The all-cash deal is PayPal's biggest-ever acquisition following its divorce from former parent company eBay in 2015, and comes just weeks after iZettle, which now operates in 12 countries around the world, filed for an IPO as it looked to expand.
Founded in Stockholm in 2010, iZettle claims to have revolutionised mobile payments with the world's first mini chip card reader and software for mobile devices.
By joining forces with PayPal, which operates in 200 countries, iZettle will be able to accelerate its global expansion, including to the U.S., the companies said.
As per the deal, the position of iZettle's co-founder and CEO Jacob de Geer will remain intact. iZettle's entire executive team will also continue the operation as before. "Combined with the iZettle brand, capabilities and talent this means we're ready to level the playing field for small businesses all around the world".
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PayPal could well be set to move further into high-street shopping after acquiring iZettle for $2.2bn.
iZettle, which is based in Sweden, said last week it would list an IPO on the Nasdaq in Stockholm sometime this year, and said at the time it would not be pursuing a sale as alternative to an IPO. It has since expanded into financing services, with a presence in Brazil, Mexico and Europe.
"Combining our assets and expertise with a global industry leader like PayPal allows us to deliver even more value to small businesses to help them succeed in a world of giants", said De Geer. The company forecast reaching EBITDA profitability by 2020 on a standalone basis. Upon closing, iZettle will become the European center of excellence for PayPal's in-store product and services offerings.
The deal, which is due to close in the third quarter, is expected to be around $0.01 dilutive to PayPal's previously communicated full year 2018 non-GAAP earnings per share.