eBay sets stage for split with PayPal, switch to Adyen

eBay Inc announced on Thursday it has signed an agreement with Adyen, a leading global payments processor, to become its primary payments processing partner. This means eBay will take more control over customer payments from its long-standing partner PayPal, in a move that analysts say will help it compete better compete with Amazon.

Dutch financial technology company Adyen will become eBay's primary payments processor after the current PayPal deal expires in mid-2020, as eBay looks to bring more transactions to its in-house Marketplace platform.

eBay said it intends to further improve its customer experience by intermediating payments on its Marketplace platform. eBay will manage the payments flow, simplifying the end-to-end experience for buyers and sellers.

PayPal, a long-time eBay partner, will be a payments option at checkout for eBay buyers.  The transition to full payments intermediation will be a multi-year journey, and eBay will move as quickly as possible to complete this process within the parameters of the Operating Agreement with PayPal, which remains in place through mid-2020, it said.

eBay's stock climbed 15 per cent on Thursday, recording its biggest one-day gain since 1998, the year of its market debut. The company said it would add $500 million to operating profit after the PayPal deals expires.

PayPal, meanwhile, saw shares sink more than 8 per cent on Thursday as a result of the announcement, although PayPal may be able to fill the hold created by eBay through its strong growth rate, according to analysts.

PayPal has been eBay's preferred provider for the past 15 years, and transactions through eBay account for about 13 per cent of total payments processed by PayPal.

On Wednesday, PayPal reported a strong Q4 net income of $620 million and non-GAAP earnings of 55 cents per share on revenue of $3.71 billion, up 24 percent year over year.

eBay reported revenue of $9.6 billion, up 7 per cent compared to 2016, and earnings of $2.00 per share.

"Q4 was a record quarter for eBay, representing the fifth quarter in a row of volume acceleration in our US Marketplace," said Devin Wenig, President and chief executive of eBay Inc. "We have made great progress transforming eBay while delivering meaningful growth and we expect further acceleration in 2018 as we continue to execute our strategy."

PayPal was acquired by eBay in July 2002 for $1.5 billion, and later spun off in 2015.

At the time, Schulman said that PayPal has been able to invest in technology due to the spin-off, giving it "the opportunity to invest in our infrastructure setting up state-of-the-art networks and data centers to give PayPal a competitive edge".

The split came alongside public criticism from shareholder and prominent financier Carl Icahn, who believed the PayPal tie-up would generate the most potential revenue and value.