Should PayPal Acquire Venmo?

This week, it was reported that PayPal might acquire BrainTree, the payments startup. If true, its Venmo subsidiary could be the most compelling part of the deal for the e-commerce giant.

PayPal, the e-commerce company owned by eBay, is besieged by competitors, from hot startups to Silicon Valley giants. Stripe has made a successful run at its payment-processing business; Square is making huge strides in point-of-sale systems; and PayPal's mobile wallet service has failed to become mainstream, engulfed in a sea of rivals that includes Google and Isis.

But this week, it surfaced that PayPal is exploring a possible acquisition of BrainTree, the Chicago-based payments company. TechCrunch reported Thursday that BrainTree is looking for a $1 billion bid from a narrow list of companies that can afford such a (likely too high) figure. Google and Square are said to be in the running, but it's PayPal that could emerge as the most serious candidate for the purchase. If true, BrainTree would not only bring PayPal a promising upstart that processes more than $10 billion in annualized payments but also provide the tired brand with a much-needed, refreshing air of cool.

PayPal is still a behemoth in the industry. Though much attention has been paid to the billions of dollars processed by BrainTree, Square, and Stripe, their combined totals still pale in comparison to the amount handled by PayPal, which processed $145 billion last year from 132 million users. Its mobile payment volume alone is on track to reach $20 billion in 2013.

Still, it's impossible not to notice the sea change that's happening in the space. In cities like New York and San Francisco, Square is rapidly becoming a staple at coffee shops and small merchants. When I talk to developers, Stripe is nearly always their go-to choice for accepting payments online—it's why startups like Foursquare and corporate brands like Walmart are increasingly turning to Stripe's solution. (Disclosure: Fast Company uses Stripe to accept payments online.) And from a consumer perspective, there's been little excitement about the products in PayPal's roster. As ReadWrite's Owen Thomas wrote yesterday, with one recent exception, he hasn't been excited about using a PayPal product in 13 years.

BrainTree, however, offers PayPal the company a chance to recapture some of its early je ne sais quoi. The company's solution is used by a slew of high-profile startups, including Airbnb, Uber, and Fab. What's more, BrainTree smartly acquired Venmo last year for just $26.2 million, an exceptional asset. Venmo enables users to share money with each other, simply and securely. As a tech reporter, I find myself always recommending if not urging my friends to try new applications, but Venmo is the one instance (outside Airbnb) where those close to me, of all ages and tech savvy, have beat me to the punch, independently demanding that I join the service. Last month, Slate even went so far as to write that Venmo is "light years ahead of PayPal" in this area.

So perhaps it's no wonder why it was clearly top of mind for Anuj Nayar, PayPal's senior director of global initiatives, during a recent interview. When I mentioned how it's becoming increasingly common to see friends trend away from PayPal and toward Venmo, Nayar agreed with my assessment, surprisingly.

"I think so too—Venmo has done a great job," he said. "They did a great job targeting college kids—that's what they did."

But despite how hip Venmo might now be with the twentysomething set, Nayar stressed that PayPal can earn back the same air of cool, without Venmo's help. "It's not a very difficult thing to replicate," he said of Venmo's success advertising to younger generations. "That's what we're looking at. Nothing is final yet, but we're definitely looking at some significant outreach to 18- to 24-year-olds, because we do think there's a massive opportunity to get people habituated with PayPal at the onset."

"[We can] catch someone at 18," he continued, "and say, 'If you get PayPal, you can pay your friends or order food.' That's the opportunity."

[Image: Flick user Images of Money]

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1 Comments

  • IVV

    I like Venmo how it is now. Simple, easy, and without fees. I can't imagine what would happen if PayPal got it's hands on it.