6 Dec 2011. Leasing and payments group FlexiGroup (ASX:FXL) has announced an agreement with ACT Merchant Services to acquire the business of Paymate Pty Limited (“Paymate”).
Under the agreement, FlexiGroup will acquire the assets of the Australian, New Zealand and Asian business for an undisclosed sum that will be funded from existing cash reserves and by deferred equity consideration. Media speculation puts the deal at around A$5m, boosting Paymate financially for its attack on the US market.
Paymate, which started operations in Australia in 2001, is similar to PayPal, but credits funds directly to the recipient’s bank account. The company turns over $20 million in annual payment volumes and is easily dwarfed by PayPal which turns over more than $2 billion. FlexiGroup processes about 11 million transactions annually, and offers point of sale leasing finance through retailers such as Harvey Norman. It’s hoping that its acumen can now be utilised to provide greater exposure for Paymate and steal market share from credit card providers and PayPal, which is owned by eBay
Paymate has established relationships with 3,500 retailers, and is one of only three payment options integrated into the eBay checkout. In July 2011 it announced the appointment of ex-Hypercom CEO, Australian George Wallner.
FlexiGroup’s online initiative is managed by an experienced online payments team and led by Andrew Pipolo, the former Managing Director of PayPal Australia.
Paymate is well positioned to increase the number of merchant relationships and it’s estimated eBay market share is less than 0.5%.Paymate’s robust online technology platform, which includes key risk management, check-out flow and merchant billing capabilities, and existing merchant relationships are capable of supporting significant growth in payment volumes.
FlexiGroup Managing Director and Chief Executive Officer, John DeLano, said: “Paymate is an attractive acquisition due to its compelling strategic value. The acquisition is an opportunity for FlexiGroup to gain an early mover advantage in the online payment market where volumes are growing at exponential rates.”
The transaction significantly expands FlexiGroup’s strategic footprint and the rationale for acquiring Paymate includes:
- Capitalises on the significant shift to online retailing and the large high growth online payments market;
- Provides a platform that delivers speed to market, support for a new innovative deferred payment product, and immediate access to online merchants;
- Supports FlexiGroup’s retail partners move online and leverages existing customer relationships;
- ExtendsFlexiGroup’sdiversified financial services strategy. The acquisition provides a new online distribution channel, a broader range of merchant categories, and access to International markets.
The online market is forecast to grow 12% to $38 billion by 2013, and is dominated by two payment methods – credit cards and PayPal, which account for 91% of the market. There are currently over 300,000 merchants trading online in Australia.
John DeLano, said:”The acquisition is consistent with FlexiGroup’s successful diversification strategy. The online distribution channel will provide access to new categories including online auctions, department stores, travel, groceries, clothing, sports and the health and pharmaceutical industries.”
We will leverage our deep experience incredit assessment and in processing 11million payments per annum. Using the Paymate technology platform,we will deliver a deferred internet payment product to be called FlexiPay. This product is similar to Bill me Later, a highly successful product offered in the US.”
FlexiGroup’s Head of E-Commerce, Andrew Pipolo, said; “Approximately 56% of Australians buy something online every month and people are increasingly looking for secure online payment plans beyond traditional credit cards.” “Secure payment providers are going to be an important part in the successful growth of this industry and Paymate is the first in a suite of online payment options that FlexiGroup is actively pursuing.”
FlexiGroup will make an investment in 2HFY2012 to reposition the Paymate business and expects a positive profit contribution from Paymate in FY2013.