paypal separation

The PayPal separation - What happened and what does it mean?

EBay has long been synonymous with online auctioning. In fact, its grip on the market is so firm that most people would struggle to give more than a couple of other examples. With approximately 150 million active users, it's one of the e-retail sector's biggest players, and its popularity continues to grow.

Most of those who have used the site before will be aware of PayPal. Developed in the late 1990s, this online payment service was quickly adopted by eBay, sparking major growth around the turn of the millennium.

The subsequent rise and split

In 2002, the auction site launched a $1.5 billion bid for its San Jose, California-based partner, and was successful. In the time since, PayPal has continued to evolve to meet the needs of both buyers and sellers. Its uses now stretch far beyond online auctions too - it's employed by all kinds of organisations, from event promoters to charities. Today, it has 157 million of its own users, with close to ten million transactions processed every day.

The ties between eBay and PayPal remained strong for some time, and this is has been no accident. The former's chief executive, John Donahoe, has always claimed that the two businesses are "better together", so it came as a slight surprise when it was announced at the end of September that PayPal would become a separately traded company at some point in 2015.

Why did it happen?

Experts have mooted numerous reasons for the move, including the need for PayPal to step up and face fresh competition from the likes of Apple, Visa and Square. Unrest has also been evident among shareholders, with some even campaigning for the split to be considered so that PayPal's potential could be fully realised. Add to this the fact that its value has increased to around $50 billion over the last ten years and it's difficult to blame eBay for selling up. The reasons and financials aside, what impact is the decision going to have on the most important people - the users?

Improved services on both sides

Ever since the takeover was completed all those years ago, eBay has been forced to perform something of a balancing act. One of the split reasons mentioned above is that PayPal's potential is yet to be fulfilled, and this could well be because eBay has had to spread its resources and creative effort over both the payment and retail sides of its operations.

With the two fully independent of each other, there's instantly more room and potential for growth. New teams are set to be installed at the top of both businesses, and the focus from these will inevitably be on improving their respective services.

The chances of improvement could either be hindered or enhanced greatly if, like some commentators are suggesting, PayPal becomes the subject of another takeover. Not much is known about the likelihood of this yet but Google, Microsoft, Visa and MasterCard have all been unsuccessful in their own attempts to build competing platforms in the past, so it wouldn't be too much of a shock if one of them launched a bid. If this does happen, the service could benefit hugely from fresh investment and ideas, or the same situation may well arise. Either way, online traders should definitely watch this space.

A wider reach

While PayPal's logo can be found on all manner of websites these days, there are a couple of noticeable absentees - Amazon being the biggest example. The reasons for this are pretty obvious, seeing as Amazon and eBay are two of the e-retail sector's biggest competitors. With the ties severed, however, there's little stopping PayPal being employed here or anywhere else on the web. This not only means that its services will be available to a much wider audience, but those who shop regularly on multiple sites may find that payment processes become consolidated and, therefore, much easier.

More mobile shopping

The e-retail industry has already been impacted pretty heavily by the ongoing mobile revolution. In the UK, for example, 52 per cent of all visits to online retailers' websites come from smartphones and tablet computers. These devices also account for a third of all transactions, and the figure is growing steadily. With an app and suitably optimised website already in place, it's clear that eBay's PayPal team has been keeping up with this shift, but the focus on handheld bargain hunting could be set to increase.

When PayPal becomes independent next year, Dan Schulman is set to take over as CEO. Not only is the New Jersey native known for his general success at a number of major organisations, he has a strong background in mobile technologies, having held executive roles at AT&T and Virgin Mobile USA. Add to this his time devising mobile strategies at American Express and it's not crazy to assume his first port of call in the new role will be to enhance PayPal's on-the-go offering.

No need to panic

It's impossible to count the number of businesses trading online these days; platforms like eBay and PayPal make it so easy that the figure is growing by the day. Many retailers - just like their customers - will be wondering how the big split will affect them, and whether there's any action they should take. In truth, though, nothing needs to be done straight away. Without eBay's direct support, there are suggestions that PayPal fees could eventually rise, but this is currently just speculation at best.

On the whole, all the signs suggest that the separation will be a positive thing for all involved. EBay should be in a position to focus its efforts on retaining its standing as the biggest and best auction site out there, and everything PayPal has to offer is likely to be made available to a much wider audience - everyone's a winner! 

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