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PayPal builds cross-border cred with Xoom acquisition

PayPal’s $890 million acquisition of digital money transfer company Xoom reflects the company’s ongoing efforts to retain and build on its status as a mobile payments leader as competition in the space continues to grow.

By adding Xoom’s money transfer capabilities, PayPal builds on previous deals to acquire Paydiant and Braintree that seek to position PayPal for success once its spinoff from eBay is complete, which is expected to happen later this month. Xoom is a leader in international remittances, enabling customers in the United States to send money to and pay bills for others in countries around the world via smartphones, tablets and PCs.

“It’s an interesting opportunity,” said Thad Peterson, senior analyst at Aite Group, Atlanta, GA. “It helps to cement their cross-border cred by incorporating remittance with their payments capabilities.

“They have done a lot in a fairly short time, looking at Paydiant, Xoom, Venmo and Braintree,” he said. “It might be a good time to take a breath and consolidate the offering and the brand to position the company for their life as a standalone player in the payments space.”

Key international markets
The acquisition enables PayPal to expand services for its existing customers and to accelerate its time-to-market in key international markets. Specifically, Xoom brings with it a presence in 37 countries, including important markets such as Mexico, India, the Philippines, China and Brazil, where PayPal is looking to build a stronger presence.

Once the deal is closed, which is expected to take place in fourth quarter of this year, Xoom will operate as a separate service within PayPal.

The deal for Xoom was announced just weeks before eBay is expected to complete its spinoff of PayPal.

Competition grows
While PayPal has long been a leader in mobile payments, the company faces growing competition from Apple Pay and is expected to face additional challenges from Android Pay and Samsung Pay.

With these large technology companies aggressively moving into payments, PayPal has been acquiring technology to help it grow.

In the fall of 2013, eBay EBay’s acquired Braintree, bringing new strength in application development and offline payments as well as the popular peer-to-peer payments platform Venmo (see story).

In March, PayPal said it would purchase Paydiant, an East Coast startup that provides white-label mobile payment systems for such retailers and banks as Wal-Mart, Subway and Capital One.

Mobile remittance
As with banking, mobile promises to make international remittance – or money transfers – more convenient by enabling the process from anywhere and any time. This means not having to travel to a bricks-and-mortar location to send money.

There are promised efficiencies for recipients as well.

However, Western Union has a long history in this space, is well trusted by consumers and is also building its mobile services.  This promises to present a challenge for PayPal in this space.

“Remittance isn’t necessarily about technology, it’s as much about the lifestyle and perception of the individual receiving the remittance as it is the interests and behavior of the sender,” Mr. Peterson said.

“In many cases, the recipient may not be technologically sophisticated or even have access to technology, and that’s where Western Union wins,” he said. “They have the brand, but more importantly, they have the offices.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York