The times PayPal and eBay disagreed
Even before PayPal and eBay split, their relationship wasn't perfect. PayPal may have seemed like a service that was destined to fuel sales for eBay in the early days of e-commerce, but even after the companies merged they found occasional reasons for conflict.

Some of this stemmed from riskier practices PayPal engaged in prior to joining eBay. Other times, eBay had to use its resources to gain ground that PayPal lost in the market.

But even when there were calls to split the companies, eBay saw value in its prized payments subsidiary.

This listicle is compiled from reporting by PaymentsSource writers including John Adams, Nick Holland and Daniel Wolfe. Click the links in each item to read more.
eBay website, 2006
In the beginning: Billpoint loses its edge
Before eBay's 2002 purchase of PayPal made the brands seemingly inseparable, there was Billpoint, a PayPal rival that was 65% owned by eBay and 35% owned by Wells Fargo.

One of the major points of contention in the early days of online payments was fees. Banks, merchants and payment companies were still experimenting with how to profit from online payments, even as it seemed inevitable that such services would increasingly become free to the end user.

In 2001, eBay and Billpoint thought that PayPal had made a fatal error: PayPal started charging fees to its longtime users. Billpoint told American Banker that it started getting "floods of email" from angry PayPal users, but PayPal said its defections amounted to only 1% of its userbase.

Part of Billpoint's frustration was that its audience was limited to eBay sellers, whereas PayPal was free to serve the wider internet. And even with the home-field advantage, Billpoint was used by just 15% of eBay sellers compared to PayPal's 60% back in 2001.
casino gambling
Cleaning up PayPal's casino ties
When eBay finally gave up on Billpoint and purchased PayPal in 2002, it wasn't interested in doing business the way PayPal had been.

Specifically, it saw PayPal's considerable ties to online gambling as too big a risk. Back in 2002, PayPal had relationships with about 260 gambling sites.

"Under the current legal and regulatory environment, we just thought this was the best decision for eBay," an eBay spokesman told American Banker at the time.

Just one day after eBay received antitrust clearance to proceed with its acquisition, PayPal settled an inquiry with New York prosecutors over its work with online gambling sites. As part of the settlement, PayPal agreed to stop processing gambling payments for New York residents; it also agreed to pay $200,000 in lost profits, investigation costs, and penalties.

As a privately held company, PayPal was able to assume risks that the publicly traded eBay could not (PayPal went public earlier in 2002 but had previously operated privately since its inception in 1998). This included working with gambling sites but also operating internationally — and under eBay, that latter strategy continued its momentum.
PayPal sign, circa 2012
eBay gives up on PayPal's instant credit offering
eBay's 2008 deal to buy Bill Me Later was very much an admission of failure for PayPal's homegrown instant credit offering, Pay Later.

That admission cost eBay about $820 million in cash plus $125 million of outstanding options to purchase the rival instant credit company.

Bill Me Later "is a better product than what we have as Pay Later," Scott Thompson, then PayPal's president, said in an interview at the time. "So while we have some uptake, it's just not to the same level as Bill Me Later has achieved in the market."

Bill Me Later was also getting good pickup with non-eBay merchants, an area where PayPal was working hard to expand its own reach. That said, Bill Me Later didn't have the same resources eBay and PayPal did, so its ability to continue that expansion as an independent company would have been limited.
Braintree's offices
Another admission of failure, this time with developers
PayPal's John Lunn didn't mince words when talking about the work that needed to be done to repair PayPal's developer programs back in 2014.

"Just go back a bit in time, toward the end of 2012 and early 2013, we were losing touch with developers," said Lunn, then the senior director of developer relations worldwide. PayPal was making its pitch to startups much too late in the companies' lifecycle, and that PayPal's application programming interface was "poor" only added to the challenge, he says.

In the year since, PayPal worked hard to catch up by hosting hackathons and engaging in outreach programs. But even this wasn't enough — a rival company called Braintree was working with famous startups like Uber, prompting eBay to spend $800 million to buy Braintree. As then-eBay CEO John Donahoe said the prior year, "We were better off taking Braintree's [technology] and merging ours into it."

The goal of all of these efforts is to get PayPal in front of developers substantially faster, Lunn said.

"Startups go from zero to hero in about eight months. We have to talk to them early, to make sure they are using our products in a way that will appeal to consumers," Lunn said.
Billionaire activist investor Carl Icahn
eBay gets defensive against Carl Icahn
By 2014, it was clear to activist investor Carl Icahn that eBay and PayPal weren't meant to be.

In recent years, PayPal had aggressively pushed beyond its roots as the darling of eBay marketplace sellers, and was an increasingly a common sight on the checkout pages of mainstream e-commerce brands.

Its ties to eBay had started to become an hindrance, Icahn argued.

"We expect that an IPO of PayPal, thereby creating two focused entities, each with clear prospects and strategies for investors and analysts to consider, would enable both companies to attract a more natural shareholder base," Icahn said in a statement published in March 2014.

Though eBay would eventually agree to spin off PayPal, it took some convincing.

"PayPal is thriving as part of eBay Inc.," eBay said in a press release at the time. "Being part of eBay Inc. for more than a decade has enabled PayPal's strong growth and global leadership position in digital payments. PayPal has not been held back by eBay Inc."
Pieter van der Does, chief executive officer of Adyen BV
Finalizing the divorce: eBay chooses Adyen
PayPal's brand is so ingrained with eBay sellers that even after the companies separated, their businesses remained intertwined. So it was no small decision for eBay to instead select Adyen as its primary payment processor in early 2018.

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.

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. 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.
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