Friday, February 2, 2018

PayPal- eBay Split Expected to Significantly Benefit Both Companies in the Long Run

PayPal, which is one of the world's largest online payment companies, was created in 1998, had its initial public offering in 2002, and was acquired by eBay later that year. The system can be used to transfer money over the internet without the need for checks or money orders and is mainly associated with online shopping sites, where they are well-known for security and ease-of-use. In 2015, when eBay decided to make PayPal a separate entity once more, it was intended to diversify the company's investments. Now, according to James Peltz's L.A. Times article, eBay is committing deeper to that goal by cutting PayPal free from its position as eBay's primary payments processor.

For years, shoppers on eBay have been forced to use PayPal when checking out, and sellers have had to pay a commission to PayPal on top of the commission they already have to pay to eBay for using their site. eBay's relationship with Adyen, which will begin in 2020, will give customers more payment options to choose from, which will enable people to pick the one that suits them most economically. The massive online retailer also believes that the change to Adyen will create a "more seamless experience" for customers.

PayPal's stock took a dive and eBay's went the opposite direction after the announcement this week. However, analysts believe that PayPal's issues are only for the short-term. Executives have pointed out that the portion of PayPal's business connected to eBay has been steadily shrinking over the years, and that this break-up will have little impact. eBay's business was about 13% of PayPal's total volume last year (down 3% per year for the past few years). However, PayPal doesn't seem to be worried about the loss of volume. They are choosing instead to focus on profitability.

 According to PayPal executives, although the partnership with eBay had led to a large volume of money transferring for the payment company, they made very little per transaction, which didn't make it so profitable. One of PayPal's subsidiaries, Venmo, saw a huge jump in quarterly profits: 59% higher than last year, by some measurements. PayPal has other similar projects in the works that have the potential for profitability, so it seems that the split with eBay may be beneficial to both companies in the end.

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