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PayPal to become eBay’s biggest business?

Online auction and market place company eBay has been known for making some inappropriate acquisitions—think Skype—but the company apparently had its head on straight when it acquired online payment processing service PayPal way back in 2002. Now, speaking with investors and analysts, eBay executives are playing up PayPal as the bright star in eBay’s future, forecasting that the unit could become eBay’s biggest business, eclipsing the company’s online marketplace in three to five years. The main reason? As more and more businesses get online—and more and more consumers engage in mobile commerce—online payment processing should continue to see enormous growth.

Back in the original dot-com boom, eBay was one of the major success stories, with its highly popular and high-margin online marketplace attracting enormous numbers of buyers and sellers—and eBay took a cut from every direction on transactions. In recent years eBay has taken a number of steps to make its online marketplace more secure, to reduce fraud, and ease the online buying experience, but the company’s basic online store and auction model has long-since matured, and growth in the business has slacked off—although, to be sure, the company still earns plenty of money from it.

PayPal, conversely, is still experiencing significant growth. PayPal president Scott Thompson says the unit had revenues of $3.4 billion in 2010—an increase of 23 percent of 2009—and the company expects those revenues to reach $6 to $7 billion by 2013. In comparison, eBay’s marketplace earned $5.7 billion in 2010, and eBay expects that to grow to $7 to $8 billion by 2013. In other words, around 2013 the businesses should be neck-and-neck. And eBay expects payment volume from mobile transactions to double in 2011 to around $2 billion.

PayPal’s future is not without some clouds: although eBay is keen to prove it can compete with the likes of Amazon and Google in the U.S. market, the regulatory environment for online payment processors in international markets is turbulent—and some industry watchers expect that for an online payment processing company to succeed, it has to be able to tap into massive emerging online payment markets like China and India. PayPal got a shot in the arm last year when China’s Alibaba began supporting PayPal transactions; however, the company also took hits in India and was forced to suspend service in India, only to resume without personal payments.

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