eBay PayPal

This has been a long time coming: eBay Inc is spinning off its online payment business PayPal as a separate publicly traded company in 2015.

eBay informs that its board of directors approved this plan after a strategic review of the company’s growth strategies and structure. It mentions that keeping eBay and PayPal together beyond 2015 is “less advantageous” to both its online marketplace and payments business strategically and competitively.

The company expects to complete this spin-off in the second half of 2015, subject to market and regulatory conditions and it will be led by eBay Inc. President & CEO John Donahoe and eBay CFO Bob Swan. This includes figuring out the right management and capital structures for both eBay and Paypal and putting appropriate operating agreements in place. Neither Donahoe nor Swan will have an executive management role in the new eBay and PayPal companies.

Former American Express president to lead Paypal: In line with announcement, eBay has appointed Dan Schulman as the president of PayPal effective immediately and CEO-designee of standalone Paypal after separation. Schulman was previously working as the president of American Express’s Enterprise Growth Group. He’s also held senior executive and CEO roles at AT&T, Priceline and Virgin Mobile.

Carl Icahn’s Spin-off proposal: This spin-off is quite interesting since Donahoe had rejected a similar proposal from investor Carl Ichan in January this year and the company followed it up with a detailed explanation on why this spin off doesn’t make sense. In addition, eBay had also sent a letter to its shareholders explaining why eBay and PayPal are better together in March this year. How things change in just five months.

Will it revive PayPal’s fortunes?

That being said, this is a significant move for PayPal since this split will provide them freedom to operate as an independent payment service and aggressively pursue new potential opportunities in the digital payments segment which probably wouldn’t have been possible under eBay’s umbrella.

PayPal, which once dominated the digital payment segment, is now facing intense competition from startups like Stripe, Dwolla and Square as well as Apple which recently introduced a mobile wallet service Apple Pay that allows users on newly launched iPhones to buy physical goods and services in the United States.

Therefore, PayPal is probably in a better position to retain its leadership position as well as sign up new partners and foray into new markets as an independent entity rather than being bundled under eBay’s declining marketplace business.

eBay mentions that PayPal’s revenues has grown by 19% year-on-year (YoY) to around $7.2 billion while the active registered accounts grew by 15% YoY to 152 million accounts. Total payments volume has also increased by 26% YoY to $203 billion. Of this, $27 million is from mobile payments and the company expects 1 billion mobile transactions in 2014.

In an interview with Fortune, Donahoe also mentions that the contribution of eBay’s marketplace business to PayPal revenues is declining and it is expected to go down from the existing 30% to just 15% in three years.

What’s also worth noting is that while eBay’s marketplaces business currently generate more revenue than PayPal with revenues of $9.9 billion as compared to PayPal’s $7.2 billion, PayPal surpassed eBay’s marketplace business in terms of annual revenue growth. PayPal’s revenues grew by 19% YoY, while the marketplace’s business grew by 10% YoY.

PayPal India? We are also curious to see how this split impacts PayPal’s India business. Until now, the company has had somewhat tumultuous relationship with the Reserve Bank of India, who initially placed stringent restrictions on PayPal and has been slowly relaxing these restrictions lately (a PayPal vs RBI timeline here).

PayPal also recently appointed Vikram Narayan as the new Country Manager and managing director of its India operations. Narayan was expected to focus on educating Indian merchants about the potential growth opportunities in the global e-commerce marketplace. With this split, we wonder whether PayPal India will continue to focus on small & medium businesses or foray into a more consumer oriented payment system. Remember that PayPal had received an approval for domestic payments in India, way back in October 2012.

New eBay: As for the new eBay, Devin Wenig, who is currently serving as the president of eBay Marketplaces, will become CEO of the company and will be leading its marketplace and enterprise businesses. eBay Marketplaces CFO Scott Schenkel will also become the CFO of the new entity.