My Favorite Mobile Startup Just Got Bought by EBay. Uh-Oh.

The Citizen's Guide to the Future
Sept. 26 2013 6:07 PM

My Favorite Mobile Startup Just Got Bought by EBay. Uh-Oh.

EBay, the dot-com stalwart that refuses to die, is making a stake at resurrecting itself on the mobile market. The company announced on Thursday that it plans to buy Braintree, a company that has made huge strides connecting online payment gateways, for $800 million.

This acquisition is important in that PayPal—which makes up 40 percent of EBay’s revenue—has just gobbled up one of its biggest competitors. That would be Venmo, an e-payment app I evangelized back in August. PayPal is a popular online payment service, but its mobile ventures have been woefully lacking. Venmo, meanwhile, has seamlessly assembled the nuts and bolts of online transactions alongside the leather upholstery of social media streams. Braintree bought Venmo for $26.2 million last year, and the amount of money processed through the app is estimated to be growing by 30 percent every month.

As I wrote last month, Venmo was scary competition for PayPal in that it’s actually a useful app:

Venmo’s main advantage over PayPal is the simplicity of transactions combined with its social user interface. PayPal has predominantly one-star reviews on the app store, many of which bemoan its unreliable transfers. If you’re a freelancer who has the misfortune of getting paid through PayPal—and you might want to rethink that, given that its chargeback policy is infamously unfriendly to vendors—your best bet is to use your virtual PayPal money to barter for food on eBay.

Both companies have something to gain from the acquisition: Braintree has access to EBay’s corporate infrastructure and years of data security experience; EBay has access to Braintree’s payment gateways, including a mobile payment app that actually works. Google Wallet will now take the place as PayPal’s biggest competitor, but Google’s e-payments venture only works if you use it directly through Gmail or on an Android phone—it’s unlikely to have its own native iPhone app anytime soon.

This is clearly a smart move on EBay’s part, but the danger is that PayPal could cast Venmo aside instead of recognizing the reason this four-year-old startup became PayPal’s main competitor. Right now, PayPal charges a 2.9 percent transaction fee for sending money directly from your debit card, while Venmo is free for debit transactions. The worst mistake EBay could make with this deal would be to cannibalize Venmo without actually improving its own PayPal app by adding features like free debit transactions. This is a moment for PayPal to decide whether it will start actually valuing customer service, or if it will continue to rest on its ever-wilting laurels. Savvy smartphone users have grown to demand free mobile payments, and if PayPal doesn’t start supplying that demand, the market will rise to meet it.

Future Tense is a partnership of SlateNew America, and Arizona State University.

Emma Roller is a Slate editorial assistant. Follow her on Twitter.