The UK Competition and Markets Authority (CMA) has given a provisional clearance to PayPal’s completed $2.2bn acquisition of Swedish financial technology firm iZettle.
Image: Jacob de Geer, co-founder and CEO of iZettle, and Bill Ready, chief operating officer of PayPal. Photo: courtesy of Business Wire.
In May 2018, PayPal announced the acquisition of iZettle, and in September 2018, wrapped up the transaction. The two companies at the time of closing of the acquisition agreed to operate their brands separately after the CMA initiated a review of the transaction.
iZettle provides various payment and commerce solutions, including payments, point of sales, funding and partners applications.
The CMA cleared the acquisition after the completion of an in-depth phase 2 probe, that was launched last December. After a phase 1 probe, the competition watchdog found that PayPal could have insufficient competition in the UK for mobile point of sale (mPOS) devices owing to the acquisition of the Swedish firm.
The CMA also expressed concerns that the merger will negatively affect future competition in the emerging market for omni-channel payment services, resulting in higher prices for customers and lower quality service.
The subsequent phase 2 probe by CMA, which was led by an independent group of panel members, reviewed how competition between the merging companies would have been likely to develop in future.
The watchdog after looking into extensive evidence, provisionally found that the merger will not raise competition issues.
Its investigation found that although iZettle and PayPal are two main suppliers of mPOS devices, their customers are also willing to change to ‘traditional’ POS devices. The CMA said that Worldpay and Barclaycard – which are two of the largest suppliers of payment services to smaller merchants, currently have a market share of nearly 60% and will continue to restrict the merged company.
Furthermore, the merged company will also be subjected to significant competition from Square, SumUp and other mPOS-only players, said CMA.
As far as omni-channel services are concerned, the competition watchdog found that iZettle will only be able to develop its offering slowly and would have continued as a marginal player for the foreseeable future.
The CMA also concluded that other major competitors would put more important constraints on PayPal for the services.
Inquiry chair Kirstin Baker said: “The payment services sector is dynamic, and our in-depth investigation has enabled us to carry out a large amount of further analysis about how competition is likely to develop in future.
“As iZettle is a relatively recent entrant to payment services, and PayPal had pre-existing plans to invest in its product offering, it has been particularly important for us to verify in detail what could have happened had iZettle not been taken over.”