Deep pockets, multichannel expertise and access to markets are all coming together to make PayPal and iZettle look very much like a formidable global competitor to Square.

PayPal announced last week that it plans to acquire Stockholm-based iZettle for $2.2 billion in a transaction the company said was the largest in its history. Both companies operate as payment facilitators, and both have carved out niches among small businesses.

For PayPal, online payments have been a core part of its value proposition, while iZettle has made its mark primarily with in-store payments in Europe and Latin America.

This acquisition is the latest in a string of deals in which key players are combining expertise and market coverage to adapt to a rapidly evolving payments environment. In this space, expansion and growth often come down to the question: Who can serve small businesses best?

“The payments industry is definitely hot in terms of interest, and there’s lots of opportunity to really influence the structure of how the landscape will look in the future,” Keefe, Bruyette & Woods (KBW) analyst Sanjay Sakhrani told PaymentFacilitator.

“I think part of the strategy behind why PayPal bought iZettle vs doing something de novo or buying a smaller player was that it got them into the European market in a very scaled way at the point of sale with micromerchants.”

PayPal highlighted this point in its announcement as well, touting the deal as a way to strengthen its platform “to help millions of small businesses around the world grow and thrive in an omnichannel retail environment.”

“Small businesses are the engine of the global economy and we are continuing to expand our platform to help them compete and win online, in-store and via mobile,” CEO Dan Schulman said in the release.

He went on to highlight what he called the companies’ “shared mission, values and culture—and complementary product offerings and geographies.”

“With nearly half a million merchants on their platform, Jacob de Geer and his team add best-in-class capabilities and talent that will expand PayPal’s market opportunity to be a global one-stop solution for omnichannel commerce,” he said.

Those robust omnichannel capabilities are a key part of this combination’s strength, Sakhrani said.

“Ultimately, it’s not just about the hardware at the point of sale,” he said. “It’s going to be about the technology behind it and the software as we bridge offline with online. And in that regard, PayPal has a lot more scale and experience, so to the extent that they can make it come together for micromerchants – and then build off that for larger merchants – I think that can be incremental.”

Even with a $2.2 billion price tag, the deal makes sense, Sakhrani said, especially considering the rate at which iZettle has been growing.

According to the announcement, iZettle has grown revenue at a CAGR of approximately 60% from 2015 to 2017. The company expects to process about $6 billion in total payments volume during 2018.

Backed by PayPal’s formidable resources, the combined company can more easily fund growth initiatives that take its omnichannel strategy to other markets, strengthening its position against Square, Sakhrani said.

For its part, Square has been boosting its omnichannel capabilities as well, acquiring web provider Weebly earlier this month.

But even while the battle intensifies, no one can be counted out.

“While the acquisition of iZettle by PayPal could increase the competitive intensity, we think there is still a lot of room for all market participants to grow particularly on the integrated payments side,” Sakhrani wrote in a note about the deal.

This announcement follows an active year in which even dominant legacy payments companies like First Data and TSYS used acquisitions as a way to adapt to quickly changing demands.