PayPal's brand is so ingrained with eBay sellers that its success forced the online marketplace to buy it in 2002. Even after the companies separated, their businesses remained intertwined. So it is no small decision for eBay to instead select Adyen as its primary payment processor.
The transition to full payments intermediation will be a multiyear journey, and eBay will move as quickly as possible to complete this process within the parameters of the Operating Agreement with PayPal, which remains in place through mid-2020.
Though the decision may seem abrupt, it is a recognition of the market realities that both eBay and PayPal have had to confront in recent years.
An inevitable outcome
eBay has signed an agreement with Adyen to make it the marketplace's primary payments processing partner. PayPal, a longtime eBay partner, will remain a payments option at checkout for eBay buyers — but it will no longer get the star treatment it has long enjoyed.
Despite the instant reaction to the news by the markets — PayPal's shares were down 8% as of this writing — there has been a certain inevitability to this announcement.
“At first glance, this feels like the Costco and American Express divorce,” said Michael Moeser, director of payments at Javelin. “We all knew the relationship had an expiry date. Renewing it didn’t make sense for anyone.”
PayPal was similarly prepared for this day to come.
“We’ve been accounting for it from the very beginning,” said Amanda Miller, corporate communications director at PayPal.
However, despite an expectation that this would occur, it has long been seen as a vulnerability. On PayPal’s annual report, a change in payments partner has been described as a risk factor.
“When our operating agreement with eBay expires, or if it is terminated prior to its expiration, or if there is a significant change in our relationship with eBay, including if eBay becomes a merchant of record, eliminates or modifies any of its risk management or customer protection programs, directs transactions to a different provider of payment services or offers eBay customers more payment options, our business could be materially harmed.”
Don't feel bad for PayPal
In the eBay-PayPal relationship, PayPal always seemed to have the upper hand.
Initially, eBay didn't want anything to do with PayPal. The online marketplace had its own payment system, called Billpoint, which it developed with Wells Fargo. The home field advantage did little for Billpoint, which dissolved after eBay conceded the need to buy PayPal for $1.5 billion in mid-2002. At the time, eBay transactions made up about 60% of
Even under eBay's umbrella, PayPal saw a need to diversify. Over the next few years, PayPal aggressively pursued the business of off-eBay sellers, using new technology such as mobile payments to woo big brands. By the time eBay spun off PayPal in 2015, the so-called alternative payment provider was a common sight on checkout pages throughout e-commerce.
As PayPal has expanded into other markets and geographies, as well as other services such as PayPal Credit, its reliance on eBay for transaction volume has diminished. According to
“Ultimately, we looked at the economics of unbranded payments for us and it wasn’t great,” said Miller. “For us branded is the majority of transactions that happen and it’s more lucrative. So, we remain focused on driving shareholder value and we made a decision that was right for us.”
The ball is in Adyen's court
For Netherlands-based Adyen, adding eBay to its already illustrious list of partners is an important feather in its cap.
Adyen already processes payments for Uber, Netflix, Spotify and many other digitally savvy companies. It is probably not coincidental that Adyen is
Unsurprisingly,
However, longer term, will Adyen be able to retain this business? As Billpoint demonstrated years ago, eBay's blessing is not enough to guarantee success on its platform.
“The big question is what can Adyen deliver for eBay?” said Javelin’s Moeser. “Just because it processes payments for Uber, does not mean it is responsible for the magical Uber experience. I would argue, how are they different from Stripe?”
One way Adyen can differentiate itself is by promoting regional payment options, said Zilvinas Bareisis, senior analyst at Celent.
"Perhaps it will enable eBay to accept more types of payments, including local non-cards-based payment methods, which some customers might appreciate," Bareisis said. "On the other hand, they will have to ensure the payment experience for regular users remains as slick as it already is today with PayPal, especially when One Touch is enabled."
