EBay’s deal to acquire Braintree is a significant step forward in its mobile payments strategy for PayPal, bringing new strength in application development and offline payments.

EBay said yesterday that it will pay $800 million to acquire payment platform Braintree, which powers payments for leading mobile apps such as Uber, OpenTable and Airbnb. While PayPal is already a leading mobile payments provider, Braintree brings innovative mobile technology such as the Venmo person-to-person payments app.

“It’s a very significant deal for mobile payments,” said Rick Oglesby, a senior analyst at Aite Group, Boston.

“Braintree’s payments technology has been designed for the mobile environment, so it extends PayPal’s capabilities in the mobile space by quite a bit,” he said.

“In addition to the technology aspects mentioned above, it also brings customers (merchants and consumers), talent and revenue, and it eliminates a strong competitor.”

App development
While mobile payments are growing, the space has not progressed as quickly during 2013 as had been expected.

Part of the problem is that there are a growing number of competing options, making it confusing for retailers and consumers to choose a service.

However, there are several stand-out success stories in mobile so far, including Starbucks and eBay/PayPal.

EBay said previously that it expects to generate $20 billion in mobile commerce transactions for eBay and another $20 billion in mobile payments transactions via PayPal this year.

PayPal is a mobile payments service preferred by many consumers, with 80 percent of those who are interested in mobile wallets saying they would use PayPal as their mobile wallet provider, according to a recent report from Carlisle & Gallagher Consulting Group.

“The announcement means the mobile payment space just got infinitely more interesting, and developers of new mobile apps are the big winners today,” said a PayPal spokesman. “We believe that PayPal’s scale and global payments expertise combined with Braintree’s highly innovative mobile technology adds up to a compelling combination for developers, merchants and, ultimately, consumers.”

Scale and reach
The strongest areas of growth in mobile payments have come from mobile app and mobile online payments as opposed to proximity payments that take place inside a retail establishment.

The Braintree deal will help PayPal boost its standings on the mobile app front.

“It gives them a great reach into the app development space,” said Sam Maule, manager at Carlisle & Gallagher Consulting Group, Charlotte, NC.

“Even with the elegant solution Braintree provides for apps like Uber and Airbnb, from a mobile apps standpoint it still does not address a card not present transaction, which raises security concerns,” he said.

“For Braintree the benefits are obvious, it is PayPal and the scale and reach of the PayPal name.”

Despite the slower growth in mobile proximity payments, this is expected to be a very significant area for mobile payments going forward.

PayPal has already made some inroads into offline payments by enabling in-store payments via its cloud-based wallet accessed either from its app or by keying in a mobile phone number on a retailers point-of-sale system.

Offline payments
The Braintree deal further develops PayPal’s push into offline payments.

“Braintree adds brain-trust to eBay/PayPayl,” Mr. Maule said. “This acquisition gives PayPal a major lift into the physical payments world.

“ Now they will have a solution that is backed by the credibility outside of the online payments market,” he said.

“Even with the acquisition, the Braintree transaction is still viewed as a “card not present” transaction. With this acquisition there are still gaps that exist of PayPal trying to win market share in the offline payments space.”

PayPal expects Braintree to help accelerate its role in mobile payments as well as in supporting developers who are creating innovative solutions for next-generation commerce plays.

Venmo is Braintree’s mobile app that enables users to pay each other using their mobile devices and leveraging social networks.

Once the acquisition is completed, Braintree will continue to operate as a separate service within PayPal under the continued leadership of CEO Bill Ready, who will report to PayPal president David Marcus.

“PayPal has always been a leader in mobile and digital payments innovation and we expect to process $20 billion in mobile payment volume this year,” said the PayPal spokesman. “With this deal, we expect to accelerate our ability to innovate to create amazing new experiences for consumers, merchants and developers.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York