PayPal and eBay Forge Agreement to Go Forth as Friendly Competitors after Split (April 13, 2015)
PayPal will expand its competitive reach when it flies solo after its planned spinoff from parent eBay later this year, according to a five-year operating agreement the two companies disclosed last week. The deal guarantees certain protections and continuity for both companies, but it also underscores the heightened stakes in the e-commerce and digital payments industries. “The commerce and payments landscape is rapidly changing, and each business faces different competitive opportunities and challenges,” the filing said.
PayPal and eBay will be free to pursue partnerships with each other’s competitors, but their agreement bars them from becoming direct competitors in their core businesses. For example, PayPal may form partnerships with other retailers like Amazon and Alibaba, and other companies working in the payments arena, including Google Inc. and Apple Inc. However, PayPal is barred from developing its own online marketplace for physical goods, and eBay cannot create its own payments service. The agreement guarantees the continued flow of revenue to PayPal from eBay, a setup that has helped PayPal thrive since eBay’s purchase of the company in 2002. PayPal last year claimed 162 million active digital wallet users globally and processed $624 million in payments daily. Under the new deal, PayPal will pay eBay a referral fee when it signs up new customers via eBay. And eBay can work with other payment companies to process payments on its marketplace, but if the volume of transactions PayPal processes falls below 80 percent, eBay must pay a penalty to PayPal.
Key management moves also guarantee some continuity. eBay’s CEO John Donahoe will step down from that post, and become chairman of PayPal’s board, while eBay founder Pierre Omidyar will be a director of both companies after the split. PayPal and eBay will continue working together on customer service and sharing data for fraud-protection, according to the agreement. The deal includes an important caveat: eBay could change its payments strategy if an eBay competitor buys PayPal; eBay would be required to give PayPal 15 to 21 months advance notice, in that case.
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