While PayPal is still a key payment partner of eBay, the two companies continue to drift apart. As the following article reports, eBay will be bringing in Adyen for some payment processing.
Headlines have been heavily focused on the news that eBay (NASDAQ:EBAY) was going to drop PayPal (PYPL) as its primary partner for processing payments, turning instead to Dutch-based Adyen.
One of the items listed as significantly detrimental to PayPal is that eBay accounts for 13 percent of total process volume (TPV) of PayPal in the fourth quarter, implying it would be a meaningful negative catalyst going forward. What isn’t mentioned by most news outlets is that the revenue generated by that 13 percent accounted for a little under 10 percent of PayPal’s sales in the quarter, or about $370 million, based upon revenue of $3.74 billion in the quarter.
PayPal and eBay have a five-year operating agreement in place that governs the spin-off. At this time it’s only halfway through the five-year period, which will end in July 2020.
The company pointed out that there will be no changes in the terms through the end of the agreement period, which was “meant to assure both the thoughtful and a smooth transition for both companies post-separation.” On eBay’s part, it said the reason for the change was to provide lower costs to sellers, as well as additional options for buyers.
By 2021, eBay expects the majority of its global marketplace customers to have access to and be using the new system. According to PayPal spokeswoman Amanda Miller, as quoted by CNN, the company will “continue to provide a comprehensive payments solution to eBay through July 2020.” The two companies also agreed that PayPal will be an option offered to customers of eBay through July 2023.
For some time eBay has represented a declining percent of processing volume and revenue. As mentioned earlier, in the last quarter it was approximately 13 percent of TPV, down about 900 basis points over the last couple of years.
eBay is diversifying their payment providers and Adyen fits the role nicely as it has a major position in cross-border e-commerce sales. PayPal has recently been adding multiple partnership arrangements so eBay represents a shrinking share of its business. Overall, this arrangement will not really impact the buyers and sellers that use eBay.
Overview by Raymond Pucci, Associate Director, Research Service at Mercator Advisory Group
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