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Ebay to spin off PayPal business: what the experts say

E-tail marketplace eBay announced on Tuesday that it will be offloading its online payments arm PayPal, saying that the two businesses will be stronger as separate entities.

Subject to clearance, the plan is for both companies to be trading publically by the second half of 2015, with current president of eBay Marketplaces, Devin Wenig, becoming CEO of the new eBay business. Dan Schulman has been named president and CEO-designee of the standalone PayPal operation, having joined from American Express.

The move to break up the businesses comes after the recent launch of Apple Pay, a new mobile payments platform for which PayPal has not been chosen as a preferred partner. Despite speculation about the competition Apple's move into payments will put on PayPal, eBay president and CEO John Donahoe said yesterday that he expects the new arrival in its space to help benefit the wider industry.

"The industry landscape is changing, and each business faces different competitive opportunities and challenges," he added.

"Ebay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets. As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities. And we are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward."

Essential Retail caught up with a selection of retail commentators to analyse the news from eBay and PayPal, and assess what the announcement means for the industry.

Spencer Izard, head of European Retail Insights at IDC, said: "A core tenant of a successful omnichannel strategy is bridging the online and in-store experience. As the use of beacon technologies and ever more sophisticated mobile apps grows in retailers so does the importance of mobile payments.

"Retailers will evolve their in-store capabilities to allow consumers to purchase items on their mobile devices. At the moment the mobile payments market is still relatively nascent in nature but growing fast. PayPal can be considered as an elder statesman in the online payments market but with omnichannel mobile payment solutions from the likes of Google, Apple, and Zooz it shows this market has great potential for new solutions to make an impact. To this end companies in, or entering, the payments market see PayPal as the company to challenge given its brand identity.  By splitting PayPal into its own public entity again it will provide PayPal an opportunity to become more agile and adaptive to the rapidly evolving payments market.

"PayPal should use this opportunity to position itself as a de facto neutral payment handler for this omnichannel payment future. It should reconsider partnerships with the likes of Samsung, which allegedly drove a wedge between them and Apple, and provide their mobile payment solutions to all device manufacturers and retailers equally."

Mark McMurtrie, director at Payments Consultancy, commented: "This announcement recognises that PayPal has established itself as one of the most successful payment industry players which no longer needs the support of its parent eBay and can stand on its own feet. Loyal users now place their trust in PayPal for their online purchases wherever they decide to shop, as well as at a growing number of stores on the high street.

"Going it alone will allow greater flexibility and strategic focus. We can expect even more innovation from PayPal in the coming years as it operates as a standalone business. The payments industry is experiencing a period of unprecedented change as we shift to a digital world and embrace mobile, digital wallets and peer-to-peer money transfers. PayPal continues to act as a disruptive force and has grown in popularity by offering consumers and merchants practical alternatives. It will be exciting to watch how the business develops with the greater freedom and the ability to accelerate investment."

Gauthier Jones, European business development manager at CMS Payments Intelligence, remarked: "Ebay's decision to spin off PayPal is not surprising in the current climate. The payments market has been reinvigorated by new players in the arena. It is no coincidence that the announcement has been made within a month of Apple entering the payments landscape.

"PayPal is indeed a true behemoth within the market, with over 152 million active accounts and a revenue of $7.2 billion over the past 12 months (19% growth). It has, however, struggled to attract and keep payments talent and has been unable to position itself as an innovator. Apple Pay and e-currencies have really taken this mantel.

"This spin-off will give PayPal the space to stretch it’s legs and become more appealing to merchants – how innovative can it become and will share options bring in new talent?

What do you think? We are keen to hear the industry's views on the eBay-PayPal split. Please feel free to comment below or share your comments on Twitter @EssRetail.

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