Online payment giant PayPal will acquire Xoom Corporation, which helps people transfer money digitally to countries in South America and Asia, for $890 million with cash from its balance sheet.
PayPal, which is separating from online auction platform eBay, has faced increased competition in the payment space from newcomers such as Square and Stripe, as well as behemoths like Apple, Google and Amazon all getting into the act with their own payment services.
In fending off its newer as well as larger competitors, eBay announced that it would spin off PayPal into a separate company in September 2014. PayPal made $8 billion in revenue in 2014.
Xoom only made $159 million in revenue in 2014, but the company reports that it has 1.3 million customers in 37 countries, and is reported to be one of the larger providers of payment services in third-world countries.
PayPal is most likely purchasing Xoom to expand its reach in developing nations. The acquisition also expands Xoom’s reach internationally, since Xoom will be operating as an independent entity after the purchase.
With the acquisition, Xoom will have the leverage to compete with Western Union, which is the current market leader in money transfers to developing countries. Western Union reported $5.6 billion in revenue in 2014, and $850 million income after tax. While Western Union doesn’t report numbers, the company says it transacted 255 million consumer transactions and moved $85 billion of principal in 2014.
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