Net Element, Inc. (NETE) Expanding Payments Market Share Internationally as Tech Giants Jockey for Position in the U.S.

Google Wallet, the peer-to-peer payments service developed by Google (NASDAQ: GOOG; GOOGL), was first released in the United States in September 2011. From the beginning, Google Pay allowed its users to make point-of-sale purchases with their mobile devices using near-field communication (NFC) technology. Four years later, the multinational tech giant shifted its NFC payments to Android Pay, limiting contactless payments to users of its Android mobile operating system. This move made sense, as Apple (NASDAQ: AAPL), Google’s primary competitor in the mobile operating system space, released its proprietary Apple Pay platform months earlier in October 2014. Both Apple and Google boast expansive availability in the U.S. According to a 2015 report by The Verge (http://nnw.fm/fBBC6), Android Pay is available on more than 70 percent of available Android devices and accepted across a network of more than 700,000 merchants.

With these statistics in mind, the rising tide surrounding contactless mobile payments remains under the radar. In December 2014, CMO.com reported (http://nnw.fm/3Oxjh) that U.S. proximity payment transaction values doubled from 2012 to 2013, and eMarketer projections call for continued growth in the years to come as consumers warm to the idea of paying with their phones. Research firm Forrester shares this vision. In a 2014 report, Forrester predicted that mobile-based payments in the U.S. will reach $142 billion in volume by 2019, up from just $50 billion at the time of the study.

The maturation of the mobile wallet market will create opportunities for tech giants like Google and Apple, to be sure; and other household names, such as PayPal (NASDAQ: PYPL), Visa (NYSE: V), Chase (NYSE: JPM) and AT&T (NYSE: T), have already thrown their hats into the ring as well. Just two years ago, the market leader in mobile payment apps, according to the CMO.com report, was Starbucks (NASDAQ: SBUX), with an impressive 29 percent of all U.S. smartphone owners who had used mobile payment apps to make a purchase having done so with the coffee chain’s proprietary wallet app. While this peculiar statistic demonstrates the relatively low barriers of entry that currently exist in the mobile wallet space, it also highlights the difficulty companies are having in getting consumers to take advantage of the convenience of contactless payments. A 2015 study by Accenture (http://nnw.fm/a9kMl) found that while 52 percent of North Americans are “extremely aware” of the availability of mobile payments, only 18 percent use them on a regular basis.

In an April 2015 poll by Statista (http://nnw.fm/OkO38), PayPal landed in the top three mobile wallet services in the U.S. in terms of user satisfaction, and this favorability has resulted in steady expansion of payment volumes. In the second quarter of 2016, PayPal’s net payment volume totaled $86.2 billion, up 28 percent year-over-year. This growth is telling of the value proposition offered by PayPal to its consumers, which extends across both Android and iOS, as well as integrating within merchant-oriented payment platforms to combine convenient payment options with targeted coupons for frequent shoppers and other services. Throw in Venmo, the mobile payment service acquired by PayPal in 2013 for $800 million, and its active user base of more than 1.5 million, and you’ve got the makings of a serious competitor for both Apple Pay and Android Pay.

Of course, the U.S. is just the tip of the iceberg when it comes to the expected proliferation of digital wallets in the coming years. In September 2015, a MasterCard (NYSE: MA) study found that digital wallets were the primary topic of discussion regarding payment innovation in a number of the world’s largest emerging markets, including India, China, Indonesia, Malaysia, Nigeria and the UAE (http://nnw.fm/x8edQ). The study went on to find that these markets are particularly ripe for innovation, with people pointing toward security as their primary concern in adopting electronic payment methods. As a result, MasterCard is looking into the integration of facial recognition software and biometrics in order to make payments both easier and more secure.

PayStar is a less-known play in the digital wallet space that’s targeting the needs of emerging markets. Founded in 2006, the company provides financial institutions with a complete solution enabling remittance services, merchant services, mobile payments and payroll services for their customers. In addition to its operations across North America, PayStar offers flexible services that meet the unique needs of markets in the Middle East, Europe, Asia and Africa. The company is currently in the process of expanding its mobile payroll and remittance services throughout the Middle East, beginning with Qatar, the UAE, Oman and Saudi Arabia. Through partnerships with local financial institutions, PayStar is positioned to market its services to more than 15 million migrant workers in Qatar and Oman alone.

For the investment community, PayStar’s established and growing position on the global mobile payments stage is particularly intriguing following the recent announcement that Net Element, Inc. (NASDAQ: NETE), a provider of global payment technology solutions and value-added transactional services, has entered into a binding letter of intent to acquire a majority interest in the company. Subject to closing, Net Element intends to create one or more entities that will house the combined assets of PayStar and Nexcharge, a proprietary payment processing, fraud management and merchant management platform. Net Element will own a 51 percent interest in these newly-formed entities and maintain an exclusive option to acquire the remaining 49 percent interest for 12 months following the closing of the transaction.

With the planned acquisition of interests in PayStar and Nexcharge, Net Element will look to bolster what is already a sizable presence in the global payments industry. Just last month, the company’s wholly-owned subsidiary, PayOnline, was ranked as a leading payment gateway by independent market analytics agency Tagline.ru. Building on this position, PayOnline recently introduced a new adaptable, multi-channel payment interface to more than 10 million online shoppers in over 3,000 international e-commerce markets. Combining this commitment to innovation from within with an aggressive M&A strategy has Net Element prepared to expand its presence in emerging markets, as discussed by CEO Oleg Firer in a recent news release.

“These acquisitions will allow Net Element to present transactions for processing directly to Visa, MasterCard, American Express and other networks, as well as expand our presence in GCC region and other selected markets,” he stated. “These acquisitions will add to the growth of our business and increase market share internationally.”

With the persistent focus on the domestic mobile payment scene, it’s easy to overlook the immense opportunities currently being presented by emerging markets. Adults in markets across Africa, Asia and Latin America still lack access to formal financial institutions, as noted by EY (http://nnw.fm/0Ocg1). As a result, mobile commerce options such as digital wallets already outpace traditional bank accounts in several emerging countries. While newcomers in the domestic market are forced to go head-to-head with the likes of Google and Apple, Net Element, through the acquisition of interests in PayStar and Nexcharge, is set to quietly expand its already sizable presence on the global stage by continuing to meet the unique needs of consumers in emerging markets.

For more information, visit www.NetElement.com

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