PayPal is investing heavily in technology to make sure it is properly equipped for the challenge ahead of it when its split from eBay is finalized.
"We are in the midst of a transformation," said Dan Schulman, who will become PayPal's CEO after its split from eBay, which is expected to happen by the third quarter. "We're rebuilding the technology platform to enable greater scale, faster production cycles and closer collaboration between teams."
Speaking April 22 during eBay's second-quarter earnings call, Shulman promised that PayPal would be able to innovate faster. Part of that agility will be made possible through what he called "one of the largest hybrid clouds in the world." Hybrid clouds are generally a form of web-delivered software that's similar to a hosted cloud, though the client has more control over the system's capacity.
"This newly modernized technology platform is a strategic asset; we are dramatically reducing product development cycles to allow us to release new tech in weeks versus months," Schulman said.
Before joining eBay, PayPal was an influential disruptor in financial services. Its biggest achievement at the time was winning against Billpoint, the online payment system designed in-house by eBay and Wells Fargo. As PayPal grew, other companies came in to challenge it, and learned it was attempting to partner with startups too late in their lifecycle. The company has been pushing in recent years to improve its relationships with innovative startups.
Two of its larger moves were the 2103 purchase of Braintree, which develops payment technology for startups, and this year's acquisition of Paydiant, a mobile payment technology company. This month, PayPal also acquired CyActive, which Schulman said will play a role in PayPal's security strategy.
PayPal's focus on the faster pace of technology is designed to allow the payment company to address the pressure that merchants face to serve their customers over an increasingly diverse number of channels.
"You don't write something and have it last for a year and a half; you need to have something ready two weeks later or sooner," said Richard Crone, a payments consultant, adding point of sale access would round out a PayPal mix that includes debit, credit, direct access to checking, gift cards and PayPal's own branded credit product.
PayPal reported mobile payments are now 30% of its overall transactions, and mobile is growing 40% year over year. But the big play for the company is combining mobile with in-store transactions, a strategy that PayPal has been working on for years.
"The addressable market is not just the $2.5 trillion associated with online and mobile, but the $25 trillion associated with commerce both on and offline," Schulman said.
While PayPal and eBay plan to work together after the split, PayPal will increase its focus on what it calls "off-eBay payments," said Jim Van Dyke, CEO of Javelin Strategy & Research. This category includes mobile proximity payments.
"To keep costs in check and have the kind of innovative development that makes merchants come on board, PayPal must use the cloud for development and merchant operations," Van Dyke said.
EBay's revenue for the second quarter should be between $4.4 billion and $4.5 billion, the San Jose, Calif.-based company said. Profit before certain items will be 71 cents to 73 cents a share. Analysts on average projected sales of $4.57 billion and profit of 71 cents, according to data compiled by Bloomberg.