PayPal has agreed to buy iZettle for around $2.2 billion, in a move to take its digital payments into brick-and-mortar retailers.

The acquisition is set to be the largest in PayPal's history, and is seen as a move to rival fellow US payments firm Square, which has developed by serving the small businesses which PayPal has historically overlooked.

Stockholm-based iZettle has grown into a European leader of payment technology, with its devices used by around 500,000 businesses across the continent and into South and Central America.

The deal will also help PayPal offset the money it no longer gets from eBay after the two companies were separated in 2015 – eBay had accounted for around one fifth of PayPal's 2017 revenues.

iZettle chief executive Jacob de Geer will continue to lead that business and report to PayPal's chief operating officer Bill Ready.

In a statement, de Geer said that as his company was preparing for a potential IPO, PayPal got in touch and showed “a serious interest” which turned into a detailed discussion on how both could benefit from joining forces.

“During our discussions with PayPal’s president and chief executive Dan Schulman and his team, it has become obvious that we share the same belief in the power of small businesses,” he commented, adding that the two companies have complementary product offerings and geographies.

“By joining the PayPal family we’ll become iZettle with superpowers and jump on a fast track to realise our vision,” de Geer added. “The opportunity to become part of PayPal was too good to pass up, not only because of what it means for iZettle and for iZettle’s employees, but because of what we can offer to our merchants.”

Evercore advised PayPal on the transaction while JPMorgan Chase advised iZettle.

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