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eCommerce - Monday, October 6, 2008

eBay Does The Right Thing With $945M Buyout of BillMeLater

eBay has ventured off with some M&A deals in the past couple of years that challenged the imagination to grasp why these deals made sense. Their explanation for their buyouts of Skype and Stumbleupon must have been painful for their PR staffers.

But their buyout today of BillMeLater is spot-on. BillMeLater.com is a simple product that lets consumers make purchases at more than 700 online retailers without using their credit card. Partners include USAirways.com, Walmart.com, Overstock.com Buy.com, Zappos and Amazon.com. The service sends a bill to customers who can choose to pay in full without interest or fees, or go to a payment plan.

Timonium, MD.-based BillMeLater will get approximately $945M from eBay including $820M in cash and around $125M worth of outstanding options. Bill Me Later had raised around $200M in VC funding since from Crosspoint Venture Partners, Azure Capital Partners and GRP Partners. Amazon made an investment in BillMeLater as well.

We came across some forecasts from Javelin Strategy and Research that show that credit and debit cards account for most of the $150B spent with online retailers but they predict that payment services like Bill Me Later will account for 14% of dollars spent online this year and that will shoot up to 30% by 2012.

Bill Me Later is certainly benefiting. It was named the 6th fastest-growing company in the US by Inc. Magazine, with more than $50M in revenue in 2006. If you think that this might be another operation to trap people who are buying more than they can afford you might be wrong. Bill Me Later targets high-income, credit-worthy customers who are made nervous about entering credit card numbers online. There's also something in it for merchants given that Bill Me Later charges retailers an average of 1.5% of transactions, compared to over 2% for other credit cards.

We would expect BillMeLater to become much more integral to eBay's business than Skype has been. But it will be interesting to see if some of the large users of BillMeLater will bristle now that eBay has taken over.

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