eBay's PayPal break shows the importance of localized processing

The recent announcement that eBay will be replacing longtime payments processing partner PayPal for Dutch-based Ayden certainly shocked the industry.

David Paul Morris/Bloomberg

But as local online payments through mobile apps and regional or country-based solutions continue to gain steam, the change reflects the globalizing payments landscape around the world. In a way, it’s a coming-out party for local, cross-border payment methods in the U.S.

eBay and PayPal have grown up together, being linked for nearly 20 years, including more than a decade when the online retailer owned PayPal. If you can call the 2002 acquisition of PayPal a marriage and the 2015 spinoff as a trial separation, this most recent announcement is a divorce, albeit a friendly, amicable one since PayPal will remain a payment option (on the eBay intermediated model) through July 2023.

On a macro level, eBay’s change of payments processor signals the strong and continuing shift toward local, alternative methods of payment around the world. eBay operates in 190 markets, many of which don’t rely on payment methods as known in the U.S. Ayden, based in Amsterdam, is not only a credit card acquirer, it also specializes in providing its merchants with access to local payment methods. A processor with global experience in local markets sounds like a solid fit for a top 10 global retailer.

The new partnership will allow for closer and more flexible integrations between the two. eBay sellers will benefit through more flexible payment options beyond the PayPal platform and the ability to accept more local payment methods such as bank transfers, e-wallets and even cash-based online methods as well as foreign currencies.

The link between PayPal and eBay was fortuitous during the early days of both companies. At the time, eBay had no payment processing and PayPal was in its infancy. eBay gained the payment platform it needed, and PayPal inherited a large number of users.

However, the parting also comes at the right time. I was expecting this at some stage, but I’ll admit it was sooner than I thought. Like what sometimes happens in a marriage, though, the two companies just grew apart. PayPal has turned into a mainstream processor with its own ecosystem that no longer fits with how eBay does business.

If you consider payments in the United States, you think about the four big credit card companies, PayPal and perhaps other emerging e-commerce payments. But it’s a big world out there, and local online payment methods such as iDEAL in the Netherlands, sofort in Germany and Alipay in China are virtually unheard of in the U.S.

PPRO’s research indicates there are around 400 significant online payment methods worldwide. No one processor can claim to cater to every payment option in every market, but specific solutions usually bubble up in individual markets. The 80-20 rule also applies to alternative payments — 20% of the solutions fulfill 80% of the needs in a market.

The key for payment service providers, then, is to determine what works best for each market and each target audience in individual verticals that it serves. Merchants, too, don’t want to be locked in to certain solutions that may not fit their customers in their markets. They want options their customers know, they trust, they are familiar with, so online shopping carts don’t get abandoned.

In many markets, PayPal isn’t the preferred payment option, which can pose problems for merchants locked into the eBay payment ecosystem.

Payment service providers, acquirers — and, ultimately, merchants — must be aware of the different payment preferences in different countries and throughout target audiences. Globally, local online payment methods are predicted to surpass 50% of all e-commerce sales by 2019. The United States is considered a laggard in this respect because credit cards still reign, but if U.S. merchants want to sell outside of their home country they need to understand the local cross-border preferences in other markets.

The amicable breakup of eBay and PayPal after so many years together signals the increased importance of local, alternative payments in the e-commerce landscape. Is your company ready to compete?