Tuesday 11 November, 2014
In September 2014, EBay announced its decision to split from PayPal and form two separate publicly traded companies. Although it had faced shareholder pressure to do so earlier this year and resisted, it had finally made the decision to do so.
EBay acquired PayPal in 2002 but many have argued that the payment processor is too big of a company in its own right to exist under EBay. The split gives PayPal the freedom to capitalize on its own popularity in various ways and could change the world of online payment processors.
More Flexibility and Competitiveness
For online retailers, it will make EBay more nimble, a change that is needed according to ChannelAdvisor CEO Scot Wingo, who says there are big changes now in ecommerce. He says, “The marketplace can focus faster on ecommerce, which is a stated goal of theirs and they haven’t been achieving it.”
PayPal is huge but it appears to be in the process of being passed up by more innovative payment processors like Apple Pay and Google Wallet. Sarhan Capital CEO Adam Sarhan says, “Others like Apple Pay and Google Wallet are really trying to bring it to the next level. Why should the everyday Joe use PayPal as opposed to Apple Pay? Until they can answer that question, they have a real dilemma.”
After the split, PayPal would also be able to form partnerships with EBay’s competitors and other major ecommerce sites.
What This Means for the Future
Representatives from EBay say that the split is the best way to create shareholder value for both companies. With the ability for each to innovate and better compete in its own space, this could also mean major improvements for users of both services as well.
It’s hard to say exactly what changes will be afoot for ecommerce businesses, but the split and its aftereffects are sure to slow the exodus from PayPal that has been going on for years. Many ecommerce businesses find that other online payment processors offer better features and flexibility, and have been looking for alternatives, albeit somewhat reluctantly.
Some speculate that the split could lead to a purchase of EBay by Chinese ecommerce giant Alibaba. Piper Jaffray senior research analyst Gene Munster, who points out that Alibaba, which just made the world’s largest ever public offering at $25 billion, is likely to want access to EBay’s market but already has its own payment processor that can take EBay orders.
Indeed, both sites will be attractive acquisitions for bigger companies. There’s a good chance that either or both may be swallowed up, and some pundits even speculate it could happen before the split is official. This could mean some changes in how both sites work.
The split is to be completed by the middle of 2015.