[Updated at 3 pm with comment from investor] After years of fits and starts, the mobile payments technology sector is finally getting serious about sifting through the winners and losers.
One more startup in the win column: Paydiant, a Newton, MA-based provider of mobile-app technology for other companies, which is being acquired by PayPal. The companies didn’t disclose the price, but reports peg it at upwards of $280 million, including incentives for the founders.
Paydiant has helped supply the tech behind mobile payment apps and mobile wallets for several big names, including fast-food chain Subway and retailer consortium MCX.
That kind of work will continue under PayPal’s ownership, with PayPal president Dan Schulman writing that “along with acquiring incredible technology, we also get Paydiant’s team of brilliant mobile developers, strong business leaders and visionary founders Kevin Laracey and Chris Gardner.” It’s not clear from the PayPal announcement, however, what exactly will happen with Paydiant’s brand and existing customer base.
Paydiant had raised about $40 million in venture investment from backers including StageOne Ventures, North Bridge Venture Partners, and General Catalyst. The startup also landed an unnamed strategic investor in 2013, when it raised a $15 million Series C round.
The acquisition is among a string of recent moves in the payment-technology sector, which saw a huge amount of interest from startup entrepreneurs and investors trying to find riches as smartphones change the way people buy things in physical stores.
That market has taken some time to develop, largely because of the sheer number of powerful industries who have a piece of the action: banks, retailers, device manufacturers, software sellers, and mobile carriers.
Apple brought clarity to the sector last year when it finally unveiled its vision for a mobile-payments service called Apple Pay. Other big mobile players have recently started rejiggering their strategies, with Samsung buying Boston-area payments tech startup LoopPay and Google buying the Softcard payments service from the mobile carriers.
Other startups have had less luck than the Paydiants and LoopPays of the world. Boston-area point-of-sale startup Leaf, which made custom tablet cash registers and related software for retailers, was acquired by investor Heartland Payment Systems last year, but has now seen its technology shelved as Heartland tries to consolidate a handful of acquired providers under one division.
North Bridge’s Jim Moran, an early lead investor in Paydiant, said the startup’s story recalls the tortoise and the hare tale of patience instead of flash.
Instead of trying to directly harness changes in consumer behavior by building mass-market smartphone apps, Paydiant started from the beginning as a technology provider to other companies, he said.
“There are lots of startups in New York, in San Francisco, and in Europe that are trying to develop the next shiny object in mobile payment technology. And we didn’t want to build a consumer brand,” he said.
Why aim directly at being a technology provider, rather than seeking a consumer hit first? “That is the over $300 million dollar question,” Moran chuckled. But it’s an approach that had worked for this group of entrepreneurs before at edocs, an online-payments company that was sold for $145 million in 2005.
At edocs, Moran worked with Paydiant co-founders Chris Gardner, Kevin Laracey, and the late Joe Paratore, along with other key Paydiant team members. And when Paydiant talked to big retailers, Moran said, it found that their biggest fear was being co-opted by a big software company that could horn in on consumer transactions.
“These big merchants were like, `We’ve got to be very careful who we partner with because we don’t want someone sitting between us and our customers,'” Moran said. “We said, `This is all about you. This is about showcasing your brand in your app.'”
