PayPal Purchases Xoom for $890 Million to Enter Remittance Market

In a deal valued at $890 million, PayPal is paying $25 a share in cash for Xoom to expand its

With $5 billion in cash as it spins off from eBay, PayPal is getting itself ready to reconquer the payments world. With founders such as Peter Thiel, Elon Musk, David Sacks Reid Hoffman and Steve Chen who left to become successful repeat founders and investors, PayPal is often viewed as a disruptive force in the payments sector that became boring and stopped innovating. Partially attributed to founders leaving as well as being acquired by eBay, with the coming spin-off, PayPall is being well equipped to once again raise its stature in the payments world.

Unlike in the past when innovation had been the key to PayPal’s success, such as introducing money transfers that could be sent via email, this time around PayPal is using acquisitions to help grow its business. Its latest deal was announced yesterday as they have placed a bid to purchase international money transfer firm, Xoom. In a deal valued at $890 million, PayPal is paying $25 a share in cash for Xoom.

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By acquiring Xoom, PayPal is keeping their eyes on the growing remittance market. Dominated by the likes of Western Union and Moneygram, the remittance market has become synonymous with high fees charged for the transfer and exchange of currencies to cross border locations. As a result of the fees related to the remittance sector, it has attracted fintech startups offering digital offerings with discounted rates. For consumers, this had led to greater awareness that there are lower cost alternatives for money transfers.

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Among operators in the sector, Xoom has been able to carve a niche in various key remittance markets such as Mexico, India, China and the Philippines. As such, during the one year period ending March 31st, 2015, 1.3 million customers transferred about $7.0 billion on Xoom’s network. For PayPal, Xoom’s international customer base is expected to help them grow their core business of enabling merchants to accepts payments and providing account to account transfers.

The deal also follows a trend at PayPal, to grow through acquisition. In 2013, the firm acquired mobile and online payment facilitator, Braintree. So far this year, along with Xoom, PayPal has acquired malware detection firm CyActive and Paydiant. While the CyActive deal was based on acquiring cyber security technology, Paydiant is similar to the Braintree purchase in that it provides additional services PayPal can offer its business customers.

In regards to the current deal of Xoom, the acquisition occurs as the overall international payments space has seen a rise in valuations among private firms. Within the sector, TransferWise, Currency Cloud, and Azimo have all raised new funding during 2015 at rich valuations. As such, it will be interesting to see how the sector reacts to PayPal’s further expansion into international transfers and remittance.

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