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PayPal Sans eBay – Now What?

Just another Tuesday in September.

In case you missed it, big news was made Tuesday (Sept. 30) in payments-land. eBay and PayPal will split and become two separate, publicly traded companies sometime late in 2015. There will be two new CEOs of these companies – both announced Tuesday (Sept. 30) as well.

That much we know. There’s still a lot we don’t. Here are the three big questions that drove the news cycle on this Tuesday.

  1. Why now?

“Accelerating pace of change in payments and commerce… separation best positions each business to capitalize on growth opportunities”

This is from the PowerPoint deck that John Donahoe presented the morning of the announcement. Turn back the clock to March 2014 and John Donahoe and the eBay board said that eBay and PayPal were stronger together. Six months later, they’re better apart. Of course, over that same period of time, some of the “accelerated pace of change” to which Donahoe references could be Visa Checkout emerging from Visa as a new powerful player in the digital payments world, Apple Pay launching as a major new digital payments platform tied to the existing payments ecosystem, and Alibaba’s IPO which left it flush with a ton of cash and a big global ambition.

Here’s another.

PayPal is a big player that doesn’t really need eBay any more. Some 70 percent of PayPal’s volume is not coming from eBay, up from 49 percent in 2008. Eighty-nine of the top 500 merchantsworldwide and 116 of the top 500 in North America use PayPal. Additionally, 81 of those merchants also sell on eBay. About 160M digital wallets later, PayPal has the lead in the race to get digital accounts populated and used in payments and commerce (at least outside of China), with a growing volume coming from the mobile device.

Visa Checkout and Apple Pay also have their eyes on the digital payments prize but they need to work like crazy to get digital accounts to be used in commerce and to get consumers in the habit of using them. PayPal is now free to focus entirely on putting lots of distance between it and everyone else in the space without the constraints of a parent company that is in an entirely different business.

Some have speculated that this was the inevitable result of Carl Icahn’s maneuverings earlier in the year. Icahn, who was reported to have made $180M on the news given the rise in the price of eBay’s stock, had this to say Tues. (Sept. 30) as reported from his blog.

“We are happy that eBay’s board and management have acted responsibly concerning the separation — perhaps a little later than they should have, but earlier than we expected. As I have said in the past and have continued to maintain, it is almost a ‘no brainer’ that these companies should be separated to increase the value of these great assets and thus to meaningfully enhance value for all shareholders. It also continues to be my belief that the payments industry, of which PayPal is an important part, must be consolidated — either through acquisitions made by PayPal or a merger between PayPal and another strong player in the industry. It is possible that this could be accomplished through a reverse Morris Trust structure because, in light of the development of strong competition such as the advent of Apple Pay, the sooner these consolidations take place, the better. As one of the largest shareholders of eBay, I intend to have discussions in the near future with John Donahoe who, as I have said in the past and continue to believe, has the interest of enhancing value for all shareholders as his major concern.”

Sounds like Icahn isn’t done with Donahoe and eBay just yet.

  1. Who now?

So, there are three things we know for sure.

Dan Schulman, formerly President of Enterprise Growth at American Express, will become President of PayPal immediately and will be the CEO of PayPal when it is spun out. Prior to his time at AmEx, Dan was the CEO of Virgin Mobile. Dan’s corporate uniform is cowboy boots and jeans.

Devin Wenig, who has been the President of eBay Marketplaces since September 2011 and was the CEO of Thomson Reuters Markets from April 2008 to August 2011, will take over from John Donahoe as CEO of eBay when it becomes its own company. We don’t really know what Devin wears to the office but if you do, please feel free to drop us a tweet.

John will continue to hold the title of CEO of eBay until the time of the split and will work actively to see the transaction through, he said.

I spoke with a ton of people today about the news and asked a few of them what advice they’d give Dan if they were kicking back with him and having a beer. Responses varied from watch first and then do to focus on the consumer product to don’t stop acquiring to don’t fall into the shiny object trap.

Here’s my advice. Don’t squander your digital account lead. Double down online – remember that, at least for now, the vast majority of online shopping still happens on the desktop. That is also moving fast but don’t forget online in the race to dominate mobile devices. Get more consumers with more wallets, keep the ones you have engaged by giving them more reasons and places to use those wallets and create an ecosystem that helps you push innovation to the developers who want to take PayPal and embed it in every possible app and online venue.

  1. Now What?

Of course, everyone wants to know what this really means for the payments industry and for PayPal and eBay once they become separate companies.

For PayPal and eBay, it means that they are now officially on the market. It may take 9 months for the breakup to be official, but that doesn’t necessarily mean that either or both won’t be snapped up by other suitors before then. eBay might find itself being courted by other global marketplaces like Rakuten that wants a foothold in the U.S. market. It might also find itself being snapped up by Facebook, a player that has always had commerce ambitions but struggled to ignite on its platform. Facebook’s billion-plus consumer base and advertising platform might make it an attractive environment for eBay merchants and consumers.

PayPal can really play the field.

On the one hand, as a 5th network, it has a very unusual profile – it acquires merchants, is an online, mobile and in-store acceptance mark, processes transactions online, issues digital accounts to consumers, extends transactional credit to consumers and working capital to businesses, enables P2P money transfer – all on a worldwide basis – yet bears none of the risk of an issuer and does a whole lot more than what a traditional network does. Oh, and as a mobile play, it works across all operating systems – iOS, Android, Windows, Blackberry.

It also has lots of consumers and merchants and payment volume of ~$55 billion. As someone I spoke with today said, it doesn’t have an ignition problem anymore. That makes it both a formidable competitor to Apple Pay, Visa Checkout and others in the space as well as an attractive acquisition candidate for a rich suitor that wants those assets.

There aren’t many of those well-heeled players. One of them is Google – a player that has surely struggled mightily with Google Wallet over the years and after three strikes at the Google Wallet bat, they just might find it easier to buy than build. And, just think of how interesting a PayPal/ Chase mash up could be, giving Chase an instant global footprint and adding millions more accounts to the PayPal roster. How about MasterCard, which would certainly give Visa with its Apple Pay affections some stiff competition? Course there’s always Amex, a player that has admitted to being a little slow to the mobile/digital account party – a PayPal acquisition could bring them a digital account trifecta: digital, mobile and in-store. And give Dan Schulman his corner office back.

Now I guess PayPal could always stay single for a while and play the field, partnering up with some of the players that were off limits when it was married to eBay. The more likely question is whether its IPO will actually ever see the light of day and whether, in the hypercompetitive environment in which we operate today in payments, someone will decide that they just don’t want to take the risk of letting such an attractive asset on the market and snap them up quickly.

That’s certainly what Icahn hinted in his blog.

Hey, whatever you think, at least we get to talk about something other than Apple Pay today!

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