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article imageeBay climbs 15 percent on decision to abandon PayPal

By James Walker     Feb 2, 2018 in Technology
eBay has announced it will abandon its long-serving payments partner PayPal. The company is bringing its payment systems in-house and will directly mediate between merchants and buyers. eBay said the change will improve the customer experience.
Multi-year transition
eBay acquired PayPal in July 2002 for $1.5 billion. Since then, PayPal has provided a critical component of eBay's platform. In return, millions of consumers have used PayPal to purchase items listed on eBay.
In 2015, eBay spun PayPal off into its own company. It has also begun to detach itself from PayPal as its primary payments provider. In an announcement today, eBay said it will not be renewing its agreement with PayPal when it expires in 2020. Amsterdam-based payments network Adyen will instead power eBay's backend processing systems.
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Most eBay users will be familiar with PayPal as the intermediary between buyers and sellers. eBay will now take on all of these responsibilities itself, directly connecting merchants with their customers. The company said the "multi-year" transition phase will eventually make eBay simpler to use and will enable it to further innovate in payments.
"eBay intends to further improve its customer experience by intermediating payments on its Marketplace platform. In doing so, eBay will manage the payments flow, simplifying the end-to-end experience for buyers and sellers," said eBay. "eBay has signed an agreement with Adyen, a leading global payments processor, to become its primary payments processing partner. PayPal, a long-time eBay partner, will be a payments option at checkout for eBay buyers."
15% stock increase
The announcement has sent eBay's stock soaring up by 15 percent. It's the company's biggest single-day gain since it debuted on the market back in 1998. eBay claimed the decision will add up to $500 million to its operating profit once the existing deal with PayPal has expired.
For Adyen, the new contract from eBay is a milestone success. The company is expected to file for an IPO later this year and is growing its platform around the world. Its network still pales in comparison to PayPal though, which Recode reports made revenue of almost $11 billion in 2016. In the same period, Adyen reported just $178 million.
eBay / PayPal office campus
eBay / PayPal office campus
File photo
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It's a less positive story for PayPal. The company's stock sank by 8 percent on the news of the announcement. eBay currently accounts for around 13 percent of all the transactions made on PayPal's platform. The company has worked to increase its range of operations since separating from eBay, pursuing new payment technologies for consumers and businesses. These will now need to grow to offset the loss of eBay's business.
eBay said it has begun making "significant" investments to develop the resources necessary to handle its own payments infrastructure. The company's payments team includes leading experts with backgrounds at Alipay, Google, HSBC, Square and Wells Fargo. eBay said it expects "several hundred" people to work on its new payment capabilities.
More about Ebay, Paypal, Payments, digital payments
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