FlexiGroup buys online payments company Paymate to prepare for online growth

Retail point-of-sale and finance company FlexiGroup has acquired Paymate, an online payments service which powers only one of three payment services on eBay, saying it will help the business prepare for substantial growth in online sales.

The firm references figures that show online payments is set to grow 12% to $38 billion in 2013, with FlexiGroup head of eCommerce Andrew Pipolo saying Paymate has been successful in establishing its core strengths.

“This a great opportunity for us. It’s a great vehicle for what we want to do in the future, and there’s also an opportunity here in that we feel Paymate is very under-resourced. We think FlexiGroup can bring some more resources there,” he says.

The purchase price has not been disclosed, although Paymate is managing $20 million worth of payments ever year. It was founded in the middle of the dotcom crash with just $350,000 in capital, but soon grew stronger and was asked to be part of eBay’s payment network in 2009.

FlexiGroup expects a positive profit contribution from Paymate in the 2013 financial year. A purchase price has not been disclosed, but FlexiGroup said the purchase price is “not material”, and that it will be funded from cash reserves.

Chief executive John DeLano said in a statement the acquisition is an opportunity to gain an “early mover advantage” in the online payments market.

FlexiGroup also says Paymate has relationships with 3,500 sellers, with an average sale amount of $140. But Pipolo expects this to grow, with the company citing figures showing 56% of Australians now buy online every month, with retail spending expected to increase from a proportion of 5% to 9%.

“You look at more developed markets like Britain and the United States, where the proportion for online sales is much higher. I believe the growth rate for online will continue to accelerate here as people become more confident.”

“As we see more innovation in the payment space, and the products we see as more sophisticated, and there are more options, there will be growth here.”

FlexiGroup said in a statement to the market that Paymate will be used to capitalise on the “significant shift” to online retailing, support retail partners and extend the company’s “diversified financial services strategy”.

It also notes the opportunity available for Paymate, with the company only reaching 3,500 out of 300,000 merchants on eBay. Pipolo also praised Paymate’s risk management, its billing capabilities and relationships with merchants.

In fact, the company plans to launch a new product using the Paymate technology platform, that will allow users to defer payments, similar to “Bill me Later” in the United States.

Pipolo says the acquisition fills a gap that FlexiGroup couldn’t leverage on its own.

“We didn’t necessarily have the online capability, but John saw the retail market was turning. There’s no reason that whole level of expertise in that field can’t be brought into the business.”

Although Paymate has a successful relationship with eBay, it’s had a tumultuous one with the local chapter – back in 2008 it said the ACCC should investigate both eBay and PayPal Australia for anti-competitive behaviour.

Pipolo was managing director of PayPal Australia at the time. Now, he says Paymate will be part of a growing number of providers which are “going to be an important part in the successful growth of this industry”.