KBW Takes a Look at the UK Investigation of Mobile Payments Leader PayPal

November 30, 2018         By: Steven Anderson

PayPal’s a name to conjure with in the mobile payments market. It’s one of the biggest names, and one of the first besides. It’s been expanding fairly regularly, especially in the wake of news that eBay may be throwing it over for Adyen. While that didn’t exactly pan out, PayPal’s expansion remained. One of it’s biggest moves was the acquisition of iZettle, a point that proved less than encouraging for the UK’s Competition and Markets Authority (CMA), and Keefe, Bruyette & Woods took a closer look at what PayPal was facing.

The PayPal acquisition of iZettle, which closed back on September 30, prompted an investigation by the CMA, which itself was recently completed. Rather, it completed the first phase of said investigation, and the results weren’t exactly positive. The CMA noted that the merger could ultimately create either higher prices or a reduced range of options available to customers, and as such, was sufficient to prompt a second phase to the investigation.

There’s still a chance for PayPal to short-circuit the investigation; it’s got until December 3 to “address the concerns” raised therein. That’s a point that KBW took as a hopeful one, noting that the investigation calls aren’t exactly positive headlines, but with a path to turn the whole thing around, all PayPal needs to do is go through it. After all, as KBW points out, Mastercard experienced something similar with its Vocalink issue.

The down side, of course, is that if PayPal can’t satisfy the CMA—which, given that it’s already lost in the first phase, isn’t exactly likely—then it’s even more investigation and potentially a loss of the whole deal, which could set PayPal back a bit. However, PayPal has diversified itself substantially, so even if there’s a loss here, there’s still plenty of room for PayPal to succeed. If PayPal can successfully convince the CMA that there’s no real loss of choice or risk of higher prices—which doesn’t make much sense anyway—then the end result will come out nicely for PayPal.

Only time will tell just where this investigation goes, and just what result will strike PayPal as a result. But even if the worst case should hit, PayPal’s extensive diversification should save it from the worst potential consequences.