By hiring former American Express executive Dan Schulman to lead an independent PayPal, the company is betting that his expertise bringing innovation to a well-established international payments company can ensure PayPal's survival.
PayPal hired Schulman, previously president of American Express' Enterprise Growth Group, to be its president and eventually CEO as the company cuts ties with its owner, eBay. PayPal expects to be an independent company with only an "arm's length" relationship with the online e-commerce giant by late 2015.
Schulman was also was an executive at AT&T, Priceline and Virgin Mobile. The PayPal of 2014 has more in common with these companies than the PayPal that was founded in 1998 to move money between Palm Pilots.
"PayPal needs to expand and grow into new markets and new categories of payments," said Phil Philliou, who leads a payments consulting company, noting Schulman's work on American Express' fast-growing prepaid products. "That's where Dan Schulman comes in. Dan has proven to be a bankable disruptor, with American Express Serve and Bluebird being examples."
PayPal must respond to nimble upstarts that are nipping at its heels. PayPal is diversifying by building an in-store payments network, mobile point of sale products and offering credit to merchants. Schulman's experience at Amex will be particularly relevant to PayPal's efforts to improve and diversify its credit offerings, including PayPal Credit, the new name for its Bill Me Later instant-credit offering.
"While PayPal undoubtedly made great strides of improvement under the leadership of [Marcus], it's evident the company has become stodgy over the years," said Jordan McKee, a senior analyst at 451 Research Mobility Team. "Synergies aside, PayPal has been trapped under the weight of eBay and has suffered from the lack of independence and freedom the eBay ownership has brought upon it."
In Schulman, PayPal is getting an executive who can combine the fast pace of a startup with the scale of a global brand, said Richard Crone, a payments consultant. Amex also has experience placing its products inside retailers that PayPal cravesAmex has close ties to Wal-Mart, a retailer that has rejected PayPal's efforts to operate at the point of sale.
Investors will be happy about the spinoff of PayPal, said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research.
"From a shareholder perspective, you'd definitely think that the short term value gain will be significant," Oglesby said. PayPal's growth has recently fueled that of eBay overall, he noted. And during Sept. 30's conference call to discuss the deal, eBay noted about $7 billion in debt would stay with eBay after the split.
"By shedding the slower-growth components PayPal should achieve a [price-to-earnings] ratio increase," Oglesby said. "It also allows for a more efficient allocation of capital investment since PayPal and eBay business units won't be competing for the same pool of investment dollars."
More attention from investors means more capital for product development and partnerships, Crone said.
"The question at this point is how fast can PayPal move to capture market share? MasterCard and Visa have made big, bold and brilliant moves in terms of developing technologies that will enable their card account numbers to be embedded in mobile devices for [Near Field Communication] transactions," Philliou said. "The next few years will be a serious and hard-fought land grab for payment apps on mobile devices."
The pending introduction of Apple Pay, which is already causing PayPal fits, will also pressure the company to innovate faster, and take advantage of preexisting advantages.
"Apple Pay has a miniscule team compared to the assets and infrastructure and resources that PayPal has in play," Crone said. "If the market likes Apple Pay, they have to love an existing player with all of the connections and cross-border capability."
PayPal has other advantages, including its "push payments" capability, which can build trust and convenience, said Jim Van Dyke, CEO and founder of Javelin Strategy & Research.
But PayPal also faces challenges, such as the loss of some integration, he added.
"I see the separation of eBay and PayPal as being somewhat more bad than good for the customers of each organization, simply because the network effects of having the deepest integration possible of market analytics, fraud networks and checkout capabilities cannot possibly continue at the same level," Van Dyke said.
In the long-term, the divestiture may remove some competitive advantages for PayPal, Oglesby said. "A key trend that has been playing out in the payments market over recent years is the integration of payments and marketing," he said. "The combined eBay/PayPal entity was well equipped to take advantage of that trend, whereas separately some of the competitive advantages will be lost."
PayPal did not respond to requests for an interview with Schulman by deadline.