Why Did PayPal Pay $4 Billion for a Coupon Browser Extension?

Earlier this week, PayPal agreed to purchase Honey, a Los Angeles-based coupon finder, for an eye-popping $4 billion. If it goes through, it will be the largest tech deal in the city’s history, and PayPal’s biggest acquisition ever. Why would any company shell out that much for a shopping tool?

PayPal revolutionized online shopping with its payments system two decades ago, but lately more tech companies have been encroaching on its turf. Google, Apple, Amazon, Facebook, and other tech giants are getting into financial services as their next big venture. If shoppers start preferring those options when it comes time to pay, PayPal might be in trouble. Honey offers PayPal, and its other payment app Venmo, a way to get in front of that—or, as PayPal’s press release put it, “to reach consumers at the beginning of their shopping journeys.” In other words, a way to help you find products, not just pay for them.

Founded in 2012, Honey is best known for a browser extension that shoppers can use to quickly find discount codes that apply to items in their shopping carts. The company says it has over 17 million monthly active users, and it works with tens of thousands of online stores. Honey is free to use for shoppers, and for that reason might appear fishy. But it doesn’t make money by selling or analyzing your personal information. Honey’s surprisingly reassuring privacy policy pledges that it won’t track “your search engine history, emails, or your browsing on any site that is not a retail (shopping or service) website.” That’s because it doesn’t need your data to make a profit.

Just like Rakuten, Honey makes money by charging retailers a small percentage of sales made with the coupons it finds. But why would stores pay to let consumers buy their stuff for less? For the same reason they pay credit card companies and payment processors like PayPal: to make your experience as smooth as possible, and to do everything to prevent you from abandoning your shopping cart, even if that means offering you a lower price.

Is that worth $4 billion though? “I’m scratching my head,” says Sucharita Kodali, an ecommerce and retail analyst at the market research firm Forrester. “I don’t know what [PayPal] sees.”

There’s a number of different ways PayPal could integrate Honey into its business, like by charging existing PayPal merchants an additional fee to use Honey. But that’s an unlikely outcome, argues Kodali. Stores may be unwilling to make coupon codes so easily accessible, and many “already complain about how much PayPal costs them anyway,” she says.

Kodali says one compelling aspect of Honey is its mobile app, where consumers can add items from different retailers to their cart and pay for them all at once. “That has been something that nobody in retail has solved,” she says. “That’s the only thing that I could imagine could take on a $4 billion evaluation.” Instead of shopping on Amazon, you can use Honey to buy from all your favorite stores at the same time, and automatically apply any available coupons. It’s a valuable service that could help differentiate PayPal from everyone else.

A spokesperson for PayPal confirmed the company was particularly interested in some of the features of Honey’s app, and how they could be integrated into the Venmo and PayPal apps.

PayPal can also use Honey to give Venmo a leg up on Apple Pay and Square’s Cash app, both of which allow consumers to send money to friends and family like Venmo does. All three apps now each have an associated credit or debit card that come with various perks, like cash back on Apple products with the Apple Credit Card. Kodali says a particularly useful idea would be to copy WalMart’s now-defunct Savings Catcher program, which gave customers rebates on products that sold for less at competitors. If Honey detected a new coupon after a customer made a purchase, it could refund them the price difference to their Venmo or PayPal account.

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