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PayPal to buy online returns start-up in its latest run at the retail shopping space

The PayPal application can be seen on a mobile phone.

Felix Kastle | picture alliance | Getty Images

PayPal is making another acquisition in the e-commerce space as it moves beyond payments and into physical and online retail.

The digital payments giant announced a deal to acquire start-up Happy Returns on Thursday for an undisclosed amount. The 120-person Santa Monica-based company lets people return things they bought online, in person.

“The post-purchase experience is something we’ve been looking into, since it’s such a pain point — people want to shop online and return in store, and vice versa,” Frank Keller, senior vice president of consumer in-store and digital commerce at PayPal, told CNBC in a phone interview. “For retailers, we’re providing more comprehensive services beyond payments.”

Thursday’s deal follows PayPal’s $4 billion acquisition of Honey, a browser extension that lets consumers find and use coupons while shopping online, in late 2019. PayPal also announced a deal in March to buy cryptocurrency security company, Curv, for $200 million. PayPal had been an early venture investor in Happy Returns.

The acquisition will help solve sometimes messy logistics of returning and shipping items for merchants, and help drive foot traffic to those businesses as the economy reopens, Keller said. Eventually, he expects the product to incentivize more merchants to sign up for PayPal products. The company, founded by Max Levchin and Peter Thiel, works with roughly 31 million businesses that will eventually have access to the in-person returns network.

The deal also fits into CEO Dan Schulman’s recent, public focus on PayPal’s “commerce platform.” Schulman underlined online shopping as a key leg of growth during an investor day earlier this year.

The pandemic-induced boom in online shopping helped drive record payment volume and revenue for PayPal in recent quarters. During first-quarter earnings last week, Schulman highlighted plans to roll out a “next-generation digital wallet” this year, which he described as “all-in-one, personalized app” that will “provide increasingly customized and unique shopping, financial services, and payments experiences.”

Happy Returns has roughly 2,600 drop-off locations where shoppers can return products for an immediate refund or exchange. The company also highlights a lower environmental impact. It relies on reusable totes instead of cardboard, to transport returns. The start-up works with direct-to-consumer brands including Rothy’s, Revolve, Everlane, as well as brands like Dressbarn and Steve Madden.

“It’s a far better consumer experience, because it doesn’t involve printing labels, cardboard boxes, and most importantly for shoppers it doesn’t involve waiting to get your money back,” David Sobie, CEO and co-founder of Happy Returns, told CNBC.

PayPal has been a Wall Street favorite during the pandemic as consumers shift to online banking. Executives expect the trend to continue, and paying online will “remain essentially unchanged in a post-Covid world,” Schulman said during first-quarter earnings call. Shares are up nearly 70% since May of last year. But after a tech-driven sell-off this week, PayPal’s stock is up about 3% for the year.

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