PayPal’s $2.2 billion takeover of Swedish mobile payments company iZettle could drive up prices for customers and lead to a more limited range of services, according to an investigation by the Competition and Markets Authority (CMA).

The UK’s competition watchdog will now refer the merger - completed in September - for a Phase 2 investigation after it found that the deal, which brings together the two largest suppliers of mobile point of sale (MPoS) devices in the UK, could lead to a “substantial lessening” of competition within UK markets.

A statement issued by the CMA read: “After completing its Phase 1 investigation, the CMA has found that PayPal could face insufficient competition in the UK after acquiring its market-leading rival. The finding raises concerns that the merger could result in customers, which include small and medium-sized businesses, paying higher prices or receiving a lower quality service.”

The CMA also assessed the potential impact of the merger on the emerging market for omnichannel payment services, where PayPal has already established a string position.

The findings read: “The investigation found that had iZettle not been taken over, it could have provided strong competition for PayPal and potentially benefitted customers by driving future innovation and lower prices.”

The next investigation will be carried out by an independent panel of CMA investigators.

Andrea Gomes da Silva, CMA executive director, commented: “Payment services markets are evolving so it’s particularly important to look to the future when we assess competition and the effects of mergers on customers.

“While iZettle is a relatively recent entrant to payment services, it has already established a market-leading position in mobile point of sale devices and was well-placed to compete against PayPal in other emerging markets,” he continued, adding: “That’s why we are concerned that PayPal’s takeover could lead to higher prices or reduce the quality of the services available to customers.”

The $2.2 billion purchase of iZettle - the largest in PayPal’s history - was announced in July this year, as part of PayPal’s strategy to expand its digital payments to brick-and-mortar retailers.

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