eBay and PayPal Break Up

Oct 13, 2014
broken-heartOn September 28th, eBay officially announced a situation that had been expected and celebrated by activist shareholders for a long time. PayPal will be turned into an independent company during the second half of 2015. Not only this, but eBay also revealed the name of the American Express veteran, Dan Shulman, who will essentially lead PayPal in this new independent phase.

After a strategic review, eBay concluded that both companies will benefit from the separation. Plus, the people outside the company seemed to share this opinion. In fact, they seem to agree that not much will change for the consumers or merchant perspective and that perhaps, this new independence of eBay could generate good profits and a positive future.

Nick Holland, the senior analyst for Javelin Strategy & Research said, “I think this will be good for PayPal in that it should give them a renewed focus on payments,” He added, “The company could be re-invigorated when it comes to putting products out there to compete with all the innovative things going on.”

Industry observers think that PayPal will be able to build innovated technology, despite eBay’s big investments.

Rick Oglesby, the senior analyst for Double Diamond Payment Research stated that he didn’t expect PayPal to be adversely affected from a funding or M&A standpoint and also says, “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.”

Another strategic factor that contributes towards separation is the constant divergences about the future ambitions between eBay and PayPal, according to Neira Jones, UK payments expert.

Recent moves from PayPal, like exploring peer-to-peer lending, is a suggestion that it may wish to be considered as more of a financial institution, whilst eBay, as the Internet’s most popular marketplace, leads to take even more friction out of the customer experience. Clearly, controversial dynamics like this is likely to generate tension in an organization. It means, in banking terms, that PayPal increasing regulated integration goes in entirely the other way compared to eBay’s aim to remove friction.

“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.” Jones finalized.

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