eBay Says It Will Add $2B In Revenue By Dumping PayPal For A Smaller Payments Processor

eBay Says It Will Add $2B In Revenue By Dumping PayPal For A Smaller Payments Processor

Online shopping marketplace eBay plans to end one of the most famous tech partnerships in history by cutting off PayPal as its main payments processor by 2020.

Instead, eBay says it will start using Adyen, a much smaller, Amsterdam-based payments service that counts Uber, Netflix and Spotify among its customers.

PayPal stocks fell as much as 12 percent following the announcement, and PayPal CFO John Rainey said that’s because of a disconnect stemming from a misunderstanding of the original deal.

“There is nothing about yesterday’s announcement that wasn’t anticipated by us,” Rainey told CNBC‘s “Squawk Alley.” “This is simply the next chapter.”

The move will give eBay more control over the checkout experience — comparable to other giant online shopping destinations like Amazon and Alibaba — and it will give eBay shoppers more options, Recode reported:

After the existing eBay-PayPal agreement ends in 2020, PayPal will remain a payment option for shoppers on eBay, but it won’t be prominently featured ahead of debit and credit card options as it is today. PayPal will cease to process card payments for eBay at that time.

Adyen’s business is solely focused on providing back-end payments services, like credit card processing, to businesses, so you won’t see any Adyen payment buttons pop up on eBay. But Adyen will become the primary payments processor for eBay sites across the world.

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A brief history

Peter Thiel co-founded PayPal in 1999, and served as CEO until its sale to eBay in 2002 for $1.5 billion.

Soon after it was acquired, PayPal became eBay’s main payments provider. The companies split into separate public companies in July 2015, signing a five-year operating agreement to keep a close relationship through mid-2020.

When the company announced plans for the split in 2014, eBay accounted for more than 30 percent of PayPal’s revenue and more than 50 percent of its profits, the combined company said at the time.

Today, eBay accounts for 13 percent of PayPal’s total payments volume, according to company filings, CNBC reported. But that revenue sector has grown at an average rate of just 4 percent during the last 10 quarters — compared with an average growth rate of 23 percent for the rest of the business, Rainey said.

PayPal is valued at $102 billion today and eBay is worth $42 billion. Adyen was last valued at $2.3 billion following an investment round led by Iconiq Capital. There are rumors of Ayden planning to go public.

PayPal charges eBay sellers for its payment service. PayPal being out of the picture will allow eBay to start charging eBay sellers instead.

“EBay was restricted for a period of time from having another payment service,” Rainey said. “At the same time, we were restricted from going out and partnering with some of their competitors — some of the largest and fastest-growing marketplaces in the world.”

That restrictive deal was always supposed to end, Rainey said, allowing eBay to partner with Adyen — and letting PayPal explore partnerships with other companies.

Distancing from eBay is “the best possible outcome for PayPal,” CEO Daniel Schulman said on the PayPal earnings call Wednesday.

“We feel good about where all this has come out. We’ve looked at it very, very carefully. It’s always been in our plans, and we feel good now that we have certainty on the direction that we’re going,” he said.

Adyen supports more than 200 payment methods across the world, eBay said in a blog post announcing the news. Recode reported:

For Adyen, the eBay deal is a huge win for a company of its size; Adyen registered net revenue of $178 million in 2016 compared to nearly $11 billion for PayPal.

One would assume, then, that there’s a good chance that eBay is taking an equity stake in Adyen alongside the commercial agreement so it can benefit from the upside this will create. For now, the company isn’t saying if that’s the case. It’s fair to wonder if Adyen had to make any financial concessions to win the business of a platform of eBay’s size.”

dumping PayPal