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It looks like PayU is buying Citrus Pay to take on PayPal

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Earlier this week, South African Internet company Naspers was looking to buy Citrus Pay for about Rs 1000-1200 crore and merge its operations with payment gateway PayU. Aakash Moondhra, CFO of PayU, said that “they can neither acknowledge nor deny our involvement in any merger, acquisition or divestiture activity” as indicated by the Economic Times.

Meanwhile, Amrish Rau, managing director of Citrus Pay termed the report as speculation (although he did not mention whether the whole news report was speculation or whether the size of the deal was speculation).

Since we’re in a speculative mood, here’s why we think PayU is acquiring Citrus Pay: they want to take on PayPal. Here are a few reasons why they might be taking PayPal head on.

– Both PayU and PayPal process payments globally: PayU is planning to increase the total value of transactions processed to $1 billion per month over the next year. For the quarter ended June 2016, PayPal’s the total payment value (TPV) processed was $86 billion, up 28% year-on-year.

PayPal is present in 202 countries and processes payments in 25 currencies, while PayU is present in 16 countries. However, apart from the US Dollar, PayPal has a huge exposure to the British Pound and the Euro. “In the second quarter, approximately 12% of our revenue was generated in the UK …. From a foreign currency standpoint, the euro and the pound are the two currencies where we have the most exposure,” PayPal CFO John Rainey said in an investor call. This points that processing other currencies is not a priority for PayPal.

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For PayU, on the other hand, the TPV increased 148% in Russia, 123% in Turkey and 46% in India in 2016, according to Naspers’ annual report. PayU might be focusing on markets that PayPal is not focusing on.

– Underwriting purchases: PayPal has a product which offers credit to buyers to complete a purchase and pay later. This represents about 2% of the company’s total payment volume processed or around $1.62 billion in the March quarter.

Citrus Payment services is rolling out a similar product, as indicated by this YourStory report. The solution will be called Lazypay and will allow Citrus Pay to become an underwriter of transactions and charge consumers, on a fortnightly basis. An acquisition might give PayU access to these technologies which seems to be a hit with PayPal.

Rainey said that the basket sizes on purchases using credit were on an average 20-30% larger. “Credit benefits PayPal in many ways beyond just a payment transaction. Credit reduces cart abandonment, leading to increased conversion for merchants,” he added.

– Contextual payments: Earlier this year, PayPal introduced a new product called PayPal Commerce, a set of tools and APIs which will allow merchants to sell across mediums such as  email, social share, blogs, articles, ads, in-app and “anywhere consumers are online or on their mobile devices.”

If PayU acquires Citrus Pay, it gets access to Sellfie, a contextual payments app it released earlier this year. Sellfie allows users to take a picture of an item, price it, choose shipping options, and push a link to Twitter, Facebook, Instagram as well as WhatsApp to sell and collect and Anish Achuthan , business head at Citrus, clarified that PayPal’s product is targeted at small startups and businesses and Sellfie will be targeting individual sellers.

– Offline payments: However, in offline payments, PayU may have the upper hand on PayPal as it launched its POS terminal in a bid to acquire more merchants.

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PayPal also announced that it is getting into offline payments through a partnership with card network Visa. Through this partnership, PayPal’s digital wallet will be accepted in all physical retail locations where Visa contactless transactions are enabled. It needs to be pointed out that this was done as peace treaty with Visa to avoid competition.

VentureBeat points out that PayPal had been urging customers in the US to use Automated Clearing House (ACH), a network which processes net banking, to load money into their wallet. Visa’s chief executive Charlie Scharf said at a conference that he wants PayPal to stop telling its users to fund their digital wallets through bank accounts. If it continued,  Visa would “compete with them in ways that people have never seen before.”

A POS terminal from PayU would not infringe on Visa’s business as it requires users to swipe their cards and process the payment through Visa’s network.

Tell us what you think of the deal between Citrus Pay and PayU in the comments.

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