February 15, 2017
By John Stewart
PayPal Holdings Inc., which hasn’t been shy about laying out big money to enter new businesses, said on Tuesday it will shell out $233 million to buy TIO Networks Corp., a cloud-based processor that will deepen PayPal’s penetration of the bill-payment market. The acquisition is expected to close in the second half of this year.
Schulman: “Worldwide, more than 2 billion people do not have affordable access to basic financial services."
The deal for the 20-year-old, Vancouver, British Columbia-based TIO also comes at a time when PayPal is widening its competitive focus and facing new rivals in its domestic market, including Ant Financial Services Group, which last month said it is buying MoneyGram International Inc. for $880 million. China-based Ant is the parent of the huge Alipay mobile wallet venture.
“What PayPal is watching is Ant Financial, which just bought MoneyGram,” Steve Mott, principal at Stamford, Conn.-based payments consultancy BetterBuyDesign, tells Digital Transactions News by email. “The real horse race here is between those two.”
TIO will not only bring PayPal full-bore into the bill-pay business, it will also position it more squarely as a provider to underbanked consumers, a market it began to serve with its $890 million acquisition of online money transmitter Xoom Corp. in 2015. “Worldwide, more than 2 billion people do not have affordable access to basic financial services, making it difficult and expensive for consumers to carry out basic financial tasks, including bill payment,” said PayPal chief executive Dan Schulman in a statement. “TIO’s digital platform, and physical network of agent locations make paying bills simpler, faster, and more affordable.”
TIO’s key asset in that regard is its ability to switch transactions on behalf of billers through multiple channels, including online, at 900 kiosks, and through some 65,000 walk-in locations. The company processes mainly telecom, wireless, cable, and utility payments on behalf of 10,000 billers, with 60 million consumer payments totaling more than $7 billion last year. It supports a base of about 14 million consumer accounts, though some users have more than one account.
“PayPal’s rationale is to acquire channels—kiosks, billers, and retail locations—to reach millions of underserved consumers, many of whom they might otherwise have problems onboarding,” says Eric Grover, principal at Minden, Nev.-based consultancy Intrepid Ventures, in an email message.
Overall, the U.S. bill-pay market is enormous. Consumers paid 14.7 billion bills in 2016 worth $3.9 trillion, according to a report released last month by Boston-based research firm Aite Group and sponsored by Naples, Fla.-based processor ACI Worldwide. Cash payments, which the underbanked are more likely to use, accounted for a 4% share of payments, down from 6% in 2010 but unchanged from 2013.
TIO, which started out as Info Touch Technologies Corp, and changed its name in 2006, at one time heavily promoted its kiosk service as a new way to reach underbanked consumers for a variety of financial services. Indeed, at one point it began deploying some machines that doubled as ATMs and kiosks for bill payment and other financial services.
Observers are watching to see what use PayPal ultimately makes of TIO’s existing kiosk network. “TIO has established multiple channels that are specific to [low- and middle-income] consumers, such as the kiosks, and PayPal will need to retain and expand those channels if truly intending to service that audience,” notes Tim Sloane, vice president of payment innovation at Mercator Advisory Group Inc., a Maynard, Mass.-based payments consultancy, in an email message.
The price for TIO includes a 25.2% premium to TIO’s 90-trading day volume-weighted average price as of Feb. 13, according to PayPal’s announcement. TIO’s shares trade on the TSX Venture Exchange, a Canadian exchange featuring electronic-only trading.
The deal follows a string of major acquisitions executed by PayPal in recent years in addition to Xoom, including an $800 million deal for payments-technology developer Braintree in 2013 and a 2015 deal for Paydiant Inc., developer of point-of-sale and ATM technology based on quick-response codes. These deals were executed while PayPal was still a unit of eBay Inc., which spun off the payments company in the summer of 2015.
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