eBay subsidiary PayPal announced this morning that it bought a startup called Braintree for $US800 million.
We’ve been working sources in the payments industry since the news broke to figure out what to make of the deal.
Here’s some of what we heard that you should know, including the basics:
Braintree has two businesses. It has a consumer-facing service called Venmo. Venmo is an app that consumers can use to pay each other money, like they would after splitting a check for dinner. Braintree also has an enterprise-facing business — a “gateway” business, to use industry lingo. It processes payments for services such as Uber and Airbnb.
This deal is all about mobile. For the past several years, all the big, sexy new mobile startups that needed a payments provider completely ignored PayPal, opting for Braintree or another startup, called Stripe, instead. So PayPal is nowhere in mobile. Braintree will process $US4 billion in mobile payments this year. Buying that kind of volume helps PayPal catch up.
Braintree’s “gateway” business is growing fast. That volume is growing fast, too. Back in January, Braintree insiders only expected mobile payments volume to reach $US2 billion this year.
But Braintree’s growth is a little bit deceiving. The main reason Braintree’s payments volume is growing so fast is that two of its biggest customers, Airbnb and Uber, are growing very fast.
We hear that Braintree has not been winning a lot of new business lately. At least, not compared to Stripe. In fact, Stripe even swiped two of Braintree’s faster-growing customers, ride-sharing apps Lyft and Sidecar, earlier this year. Essentially, we’re told …
PayPal bought the second-place company in the market. eBay probably wanted to buy Stripe, but it’s too expensive. Stripe is winning most of the new business in the app world, and it’s taking big clients away from Braintree. Stripe enthusiasts will tell you the reason Stripe is superior is that its software is easier to use. One said that Stripe is iOS and Braintree is Android. (Of course this means that Braintree could improve its product, reach parity with Stripe’s, and start winning more business again.)
Square took a long look at Braintree and passed.
PayPal is keeping Braintree’s brand independent because PayPal’s brand is toxic in the developer community.
Braintree’s consumer business, Venmo, is growing and exciting, but it’s no sure thing. In the industry, Venmo is called a peer-to-peer payments product. It’s for consumers who want to send each other money. Lots of apps do that, but Venmo thinks it can make its service more fun by making it social. So that instead of opening up Foursquare and seeing where your friends are that day, or Instagram and seeing their pictures from that day, you’ll open Venmo and see where they spent their money. Inside Braintree, people talk about this product very optimistically, and say it is growing very fast. Outside Braintree, there are some early adopting consumers who are Venmo loyalists, and then there is everyone else, who wonders why payments should be “social.”
$800 million is not a lot of money for PayPal parent company eBay. Thanks to an impressive turnaround, eBay’s market cap is now $US73 billion. It has more than $US10 billion in cash. $US800 million is not a lot to spend to try to move its important payments business, PayPal, into mobile. If Braintree can reach product parity with Stripe and start winning deals, this acquisition will look brilliant.
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