The Bankwatch

Tracking the consumer evolution of financial services

PayPal + Bill Me Later = disruption for banks’

paypal bill me later

That simple equation spells trouble for Banks.  How long will banks’ watch the likes of PayPal (with Bill Me Later) and Grameen (bankabillion with Obopay) taking away fundamental parts of banking.  The former being small loans (think credit cards), and the latter being payments. 

The PayPal acquisition just makes so much sense.  They are shifting from a pure auction model to that of a buy now model.  As part of that buy now, Bill Me Later will finance the purchase.  The dollar value is forecast $1Bn in 2008.  Further commentary here at Netbanker.

According to today’s investors presentation the company will do more than $1 billion in transaction volume in 2008 and serves 4 million customers (see note 2).

I was initially surprised at the price ($945 million), but given that eBay is projecting $150 million in revenues and $50 million in profits, it makes some sense, especially if CIT is taking most/all of the credit risk. Hoped for synergies with PayPal, which already operates a similar program, is the stated upside for the deal.

Relevance to Bankwatch:

How long will banks’ stand by and watch their basic business model be chipped away by newcomers?  During this period of relative panic, is the ideal time to consider relatively small acquisitions with large forward potential.  They would also serve to mitigate against being disrupted, because that is happening anyway. 

Written by Colin Henderson

October 6, 2008 at 17:39

Posted in Payments

2 Responses

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  1. The most interesting part to me is that the BillMeLater buy seems like a copy of the PayPal buy: an alternate transaction medium gaining traction online, stealing away precious margin from their transaction business.

    I wasn’t a fan of the PayPal acquisition back in the day (based on the strategy, not price), but I was proven wrong.

    Unfortunately most banks are going to be too focused on shoring up existing businesses (and integrating massive acquisitions) before they can start thinking about forward-looking acquisitions into “new business lines”, even if small, but I agree: panics are the times where intelligent companies develop future opportunities.

    Taylor Davidson

    October 7, 2008 at 07:00

  2. eBay’s acquisition merely highlights something that’s been underway for years, as the list of significant merchants shows . Note, too, that was an investor, and presumably pockets a tidy profit.

    So eBay has actually been rather late to this party, and the acquisition seems an admission that PayPal was unable to adapt on its own to meet the competitive threat.

    Simon Deane-Johns

    October 7, 2008 at 09:38

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