EBay to Buy Braintree for $800 Million; Deal Could Accelerate PayPal’s Goal to Draw More Revenue From Smartphone and Tablet Users

Updated September 26, 2013, 7:08 p.m. ET

EBay to Buy Braintree for $800 Million

Deal Could Accelerate PayPal’s Goal to Draw More Revenue From Smartphone and Tablet Users

GREG BENSINGER

EBay Inc. will buy payments service Braintree Payments Solutions LLC for $800 million in cash, making a big bet to secure the pole position in the race to get consumers to pay for goods and services on smartphones, The deal will give eBay’s PayPal unit more extensive customer data as well as the lucrative transaction fees from Braintree’s expanding network, which currently processes more than $12 billion in payments annually, a third of which is on mobile devices. Braintree charges 2.9% plus 30 cents per transaction.Braintree is one of the faster growing payments companies in a crowded field that includes Stripe Inc., Square Inc., Google Inc. and others. Just two years ago it was processing $3 billion annually. Part of its appeal is its client list that includes tech firms such as transportation company Uber Technologies LLC and lodging reservation service Airbnb Inc.

“Braintree has a great position in new economy companies,” said eBay Chief Executive John Donohoe in an interview. “This will allow us to be a part of that.”

A Braintree spokesperson didn’t immediately return a request for comment.

In recent years, PayPal has pushed to expand beyond its original mission of processing payments for goods sold on eBay and other websites. The deal for Braintree, based in Chicago, accelerates PayPal’s strategic goal of drawing more revenue from smartphone and tablet users, said Mr. Donahoe. EBay, however, doesn’t break down its revenue from mobile devices.

A raft of payment startups are fighting for a piece of the mobile market that is expected grow by 31% this year to $235.4 billion—and to jump more than threefold by 2017, according to research firm Gartner. At stake is control over the future of shopping as consumers move more of their lives onto their smartphones. The devices have the potential to carry rich data on users’ shopping habits, in addition to opportunities to send targeted discounts.

The challenge for PayPal and others in mobile payments has been twofold: creating a process that is easier than swiping credit cards, and one that is adopted by enough vendors to make it worthwhile for the consumers.

Mr. Donohoe also said Braintree’s Venmo unit, which it acquired last year for $26.2 million, will broaden PayPal’s core cash payments business. Venmo’s app allows users to virtually exchange small amounts of money for free between bank accounts and using debit cards. It charges 3% for sending money using credit cards. Venmo’s recently introduced “Touch” service stores credit card information across mobile apps.

EBay said PayPal is expected to have mobile-payment volume of more than $20 billion this year.

But PayPal faces intensifying competition in mobile payments, particularly from Google, Square and startup Lemon Inc., which are building out so-called digital wallets that store credit and loyalty cards.

More recently, PayPal has been experimenting with a variety of offline payments tactics, including registers at small businesses, a device for swiping credit cards and a way to automatically pay in stores without even pulling out a smartphone. It revamped its mobile application to include capabilities like ordering ahead at takeout restaurants and automatic billing for restaurant checks.

Six-year-old Braintree had raised nearly $70 million from venture-capital firms such as Accel Partners, New Enterprise Associates and Greycroft Partners.

Since it was acquired in 2002 by San Jose, Calif.-based eBay, PayPal has been a crucial profit center. PayPal, which counts 132 million users world-wide, is on a pace to overtake eBay’s marketplace business in the coming quarters in revenue.

Mr. Donohoe said he plans to keep Braintree’s workforce of about 200 and the company will operate as a separate division.

The deal for Braintree is expected to close in the fourth quarter and won’t materially affect PayPal’s 2013 net total payment volume, eBay said. The acquisition is expected to have an immaterial impact on eBay’s revenue guidance but hurt its adjusted earnings outlook by a penny to three cents a share for the year.

SEPTEMBER 26, 2013, 8:44 AM

EBay Buys Braintree, a Payments Start-Up

By JENNA WORTHAM

EBay said Thursday that it was acquiring Braintree, a Chicago payments start-up, for $800 million in cash. The company plans to combine it with its payments division, PayPal.

Braintree provides technology to an impressive roster of companies to help them process payments on the Web and mobile devices. Its clients include Rovio, Uber, OpenTable, Fab, Airbnb, TaskRabbit and Heroku. Braintree, which says it processes more than $12 billion a year, has long been a start-up to watch. The company also owns Venmo, a popular application that lets people pay each other through text messages.

David Marcus, the president of PayPal, said that the company had been watching Braintree for some time now.

“Their obsession with removing friction for next-generation commerce matched our own,” he said in a phone interview Thursday. “They bet on mobile very early on and their growth there has been phenomenal.”

Mr. Marcus also said that Braintree’s international reach impressed him, and the fact that the company was a good fit culturally. He said that Braintree would remain in Chicago and Venmo in New York, but the companies would collaborate to continue to find ways to “build a payments operating system that others can innovate on top of.”

Braintree is the latest company to be added to eBay’s shopping cart. The company also recently acquired Hunch, a recommendation engine; Svpply, a social shopping site; and Red Laser, a bar-code scanning application.

The deal is subject to regulatory approvals, but is expected to close in the fourth quarter of 2013.