eBay Spins Off PayPal
Oct. 2, 2014
On Tuesday, eBay formally announced a move that had been expected, and agitated for by activist shareholders, for some time: PayPal will be spun off as its own independent, publicly traded company during the second half of 2015. In addition to announcing the separation, eBay also revealed American Express veteran Dan Shulman has been tabbed to run the independent PayPal.
The company said it undertook a strategic review that came to the conclusion that both companies will benefit from the separation. From outside the company, the response is not much different. Experts seem to agree that not much will change from a merchant or consumer perspective and independence could bear fruit.
“I think this will be good for PayPal in that it should give them a renewed focus on payments,” said Nick Holland, senior analyst for Javelin Strategy & Research. “The company could be reinvigorated when it comes to putting products out there to compete with all the innovative things going on.”
And, even though PayPal tended to acquire innovative technology in the past rather than build it, industry observers think they will still be able to do this, despite the absence of eBay’s deep pockets.
“I don’t expect PayPal to be adversely affected from a funding or M&A standpoint,” Rick Oglesby, senior analyst for Double Diamond Payment Research, told CardnotPresent.com. “Its historical acquisitions have been within the realm of its own capabilities and it generates sufficient revenue and growth on its own to be a successful standalone company. It will also have its own stock moving forward, which is a new currency that can be used for M&A transactions it previously didn’t have on its own.
An additional strategic factor perhaps pushing toward separation is the increasing divergence between PayPal’s and eBay’s future ambitions, according to U.K. payments expert Neira Jones. Recent moves from PayPal (e.g., exploring peer-to-peer lending) suggest it wants to be a financial institution, she noted, while eBay, as a marketplace, wants to take even more friction out of the customer experience. That dynamic will produce tension in a single organization.
“[Getting into banking] means that PayPal will become increasingly regulated, and such tight integration would go against eBay’s aim to remove friction,” Jones said. “The implication of PayPal becoming a financial institution would mean that account setup for sellers would become as stringent as those for setting up a merchant account (KYC, AML) and buyers would be subject to bank-like controls when opening up accounts. So to enable both eBay and PayPal to fulfil their ambitions, they need to separate. PayPal will become a regulated payment brand to rival the likes of Visa and MasterCard, and eBay positions itself to become the ubiquitous marketplace it wants to be.”