FlexiGroup acquisition highlights eCommerce growth

Online payments business Paymate has been acquired by point-of-sale finance provider FlexiGroup, reportedly for less than $5 million, as the eCommerce sector continues to grow.

Paymate is a US online payments facilitator, which started operations in Australia in 2001. The service is similar to PayPal but credits funds directly to the recipient’s bank account.

It has been acquired by FlexiGroup for less than $5 million, according to The Wall Street Journal, as FlexiGroup seeks to increase its share of the growing eCommerce sector.

FlexiGroup processes about 11 million transactions annually, and offers point of sale leasing finance through retailers such as Harvey Norman.

Consultants forecast the $30 billion eCommerce sector will grow 12% by 2013. However, the market is currently dominated by credit card providers and PayPal, which is owned by eBay.

Paymate turns over $20 million in annual payment volumes, yet PayPal turns over more than $2 billion, highlighting Paymate’s tiny share of the market.

According to FlexiGroup chief executive John DeLano, Paymate lacks visibility on key online transaction sites, such as eBay, and is in desperate need of stronger promotion.

Paymate has relationships with 3,500 local online retailers but it estimates its share on eBay is less than 0.5%. According to DeLano, this means there’s plenty of room to grow the business.

“We’ve gained a 12 to 18 month speed to market advantage by making this acquisition because of the platform and existing relationships,” DeLano says.

DeLano is hopeful the company’s market share can grow from 0.5% to 20% as buyers can use their credit cards securely on the Paymate platform without needing a PayPal account.

Sellers also benefit as they see their cash quicker than if paid by PayPal.

Andrew Pipolo – who was hired by FlexiGroup after serving as managing director of PayPal Australia – says the company is planning to launch a suite of online payment products through the Paymate platform, with a deferred option to be offered from mid next year.

“Being only one of three payment options, we think we can really ramp up penetration on that site,” Pipolo says.

FlexiGroup’s expansion into new products and new product categories indicates it can withstand the weakening consumer environment.

FlexiGroup – which has a market capitalisation of $633.5 million – reiterated growth guidance for net profit after tax between 12% and 15% for fiscal 2012.

This includes a $20 million contribution from interest-free finance provider Certegy, which it bought for $31.4 million in 2008 and paid for itself in three years.

DeLano says Paymate is expected to make a positive profit contribution by 2013.