eBay to ditch PayPal for Dutch processor Adyen; PayPal drops

[SEATTLE] eBay will shift its payments business from long-time partner PayPal Holdings to Adyen, a global payments company based in the Netherlands, further distancing the companies that split in 2015, but remained intertwined through an agreement that fully expires in 2020.

Shares of PayPal fell after the news, dropping more than 15 per cent at one point.

PayPal will remain a checkout option for eBay shoppers at least until July 2023, eBay said in a statement. Adyen will gradually take over processing eBay payments, beginning in North America this year and will process a majority of transactions in 2021. PayPal is currently eBay's payments processor, meaning merchants selling on the marketplace have to have PayPal accounts to accept funds.

eBay said the shift will result in lower payment processing costs for merchants selling on the platform and greater options for buyers. Adyen accepts payments in 150 currencies. PayPal could see a big blow to its total payments volume. Shoppers purchased US$24.4 billion in goods on eBay in 2017.

Analysts had largely expected the agreement to continue, and there will be concerns about total payment volume going forward despite eBay becoming a smaller portion of that number over the past few quarters. PayPal hasn't provided analysts with much colour on the impact yet.

"eBay's decision to reduce PayPal's prominence represents a major setback for PayPal," said Gil Luria, an analyst at DA Davidson & Co.

"Although the share of revenue from eBay has diminished over the years, the share of profit is far more substantial due to the terms of the spinoff. Furthermore, the possible deal to add Adyen more prominently helps propel Adyen to a much more meaningful competitive position."

The announcement surprised some investors, who expected the companies to announce an extension to their operating agreement. PayPal has played an integral role in processing payments on eBay for 15 years and offers credit products that help eBay shoppers buy more goods.

PayPal separated from eBay in 2015 to concentrate on expanding its electronic transactions business without being shackled to the slow-growing online marketplace. The separation included an agreement that eBay would continue to use PayPal to process payments on the site. eBay purchased PayPal in 2002 and phased out its own competing payments service at the time.

BLOOMBERG