The Liberation of PayPal While Payments is Still Up for Grabs

My personal thoughts on the matter: 

While the talk around the liberation of PayPal from eBay has focused on the assertions of Carl Icahn that two key board members, Marc Anderseen and Scott Cook, and eBay CEO, John Donahoe, have failed to appropriately steward their roles, it’s not only important to remember that Icahn holds two percent of eBay and is executing to his own vision of what will increase shareholder value, but also, that the release of PayPal has important implications to the payments space. In fact, from my perspective, the bigger story being how the spinoff will file payment and commerce innovation. In short:

Payments is Up for Grabs and PayPal is Back

The Backstory. Becaue we all love a good one.

According to Icahn, it makes sense for eBay to let go of PayPal, given that the payments giant in general, and the category in particular, are in growth mode. This position is likely grounded not just in eBay’s third quarter 2014 earnings results, but market perception of lackluster eBay performance, overall. Consider:

Q3 2014 Payments volume grew by 29%
Q3 2014 eBay Marketplaces volume grew by 9%
PayPal accounted for 41% of total eBay revenue in Q4 2013
From the beginning, it seemed that eBay growth meant acquiring PayPal. However, the record suggests the union between PayPal and eBay has benefited eBay in growth and revenue support, while leaving PayPal largely restricted. With the future of PayPal in mind, and considering the addition to the marketplace of similar payments services, it simply seems less necessary today for an eBay to control a PayPal.  

The past year has seen the payment space explode with innovators like Stripe, Apple Pay, and a host of social integrations. This diversification in how checkout works across all devices has left the payment space fragmented. Given that conext and the industry’s reliance upon innovators and fast-movers, PayPal’s release seems perfectly timed to position the giant to make great strides.

The Future of the Payments Category

While future of the payment space is still up for grabs,  a few key players have an opportunity to change how we purchase everything. If fits in the gap created by e-commerce platforms, payment gateways, social networks and digital advertising networks and exchanges, it seems natural that the future payments category leaders will nail down gaps in social integrations, physical methods (POS) and mobile.

Looking first at social integration: it could come from the network itself or a third party. Paypal has the consumer base to bank relationships, something no other company can claim. We know Facebook is looking to add a “Check out with Facebook” feature reliant upon users simply attaching a credit card to a personal account. They launched it attached to social gaming in the UK, and have experienced success. Notably, we believe Facebook had clear direction on testing and validating payments, as well as clear initiatives around consumer adoption. Twitter, on the other hand, has a more general attitude toward payments and may even be looking to utilize Paypal or a credit card at checkout. We may see Twitter tokenize and save consumer payment information but it is less likely to be applicable to sites outside of Twitter.  

Innovation of physical acessories in the payment space launched with Square, and has since evolved to include NFC and cards such as Coin. While important to include these in the discussion about the future of payment, they feel more like a luxury than disrupters. Still, it seems fair to believe PayPal — with its power on the consumer adoption front — could choose to replicate these physical payment methods. They may simply watch and learn; we’ll be watching their future acquisitions for more clear direction.

Mobile payment options and innovation on that front is also a litlte murky. One thing that is clear is that we all communicate, browse and purchase using mobile devices of all sizes. The impact of this is that we are ever-more trained to expect frictionless access to the things we want; whether it’s access to a close friend or relative for video chat, pictures of cats and babies on Facebook, or items we wish to purchase, we expect everything to appear for consumption accross devices. The rise of native commerce, grabbing headlines thanks to news of Buy Buttons from both Facebook and Twitter, means that our definition of consumption will expand to include purchase in our chosen digital environments.

For payments players, this means they will need to develop against the ability to grab the attention of consumers, preferably through their social streams and other native environments, and fit a natural transaction experience into the environment in which a product purchase experience is served. In the future, people may not know Visa or Discover. There will be the banking entity and the shopping entity, and the two will be able to transfer money with the click of a button.  This new frictionless way of purchasing things is the future. There will be a few contenders that come out of the market, but many more that get left behind.

As of now, we see that PayPal will need to work towards coming up to speed on the APIs they offer, as well as developing the assets acquired with Braintree. The Braintree umbrella will likely offer the most potential for extending products purchase opportunities into new environments. Today, for example, can’t inject Paypal into a native commerce product ad experience. With the Braintree programmable merchant gateway, that possibility will be close to allowing consumers to use Paypal when purchasing an item in-stream on Twitter via We also see each payments player offering something new and of value to overall category, but not yet solving for the issue of directly connecting consumers with products for purchase.

This is where is equipped to move and grow within the online commerce landscape and broad e-commerce ecosystem. Through this lens, the impact of the liberation of PayPal is much broader than the impact to eBay or the payment space. The impact of a PayPal with new business objectives could ultimately shape the future of online commerce by helping companies like ours, for example, deliver native commerce experiences that seamlessless connect people with the products they want. In the meantime, we’ll be busy building things.

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