Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods.
First, the deal gives eBay access to current and prospective clients of Braintree. The start-up has focused on integrating its payment platform with fast-growing start-ups and the mobile apps that power much of their business, Sakhrani explained.
Second, Briantree’s Venmo business has gained a lot of traction with younger users, a demographic that PayPal may have been struggling to reach, according to the KBW analyst.
Third, Braintree has superior application programming interfaces, or APIs, which control how different software interacts with each other. This is important for attracting software developers to a platform. While PayPal has been trying to improve its APIs, it probably made sense to buy Braintree and quickly adopt its APIs, Sakhrani said.
“They also took out a pretty viable competitor, which always helps,” he added.
eBay shares rose 3.9% to $56.32 in afternoon trading Thursday. That pushed the stock close to a 52-week high of $58.04.
Mobile commerce is the fastest-growing part of e-commerce because people are increasingly using smartphones to shop and pay for things. Retail mobile commerce sales will grow 68% to $41.68 billion this year and by 2017, retail sales made on mobile devices will climb to well over $100 billion, eMarketer estimates.
PayPal has its own rapidly expanding mobile payments business, however, the company has lots of competitors, including Square and Google.
“Braintree is a perfect fit with PayPal,” said eBay CEO John Donahoe. “Bill Ready and his team add complementary talent and technology that we believe will help accelerate PayPal’s global leadership in mobile payments.”
Braintree will continue to operate as a separate service within PayPal under CEO Ready, who will report to PayPal President David Marcus. Braintree’s management team and employees are expected to stay in place, PayPal said.