Honey, which is best known for providing a service that helps consumers find deals while they shop online, works with 30,000 online retailers and claims to have 17 million monthly users. PayPal said Honey's technology will help it reach consumers as they begin their "shopping journeys" with personalized offers.
PayPal, which owns peer-to-peer payments app Venmo, fell 2% to $102 in extended trading after the announcement. Prior to Honey, the company's biggest purchase was last year's $2.2 billion acquisition of iZettle, a Swedish payments company.
Founded in 2012, Honey operates a browser extension tool that automatically searches for and applies coupon codes as consumers shop online. Honey co-founder Ryan Hudson said in a statement that the acquisition would give the company the ability to work with millions of retailers to reach its members and provide offers to consumers.
Hudson and co-founder George Ruan will continue to lead the Honey team under PayPal's global consumer product and technology group, and will report to Senior Vice President John Kunze.
The companies expect the deal to close in the first quarter of 2020. Honey will retain its brand and Los Angeles headquarters following the acquisition, PayPal said.
— CNBC's Kate Rooney contributed to this report