The payments landscape is rapidly changing. And eBay Inc.’s announcement that PayPal Inc. will become its own publicly traded company next year should help foster PayPal’s growth, say experts.
By appointing Dan Schulman, president of the enterprise growth group for payment card network American Express Co., to lead the new PayPal as president and CEO, eBay is improving PayPal’s position against competition from Apple Inc.’s new mobile payments system called Apple Pay payments system, as well as others, says Nathalie Reinelt, an analyst at research and consulting firm Aite Group.
Apple earlier this month launched a major payments push that includes the debut of Apple Pay that it incorporated into the Apple Passbook mobile wallet. Shoppers can also use Apple Pay to pay at some retailers with terminals that contain Near Field Communication technology. Apple also made available to developers a Touch ID application programming interface, or API, so developers can incorporate biometrics-secured, one-touch log-in and checkout in apps. And then there’s Alipay, the payment subsidiary of Alibaba Group Holding Ltd., which earlier this month has added fingerprint authentication for mobile shoppers using two different smartphone models.
The ways in which consumers pay online and in-person is changing quickly. By separating from eBay should help PayPal develop a cohesive plan to push back, Reinelt says.
“PayPal can now craft a competitive strategy to capture a larger part of the mobile payments market,” she says.
PayPal earlier this year launched One Touch, a mobile payments feature that allows a consumer with a PayPal account linked to her mobile device to complete a purchase on that device with a single touch. But a broader strategy may include developing a mobile payments offering that utilizes Near Field Communication—a wireless technology embedded in the iPhone 6 and other smartphones that passes payment card data to a store terminal, eliminating the need for a shopper to swipe her card—to offer an Apple-like payments system for the Android platform.
“There is a huge opportunity for a company to mirror Apple’s mobile payments approach for the other half of the smartphone population,” she says.
Consumers’ familiarity with PayPal should help position it to be many shoppers’ digital wallet of choice, says Mary Monahan, Javelin Strategy & Research executive vice president and research director, mobile. A Javelin survey last year found that 34% of consumers said that PayPal was their preferred digital wallet provider. “People trust PayPal,” she says. “PayPal already has a relationship with consumers.”
That will help it as it moves forward because up to this point it has been tied in closely with eBay.
“One reason people use PayPal is its relationship with eBay,” she says. “While that’s becoming less important, you can’t underestimate the power of the ecosystem. If you look at others in the space like Apple, Google, Facebook and Amazon, they each have their own ecosystem. PayPal won’t have that anymore, which will make it a pure financial player.”
Breaking away from eBay should help PayPal achieve its full potential, says Denee Carrington, a Forrester Research Inc. senior analyst.
“As a global leader in payments, PayPal has outgrown eBay,” she says, noting that eBay makes up a rapidly decreasing share of PayPal’s transactions. eBay accounted for 28.6% of PayPal’s transaction volume over the last 12 months, down from 50% in 2008, according to eBay. And Carrington expects that percentage to drop to 15% in short order.
“PayPal needs speed and flexibility to effectively defend and grow its business without worrying about whether it is helping a competitor to eBay,” she says.
That’s why it no longer makes sense for eBay and PayPal to be linked, says John Donahoe, eBay’s president and CEO.
“For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value,” he says. “However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively. The industry landscape is changing and each business faces different competitive opportunities and challenges.”
Favorite