PayPal announced late Tuesday that it plans to acquire the Canada-based bill payment firm TIO Networks, which serves as a major player in the North American bill pay market, for $232 million.
Following the acquisition, which is expected to close in the second half of this year, TIO will operate as a company within PayPal.
The acquisition is likely part of PayPal’s wider strategy to become an omnipresent player in consumers’ full financial lives.
TIO’s size and reach could help PayPal push into bill pay, which is likely a valuable play for the company.
Bill pay is a valuable space for PayPal right now. US adults paid roughly 14.7 billion bills, worth $3.9 trillion, in 2016, according to data from ACI Worldwide and Aite Group. It’s likely that PayPal, which has been working to become more omnipresent in consumers’ lives, wants to enter that space and grab a share of that market. That’s especially true as bill payment moves online – just under half of one-time bill payments, and 71% of recurring bills, are paid digitally, according to the same study.
TIO’s reach could help PayPal scale in the space quickly. The firm offers bill pay kiosks, retail agents, and online and mobile options to its over 14 million clients in North America. It also counts 10,000 biller partners and processed $7 billion in volume in the past year. That’s a small share of the overall market, based on US size, but somewhat significant relative to PayPal’s 197 million customers and $354 billion payment volume in 2016.
But the firm’s offerings could also help PayPal attract a new segment of customers. The move likely isn’t a revenue play for PayPal, at least in the short term. Rather, it’s likely part of a bigger push to help PayPal continue to grow as it focuses on playing a role in a wider variety of day-to-day financial processes. TIO can provide convenient bill pay offerings to existing PayPal customers, therefore tying them more tightly to the product, especially as online bill pay becomes more popular.
But more interestingly, many of TIO’s services are likely targeted at un- or underbanked consumers, a massive population that PayPal likely historically struggled to access, since PayPal accounts are often funded by a bank account or card. By targeting this group — 33.5 million US households, and 2 billion people worldwide, for a sense of scale — PayPal could bring a new group of users into its ecosystem and more effectively undercut banks.
John Heggestuen, director of research at BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on the payments ecosystem that drills into the industry to explain how a broad range of transactions are processed, including prepaid and store cards, as well as revealing which types of companies are in the best and worst position to capitalize on the latest industry trends.
Here are some key takeaways from the report:
2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.
Payments is an extremely complex industry. To understand the next big digital opportunity lies, it's critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.
Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.
In full, the report:
Uncovers the key themes and trends affecting the payments industry in 2016 and beyond.
Gives a detailed description of the stakeholders involved in a payment transaction, along with hardware and software providers.
Offers diagrams and infographics explaining how card transactions are processed and which players are involved in each step.
Provides charts on our latest forecasts, key company growth, survey results, and more.
Analyzes the alternative technologies, including blockchain, which could further disrupt the ecosystem.
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