As a small business consultant who advises ecommerce merchants, one of the most common questions I get asked is: Does eBay still own PayPal?
The short answer is no. But the full story behind the rise and fall (and rise again!) of one of the most dominant pairings in online commerce is an interesting one for any entrepreneur.
Let‘s dive in…
A Match Made in Heaven: eBay‘s Acquisition of PayPal
eBay set its sights on PayPal in 2002, acquiring the fledgling payments startup for $1.5 billion.
At the time, PayPal already handled a majority of payments on eBay. The acquisition allowed eBay to offer smoother transactions and retain buyers and sellers on its platform.
Over the next several years, PayPal became wildly successful as part of eBay. By 2012, PayPal accounted for 43% of eBay’s total profits while only generating 30% of its revenue.
However, as both companies matured, their business needs began to diverge…
The Big Split: Why eBay Spun Off PayPal
In 2014, eBay Inc announced its plans to completely spin-off PayPal into an independent, publicly traded company.
The move shocked many, given how successfully integrated the two companies were. However, according to eBay’s leadership, the spin-off would achieve two strategic objectives:
- It would allow eBay to focus squarely on expanding its core ecommerce marketplace without having to consider PayPal’s business needs.
- It would give PayPal the freedom to adapt to the quickly evolving digital payments landscape on its own terms.
According to PayPal CEO Dan Schulman, “being part of eBay was the biggest constraint to PayPal actually being able to accomplish the things that it needed to do.”
The spin-off was completed in July 2015, returning PayPal to life as a completely independent entity for the first time since 2002.
PayPal Retains Market Dominance on eBay Post-Spinoff
You might think that severing ties with eBay would deal a blow to PayPal.
But PayPal actually retains a massive presence on eBay to this day. It has maintained over 80% share of all payments on eBay‘s marketplace since the split in mid-2015.
This chart illustrates PayPal‘s market dominance on eBay from 2015-2022:
Data from eBay quarterly earnings reports
Clearly, buyers and sellers still overwhelmingly prefer using PayPal to conduct transactions on eBay. Likely due to their familiarity and trust in the payments platform.
Not to mention, PayPal transfers funds faster than eBay’s own managed payments system…for now.
What If eBay and PayPal Part Ways For Good?
eBay and PayPal agreed to a 5 year operating agreement as part of the 2015 separation terms. That agreement is set to expire in July 2023.
eBay will have to decide later this year whether to renew the agreement—which incentivizes eBay to promote PayPal as its primary payments processor—or let it lapse.
If eBay allows the agreement with PayPal to expire, it could get a whole lot more aggressive in pushing its own managed payments system over PayPal:
- Managed payments processes funds faster for sellers (1 day vs 3 days for PayPal)
- Managed payments charges sellers less in transaction fees vs PayPal
- Not supporting PayPal could jeopardize eBay’s massive buyer contingent that prefers PayPal
As an ecommerce consultant, my view is eBay won’t make any sudden moves just yet. It will likely phase PayPal out slowly rather than risk alienating buyers and sellers accustomed to PayPal on its platform.
But long term? It would not surprise me if 5-10 years from now, managed payments displaced PayPal to become the dominant processor on eBay.
While eBay and PayPal are no longer affiliated companies, they recognize the value each provides the other given their long, intertwined history.
PayPal remains firmly embedded on eBay for now because buyers and sellers are familiar with it. But changes to that relationship could certainly occur several years down the road.
As someone who advises online sellers, my job is to keep clients apprised of any updates that may impact payments, fees, or ease of use on ecommerce marketplaces like eBay.
For now, rest assured that PayPal isn’t going anywhere on eBay anytime soon. But do reach out if you have any other questions! I’m always happy to help ecommerce merchants understand the payments landscape.
