PayPal in Denial of eBay Payment Intentions?

Yesterday we posted highlights from eBay CEO Devin Wenig’s talk at the Goldman Sachs Technology and Internet Conference earlier in the week.

The same day it was also PayPal’s turn with Bill Ready, Executive Vice president and COO of PayPal Holdings, Inc.

And of course, the talk, or interview-style presentation, started out discussing the recent news about eBay choosing Adyen for their payment processing in 2020.

To recap, eBay and PayPal will continue to operate under the original operating agreement when the companies split into two. But in mid-2020, there will be a new agreement that extends a partnership for three more years but on very different terms.

eBay is moving toward becoming the merchant of record and using Adyen to process payments that will be stored in the seller’s account.

Loss Leader

What was striking during PayPal’s earnings call was how the company seemed to downplay the impact of eBay going with Adyen and becoming a payment intermediary.

They tried to assure investors this was already contemplated in their financial guidance and they expect little impact from eBay’s new payment solution.

Bill Ready doubled down on that theme at the Goldman Sachs conference. And this seems to contradict a bit how eBay envisions payments will change on their platform.

He claims the payments impacted by this change on eBay’s site are a small percentage of the unbranded/guest checkout payments. He called those loss leader payments as he claims they have little to no margin for processors.

Ready said those type of transactions, which are payment processing transactions that many other retailers have as well, are at cut-rate prices and often provided by banks to retain clients for other financial services.

He called this segment the “commodity card processing” business.

But even a commodity business has a profit model. And that generally means having a high volume of transactions. Certainly, eBay knows this.

On the one hand, eBay’s Wenig is saying they will lower costs and possibly increase revenues by moving to Adyen. On the other hand, Bill Ready is saying it is a loss leader, inferring the volume on eBay doesn’t make money. One has to be wrong!

Maintaining PayPal’s Share of Payments on eBay

Bill Ready appears to believe PayPal can maintain the “profitable” level of payment processing volume in 3 years as it does today on eBay. He claims that is possible due to PayPal’s value-add that allows it to convert twice as many transactions versus standard payment processing.

He did not get into details of what he considers the value-add to be, but let’s take a look what they likely are:

  • Global digital wallet with 200+ million users, many with spendable funds.
  • Branded trust and security.
  • Offers integrations with other payment gateways such as Android Pay and Apple Pay.
  • Buyer protection and buyer and seller familiarization with the dispute resolution process.
  • Storage of billing and shipping addresses.
  • Multiple funding sources, bank, balance, credit or debit card.

eBay is not working on a global digital wallet, but they appear to be thinking about using the account balance from sales to pay for other items on eBay. Maybe even offer a discount.

As a brand, eBay has good value. But they had a few security issues.

All other “features” appear to be on the development road map of the new eBay payment program.

Wenig stated eBay will offer better value (read lower cost) to sellers. He also said that offering eBay Payments would become mandatory for all sellers sometime after the original operating agreement with PayPal ends in 2020.

Bill Ready said merchants that added PayPal to their checkout experienced a significant conversion rate increase. He claimed conversions were twice that of standard credit card processing experiences.

What is striking in his talk at the Goldman Sachs Technology and Internet Conference is that he is comparing the current unbranded merchant account checkout on eBay with the new eBay experience the company is developing.

Ready is right that the current merchant account based eBay experience has a significant checkout friction and is not very seamless. The buyer experiences vary significantly between different merchant solutions offered by sellers.

Currently, most sellers are just using PayPal as that is the most comfortable and easy to use default method.

He did say that PayPal will continue to have a button at checkout on eBay.

But if eBay is developing a checkout experience that appears to mimic PayPal, then exactly how does Ready assume they will continue to maintain the same processing volume?

This is especially true if eBay’s payment solution will be mandatory for sellers and compete favorably in processing cost with PayPal.

PayPal Saving Costs by Ebay Bringing Payment in House?

This appears to be another odd statement in the presentation as it does not seem to add up.

While the two companies were one, it was pretty evident PayPal carried the risk management and to a lesser extent the payment customer service costs.

The buyer and seller protection requirements were the same for both entities.

If a seller contacted eBay about a transaction, the “eBay representative” had all the insight into the PayPal transaction. It was an integrated environment, and if going by Ready’s statements about costs, may have been paid for by PayPal.

But since the split, that has changed. eBay representatives no longer have that same detail available to them. So that customer service cost seems to have transitioned to eBay already.

eBay has also taken over far more of the seller protection responsibility in those cases it holds the seller not responsible for problems with a transaction. PayPal does still offer merchant protection for fraudulent transactions as before.

Considering fraud risk management costs will continue since the protections offered to eBay sellers are not really different from other merchants, where is this future cost savings coming from he seems to imply this change by eBay will have on PayPal’s business?

Is Bill Ready suggesting there will be a different merchant service level after 2020 for eBay Sellers?

He did admit the take rate from eBay merchant payments is higher than many other merchants. Presumably, this is because small eBay sellers and individual sellers pay higher payment processing rates on PayPal versus larger volume sellers.

Due to the large number of small sellers on eBay, the averaged take rate is going to be higher than with many other merchants who bring higher volume to PayPal and in turn receive lower payment processing costs.

eBay already said they are looking at a simpler fee structure. This likely means they are going to narrow the spread in the take rate between high volume and low volume sellers.


eBay’s business with PayPal is about 13 percent of the company’s TPV. They seem to actively downplay the impact of eBay’s new payment solution on their business.

New arrangements with major merchants and eventually marketplaces in competition with eBay should keep PayPal’s business going strong.

No doubt, the executive team at PayPal always considered eBay was looking at payments. They included language in the operating agreement for this eventuality.

But they may have been surprised it was going to be a wholesale change like the company announced. Or the timing was much earlier than they expected.

PayPal’s Bill Ready spent a lot of time explaining away this new eBay payment solution as being a non-factor using terms like “loss-leader,” and incorrectly comparing eBay’s new payment solution to today’s merchant payment system on eBay.

It just never sounded very reassuring and often very rehearsed or forced with significant use of spin.

The bottom line for eBay sellers is to plan for a major change in payments with eBay when the operating agreement ends in mid-2020.

Maybe PayPal’s optimism will turn out to be correct, and they can maintain market share of payments on eBay’s platform. But don’t risk your business on it, because it just doesn’t seem very likely.

A lot of information lately on this subject of eBay Payments and PayPal. Head over to our Facebook Discussion Group or use the comments section below to voice your thoughts.


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