- When eBay spun off PayPal in 2015, the two companies entered into a five-year operating agreement, whereby PayPal would continue to process all of eBay’s payments and was limited with how it could interact with some of the marketplace’s biggest competitors.
- On July 18, the agreement ended, allowing both companies to operate without any restrictions. As a result, eBay will bring its payments in-house.
- eBay’s VP of global payments, Alyssa Cutright, says that eBay could unlock as much as $2 billion in payments revenue by 2022.
- Using payments data, eBay will also explore other financial products, like loans for its merchants.
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eBay and PayPal’s five-year operating agreement just ended, and the online marketplace is eyeing billions in new potential revenue by managing its payments in-house.
eBay acquired PayPal in 2002, and spun it off in 2015. While the two companies have since operated separately, from eBay’s perspective, not much changed. PayPal processed all of eBay’s payments until 2018, when eBay started testing a small portion of its payments in-house, with processing partner Adyen.
But now, eBay will fully roll out the payments platform it’s been building for years, which it says could unlock as much as $2 billion in revenue and $500 million in operating profit in 2022. eBay’s total revenue in 2019 was over $10 billion.
“Payments is so foundational to a commerce experience,” Alyssa Cutright, VP of global payments at eBay, told Business Insider.
“By having control of that, it gives us so much more flexibility in how we continue to enrich the buying and seller experience,” she added.
Cutright joined eBay in 2016 to build out the company’s payments infrastructure. Prior to joining the marketplace, she’s spent much of her career in payments, working at PayPal, Plastiq, and Square.
While PayPal will still be a payment option on eBay, it will no longer earn revenue from processing eBay’s transactions.
To be sure, PayPal will have more freedom to pursue new business as well. Under the operating agreement, PayPal was required to give the marketplace better pricing than a handful of companies eBay considered competitors as part of a “favored-nations clause.”
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Payments will be a new revenue stream for eBay
Processing payments will be a new revenue stream for eBay, which, like any payments company, will earn fees on each transaction.
For PayPal’s in-house payments, Adyen has been eBay’s primary payments processing partner since 2018, offering the back-end processing tech. In addition to PayPal, credit, and debit cards, eBay will now offer Apple Pay and Google Pay, as well as bank-linked payments in relevant markets like Germany.
Under the terms of the operating agreement, eBay was able to begin testing in-house payments for up to 5% of its US volumes in 2018. In 2019, eBay was able to process up to 10% of its volumes in the US and in its second test market, Germany.
Those tests allowed eBay to manage payments for over 42,000 sellers, and process $4.7 billion in volumes. In 2019, eBay reported volumes over $90 billion.
“While we’ve been capped and limited — and that’s a drop in the bucket to the overall size and scale for eBay — it’s actually really nice volume when you look at intermediating payments in general,” Cutright said.
But now, with those limits lifted, eBay will go live with an additional 255,000 merchants who pre-enrolled in Australia, Canada, Germany, the UK, and the US, Cutright said. eBay expects to get its entire network of sellers on board by 2022.
Read more: Here’s how PayPal is looking to boost its credit business by leaning into a buy now, pay later frenzy
Armed with payments data, eBay will explore financing for sellers and buyers
Beyond revenue, eBay expects that managing payments itself will help deepen its relationship with sellers and buyers, especially that now eBay’s merchant and consumer transaction data will all be stored in one place.
“Our focus first and foremost with that data is going to be to continue to enrich the experience and to ensure that we’re having higher conversion and lower friction in the process,” Cutright said.
But going forward, eBay will explore more financial products like business financing.
“Managing the payment flow and having access to that data and controlling that experience end-to-end is foundational to then build more value-added services that we can offer to both our buyers and sellers.” Cutright said.
Offering credit to sellers is common for payments players like PayPal, Square, and Stripe, each of which offer their own business financing products based on merchants’ payment activity. And on the buyer side in Australia, for example, eBay will offer Afterpay’s buy now, pay later product as an option at checkout.
“I would expect that we will invest in those spaces as we come to the other side of migrating our entire seller base onto the platform,” Cutright said.
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