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PayPal split from eBay will advance mobile payment technology


The proposed split off of PayPal from eBay will create benefits that advance mobile payment technology. eBay announced earlier this week that it plans to separate eBay and PayPal into independent publicly traded companies next year.

eBay has stated that by spinning off PayPal, the two new companies will capitalize on their own respective growth opportunities in a rapidly changing global commerce and payments landscape.

“eBay and PayPal are two great businesses with leading global positions in commerce and payments,” John Donahoe, eBay Inc. President and CEO said in a statement. “For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value.”

However, a recent strategic review by eBay’s Board claims that keeping eBay and PayPal together beyond 2015 becomes less advantageous both strategically and competitively. The firm thus claims that the split will continue to encourage fast growth. This is a new development, since previously, eBay rejected the idea of a split.

The idea was only primarily advanced by legendary activist investor Carl C. Ichan who noted upon news of the split that:“[i]t is almost a “no brainer” that these companies should be separated to increase the value of these great assets and thus to meaningfully enhance value for all shareholders. It also continues to be my belief that the payments industry, of which PayPal is an important part, must be consolidated – either through acquisitions made by PayPal or a merger between PayPal and another strong player in the industry”.

Currently, PayPal is one of the fastest-growing digital payment providers, with more than 152 million active registered accounts. Accounts grew 15 percent year-over-year last quarter. Revenue over the last 12 months grew by 19 percent over the prior year period to approximately US$7.2 billion.

According to the latest stats, PayPal facilitates one in every six dollars spent online today worldwide. Total payments volume over the last 12 months increased by 26 percent to US$203 billion, providing merchants and consumers worldwide a faster, safer way to pay and be paid.

The company also leads in the development of mobile payment technology, as it recently launched its “One Touch” mobile payments feature, that allows consumers with PayPal accounts to link those accounts to their mobile device in order to complete a purchase on that device with a single tap. Analysts suggest that a wider strategy might include leveraging wireless Near Field Communication (NFC) technology that is embedded into new iPhones, which effectively turns smartphones into payment tap devices that can used be at brick-and-mortar retail locations.

Such a system would evidently compete against the recently unveiled Apple Pay system, but a recent statement from Donahoe notes the consumers want access to “multiple methods of electronic payments”. While not explicit, some analysts believe that this statement reverses speculation that PayPal would not support Apple Pay.

PayPal however need not be cooperative with Apple due to its current market relationships and reach. PayPal is fully localized in 26 currencies, is available in 203 markets worldwide and has relationships with 15,000 financial institutions. Representative of its global reach, PayPal is the number one payments processor for business to consumer exports for Chinese merchants.

No matter what approach PayPal takes, it will be well positioned to dominate the fast growing mobile payments market. As the Biometrics Research Group predicted in a recent report, worldwide mobile payment transactions will reach US$250 billion by the end of year. The research consultancy, which publishes BiometricUpdate.com, also estimates that global annual transactions will hit US$750 billion by 2020, with more than 700 million consumers taking advantage of mobile payment systems.

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