PayPal Working on Life Without eBay Revenue

Source: PayPal

It was just about a year ago that eBay announced it was moving toward building its own payments system and moving away from PayPal to process payments on the marketplace.

READ MORE: eBay Splits Further from PayPal, Signs Deal with Adyen

The original Operating Agreement when eBay and PayPal split called for an initial term of five years that PayPal would be the primary payments provider (or Merchant of Record) for eBay.

However, language in the agreement allowed for eBay to become the Merchant of Record to test its own payment system.

The agreement allows eBay to process up to 5 percent of GMV volume in up to two “Test Jurisdictions” in year four, and 10 percent of GMV in year five.

While the agreement has provisions for an extension, eBay chose not to extend the agreement beyond five years. This also opens the opportunity for PayPal to pursue competing marketplaces.

Currently as part of their payments beta, eBay is accepting payments only on the US marketplace through a voluntary seller opt-in program.

Yesterday, eBay revealed that only 3,500 sellers are taking part in the beta, which can easily be attributed to the failure of eBay allowing sellers to accept PayPal in the beta.

READ MORE: New eBay Payments Beta Comes with Significant Restrictions

PayPal on Better Growth Trajectory

eBay touts that moving away from PayPal will benefit its sellers with lower transaction fees while also adding to its bottom line through increased revenues. But there is a “hidden” benefit to PayPal.

eBay is growing sales or GMV at a much slower pace over the total global eCommerce market, estimated at 21.5% for 2019.

With this global increase in eCommerce sales, PayPal seems well positioned to take a bite out of the business through its growth strategy.

The company has been signing up new retailers, new marketplaces, and acquired businesses in niche payment segments to help it gain more market share.

But it is not just online retail that will boost PayPal’s revenues.

The company’s drive to be dominant on mobile (PayPal One Touch) makes PayPal a major consideration for a retailer’s checkout flow. As off- and online retail converge, PayPal wants to be everywhere.

As food for thought, PayPal’s mobile payment volume in the third quarter of 2018 increased 45 percent and there is no reason to think this will slow down.

While Paypal’s revenue from eBay is about 11 percent and losing that business would sting a little, the hurt may be less than many believed a year go.

In the short term, the good news is PayPal will not lose much of the eBay revenue and will likely continue to process many payments on eBay.

The simple fact is eBay buyers and sellers trust PayPal, a trust the company is leveraging to gain other business.

READ MORE: New Study Says PayPal Brings Trust to Small Business Online Retailers

Even if eBay can coerce users from using PayPal on its platform, PayPal’s growth strategy will reduce the financial blow.

There is no question that eBay will increase its revenue stream by bringing payment processing in-house. But it appears to be leaning on new users to do this.

READ MORE: eBay: Inside The Q4 and Full Year 2018 Earnings Call

As the marketplace is in the middle of trying to reinvent itself and admits it will continue to experience sluggish growth until 2020, PayPal is free to pursue new business opportunities.

This makes PayPal the real winner in this separation. PayPal will report 2018 earnings today after market close.

What do you think about PayPal’s future? Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.

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