By Brianna Ahearn, contributing writer
An eBay company since 2002, PayPal has never been accepted as a valid form of payment on Amazon. The online marketplace site has long viewed itself as a competitor to Amazon, particularly as enters into agreements for retailers such as Target to sell their merchandise on eBay. However, Amazon is moving towards accepting PayPal as eBay and PayPal split into two publicly traded companies. Wired and other tech outlets reported the news this week, as the split moves towards completion. As Wired reported, new filings by eBay with the U.S. Securities and Exchange Commission state that once finalized, the split will allow PayPal to work with “other marketplaces.”
PayPal and eBay announced the split in September 2014, and it's estimated for completion in the second quarter of this year. John Donahue, eBay CEO, stated the need for each company to be a standalone to be more competitive and focused in their markets. One reason for the split was the growing field of mobile payments, an area PayPal was a pioneer in, and the need to stay competitive with Apple Pay and other mobile payment options. Having PayPal run as a separate entity would let the company enter into new partnerships with retailers, in an effort to shore up allies against the encroaching Google, Apple and Square's respective payment systems. After the split, PayPal will be known as PayPal Holdings Inc.
The regulatory filing by eBay states, “Until September 2014, the combination of the two businesses and the synergies and benefits they offered to each other were so valuable that the board determined that separation was not appropriate. But the commerce and payments landscape is rapidly changing, and each business faces different competitive opportunities and challenges. Consequently, in September 2014 the board decided to separate the businesses. As independent companies, we expect eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets. eBay and PayPal also will benefit from additional flexibility and agility to pursue new market and partnership opportunities.” The biggest takeaway from the filing is that PayPal will be able to work with retailers who were previously prohibited, namely Amazon and Alibaba, two of the most dominant retailers online.
Upon the split, both eBay and PayPal will be able to work with new providers of each other's respective businesses. PayPal will no longer be the sole payment processor for eBay, however, eBay will be required to conduct near 80% of its transactions with PayPal for five years. Commissions may rise or lower with this business as well, to ensure eBay's income is stable, according to Fortune and the documentation filed by eBay. The agreements reached between the two also mean that they'll not compete with each other in their respective business, such as PayPal attempting to offer an online marketplace and eBay creating a new payment system. If PayPal is purchased by a competitor though, eBay would then be permitted to create a payment system with notice of 15 to 21 months to PayPal. The deal signed is five years, and includes a one-year transition period.
The option for PayPal at Amazon and Alibaba shows great promise for the retailers, as PayPal processes more than 11.5 millions transactions per day, and had an annual revenue of $7.9 billion in 2014. The company has more than 162 million active wallets and is available to more than 203 markets, so any partnership between Amazon and Alibaba, each with PayPal, will unlock a world of new business.