EBay's planned spinoff of PayPal, announced today, is a necessary and inevitable response to the influx of disruption coming to the payments industry from unconventional sources.
As companies like Amazon.com, Apple and Wal-Mart take a growing interest in the payments market, PayPal's status as a unit of a rival e-commerce company limited its role. But as an independent operation, PayPal can be a key and relevant participant in the fast-evolving industry.
"The opportunities for strategic relationships have never been higher," said John Donahoe, eBay's CEO, during a Sept. 30 conference call to discuss eBay's plans to split from PayPal next year. "This opens up opportunities for all the strategic flexibility in the world."
PayPal also faces new categories of payment providers, such as Square, which is echoing PayPal's strategy of using payment data to fuel other financial services.
"The competitive environment is changing very fast and this will create opportunities for both eBay and PayPal," said Donahoe, who previously advocated keeping the two companies together when activist investor Carl Icahn briefly pushed for the two companies to be separated.
EBay is now less than 30% of PayPal's total volume, and will be less than 15% in three years, Donahoe said, saying the decline in the two company's crossover business has been noticeable in the past year alone. "PayPal's growth rate off of eBay is three times than its growth on eBay," he said.
After separating from eBay, which bought PayPal in 2002 for $1.5 billion, PayPal will also be able to accelerate development of its Braintree unit, which it bought last year for $800 million. "We are working hard to replatform PayPal and are building a more agile foundation," Donahoe said.
Over the next year, PayPal and eBay will untangle their business, including products that work across the two companies, such as PayPal Credit/Bill Me Later, Donahoe said. The two companies will then change the nature of some agreements to maintain partnerships where it makes sense.
"We can maintain our synergies with arm's-length agreements," Donahoe said.
Donahoe will also leave his post as part of the spinoff. Donahoe and eBay CFO Bob Swan will lead the separation of each business, then will join the boards of both companies. Dan Schulman was hired to be president of PayPal and the CEO-designee of the standalone PayPal company. Schulman was president of American Express's Enterprise Growth Group and held senior executive roles at AT&T, Priceline and Virgin Mobile. Devin Wening, eBay's president, will be CEO of the new eBay.
At Amex, Schulman will be succeeded by Neal Sample, the enterprise growth group's chief information officer and chief marketing technologist.