Completed acquisition by PayPal Holdings, Inc. of iZettle AB Final report 12 June 2019 Crown copyright 2019 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Website: www.gov.uk/cma Members of the Competition and Markets Authority who conducted this inquiry Kirstin Baker (Chair of the Group) Susan Hankey Jeremy Newman David Thomas Chief Executive of the Competition and Markets Authority Andrea Coscelli The Competition and Markets Authority has excluded from this published version of the report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. Contents Page Summary .................................................................................................................... 4 Offline payments for smaller merchants ................................................................ 9 Omni-channel ..................................................................................................... 13 Conclusion .......................................................................................................... 15 Findings .................................................................................................................... 16 1. The reference ..................................................................................................... 16 2. Industry background ........................................................................................... 16 Introduction ......................................................................................................... 16 UK payment markets background ....................................................................... 17 The four party model ........................................................................................... 21 Payment facilitators and independent sales organisations ................................. 24 mPOS and POS .................................................................................................. 26 The Parties’ mPOS offering ........................................................................... 27 History of mPOS in the UK ............................................................................ 28 Omni-channel ..................................................................................................... 29 The Parties’ omni-channel offering ................................................................ 30 3. The Parties ......................................................................................................... 30 PayPal ................................................................................................................ 30 Activities ........................................................................................................ 31 PayPal in the UK ........................................................................................... 31 Financial Performance ................................................................................... 32 iZettle AB ............................................................................................................ 33 Activities ........................................................................................................ 33 Financial Performance ................................................................................... 33 iZettle UK and its relationship with other group companies ........................... 35 4. The Merger and relevant merger situation .......................................................... 36 The Merger ......................................................................................................... 36 The rationale for the Merger ............................................................................... 36 PayPal ........................................................................................................... 36 iZettle ............................................................................................................. 37 Initial Public Offering ...................................................................................... 38 Valuation of iZettle ......................................................................................... 38 The relevant merger situation ............................................................................. 39 Enterprises ceasing to be distinct .................................................................. 39 Turnover and share of supply tests ............................................................... 40 5. Our approach for assessing the effects of the Merger ........................................ 40 6. Market definition.................................................................................................. 43 Offline payment services ..................................................................................... 44 Segmentation by customer size ..................................................................... 45 Segmentation by type of device or provider .................................................. 48 Alternative methods of payment .................................................................... 51 Geographic market definition ......................................................................... 53 Conclusion on relevant market for offline payment services .......................... 53 Omni-channel services ....................................................................................... 53 Parties’ views ................................................................................................. 54 CMA assessment .......................................................................................... 55 Conclusions on product market definition ...................................................... 58 Geographic market definition ......................................................................... 59 1 Conclusion on relevant market for omni-channel services ............................ 59 7. Counterfactual..................................................................................................... 60 PayPal counterfactual ......................................................................................... 60 The Parties’ submissions ............................................................................... 60 PayPal Here absent the Merger .................................................................... 62 CMA assessment .......................................................................................... 64 iZettle counterfactual ........................................................................................... 66 Views of the Parties ....................................................................................... 67 CMA assessment .......................................................................................... 67 Conclusion ..................................................................................................... 70 8. Competitive effects of the merger – offline payments ......................................... 70 Customer behaviour ............................................................................................ 71 Customer characteristics ............................................................................... 71 Customers targeted by competitors ............................................................... 73 Choice attributes ............................................................................................ 73 Views on mPOS customer behaviour ............................................................ 75 Shares of supply ................................................................................................. 76 Shares by transaction volume ....................................................................... 76 New customer acquisition .............................................................................. 78 Views on shares of supply ............................................................................. 80 Competition between mPOS providers ............................................................... 81 The Parties’ submissions ............................................................................... 81 Closeness of competition .............................................................................. 82 The Parties’ competitive positions relative to other mPOS providers ............ 90 Competitive constraint by Square .................................................................. 92 Competition with traditional POS providers ................................................... 98 Alternative payment technologies ................................................................ 110 Assessment of impact of the Merger ........................................................... 112 9. Assessment of the competitive effects of the Merger –