NEW YORK/STOCKHOLM (Reuters) - PayPal Holdings Inc PYPL.O has agreed to buy Swedish financial technology startup iZettle for $2.2 billion in the U.S. online payments provider's biggest ever acquisition.

FILE PHOTO: The PayPal logo is seen at a high-tech park in Beersheba, southern Israel August 28, 2017. REUTERS/Amir Cohen/File Photo

The deal will allow the Californian company to expand into the retail payment terminals business in international markets, where it will compete with Silicon Valley firm Square Inc SQ.N founded by Twitter TWTR.N CEO Jack Dorsey.

Stockholm-based iZettle, which had advanced plans to go public, offers small businesses a miniature credit card reader that turns smartphones or tablets into payment registers.

It is present in 12 countries in Europe and Latin America and offers other services for managing small businesses.

By joining forces with PayPal, which operates in 200 countries, iZettle will be able to accelerate its expansion, including into the United States, the companies said.

Shares of PayPal rose 2.4 percent on Nasdaq, and Square was up 0.05 percent on the New York Stock Exchange shortly after midday.

In most of the countries where it is active, iZettle drives more traffic through its sites than Square does, data from mobile and web traffic measurement firm SimilarWeb shows.

Since separating from online marketplace eBay EBAY.O in 2015, PayPal has reshaped itself from mostly processing online transactions for its parent company to offering a suite of digital payment services.

These range from lending to small businesses to facilitating money transfers between merchants and customers.

PayPal has been expanding aggressively through acquisitions and partnerships with large banks and technology firms including Bank of America Corp BAC.N, JPMorgan Chase & Co JPM.N, Apple Inc AAPL.O and Facebook Inc FB.O.

iZettle CEO and co-founder Jacob de Greer and the company’s management team will continue to lead the business. This year the company expects to process $6 billion in payments, resulting in gross revenue of $165 million.

PayPal began to show serious interest in the company late in the run-up to its IPO, although the two companies have talked about different forms of collaboration for years, de Geer said in a statement on Friday.

START-UP HITS FACTORY

Founded in 2010, iZettle is one of the largest fintech startups to emerge from Europe and one of a string of successful venture-backed companies to emerge from Sweden in the past decade or more.

Others include King, the makers of Candy Crush, streaming music leader Spotify and Klarna, a provider of payments and lending services to businesses that was valued at $2.5 billion in a 2017 funding round.

iZettle is the latest in a string of successful Swedish start-ups which have sold out to bigger U.S. tech companies rather than list on the stock market.

These include messaging pioneer Skype and Mojang, makers of hit video game franchise Minecraft, both of which are now owned by Microsoft MSFT.O.

Along with Square and iZettle, Dutch firm Adyen competes in the smartphone-enabled payment terminal business.

The company, which processes payments for Airbnb, Uber, Spotify and others, is eyeing a stock market listing in June that could value it at up to 9 billion euros, sources familiar with the matter told Reuters last month.