Last Tuesday, eBay announced that it will be separating from Paypal in late 2015, announcing a new executive team for both companies, with current CEO John Donahoe and CFO Bob Swan planning to leave the company after the split.
The investor Carl Icahn has advocated the idea of separating eBay and PayPal. Ebay itself had been very hesitant of taking action and, with CEO Donahoe arguing that “eBay is a big contributor to PayPal’s growth and expansion.” This was very true when PayPal was acquired, but later it was deemed that eBay has been holding PayPal back from growth. That is when radical changes started occurring.
PayPal, which is owned by Ebay, has reaped 40% of profits in the most recent financial quarter. PayPal is trusted by many people and is considered very secure. There have been talks by Google to buy 40% of the company, but the creation of Apple Pay may hurt the deal.
PayPal started out as an independent company and was founded by Peter Thiel, now a billionaire who was an early backer of Facebook, and Elon Musk, who has achieved fame and success as CEO of electric car maker Tesla Motors and private space exploration business Space X.
Ebay acquired PayPal for $1.5 billion in early 2002. This was one of the most successful acquisitions in the world. With the help of eBay, the online paying service was very successful, growing exponentially. In 2013, PayPal facilitated one in every six dollars spent online today, and total payment volume grew 26% in the last six months to $203 billion.
Apple Pay was released with iOS 8 and the iPhone 6 and 6 Plus in September 2014, and allows people to kill their wallets and use the credit card in a revolutionary way — for free.
What is the Trouble?
Both services revolutionizes the way we pay. PayPal started by not having to put your credit card information every time you bought something online, and was the simplest way in the late 2000’s to sell stuff for a small charge.
But as Apple tries to change the game, it does the same thing PayPal does, only on Apple devices, and for free. On top of that, anyone with an Apple device can use their device as a credit card or gift card, just by scanning your fingerprint! The problem is that it is only available with Apple devices, which gives PayPal some leeway.
The Advantages of Ebay and PayPal Splitting
The split will allow eBay to open up its payment processing to other options, such as Apple Pay. It could also allow shoppers on eBay to pay with a credit card without creating a PayPal account. PayPal could evolve and expand its service without the limitations of eBay, and fight against competition to similar companies, such as Apple Pay and Square Register.