PayPal Holdings is acquiring startup Simility, developer of a machine learning-driven fraud prevention and risk management platform, for about $120 million in cash, according to a PayPal press release.
PayPal invested about $17.5 million in Similty last year and currently holds a 3% stake in the company. PayPal said the acquisition price may be subject to "certain adjustments" but that the deal is expected to close in the third quarter of this year.
Simility provides in-session monitoring of retail websites and mobile apps. The company says its machine learning-based platform is able to adapt and evolve its approach with each transaction it studies, using a variety of data feeds and types of analysis to find anomalies in shopping sessions and transactions. The goal is to reduce in fraud as well as verify honest transactions that may have otherwise failed.
Mobile payment usage is expected to boom in the coming years as more merchants begin to accept it. Recently, Juniper Research said it expects 2.1 billion consumers to use mobile wallets for payments and money transfers by next year.
As progress continues, PayPal has been on an acquisition spree to cement a leading position in the changing payments market. (The Simility buy wasn't PayPal's only acquisition last week, as it also acquired payouts platform Hyperwallet.)
Perhaps the strategy is already working, as a recent survey found that fewer merchants are accepting Apple Pay and Android Pay, while acceptance of PayPal has been on the rise. While digital/mobile technology giants like Apple and Google helped get mobile payments off the ground in the U.S., payments sector veterans like PayPal that have a wealth of existing merchant relationships.
But to move to broad adoption, a company like PayPal needs to make sure its offerings are both comprehensive and reliable. With two of its most recent deals — this one for Similty and the acquisition of Jetlore announced a few weeks ago — PayPal's acquisitive interests have turned in the direction of artificial intelligence and machine learning technologies. Though Similty and Jetlore may rely on similar technology concepts, their areas of focus are much different. Jetlore uses AI to power predictive marketing, while Simility uses it to spot anomalies in purchasing session and transactions to help fight fraud.
As data breaches and fraud problems persist, AI and machine learning-based anti-fraud technologies are becoming necessities for many retailers and payments companies. If there is one thing that could put a damper on expected growth in digital and mobile payments, it's the potential for shoppers to lose trust in the ability of retailers and payment companies to protect them.