Ebay's (NASDAQ: EBAY) replacement of Paypal (NASDAQ: PYPL) after a 15-year agreement sent shockwaves in the market. Following the announcement of Ebay's new payment processor, Dutch company Adyen, Paypal shares plummeted by approximately 11 percent during after-hours trading. In contrast, Ebay's shares increased by 14 percent, allowing the California-based company to reach its highest stock price to date. Although Paypal may face roadblocks ahead, their separation with Ebay provides the perfect space for Adyen's growth.
Although the two companies have split, Ebay has reassured Paypal that it will "remain an important partner." In 2002, Ebay bought Paypal, but in 2015, Ebay allowed Paypal to become its own company again. Despite Paypal's new and separate identity, the two companies remained close afterwards. However, Ebay's choice to completely use a different payment processing platform appears to be a permanent severing of ties.
Ebay has recently touted the advantages that Adyen, a small, 12-year-old company, will bring. Along with promises that it will give the customer more control and lower costs for buyers, Adyen will be able to offer a multitude of different global payment options. Currently, Adyen transfers payments from 150 currencies and is compatible with approximately 200 different payment methods. The company is primarily a backend payment service, which allows merchants and clients to use the service without coming into contact with it directly. Paypal, on the other hand, requires that a user create a Paypal account in order to issue payments. Such flexibility has allowed companies like Netflix (NASDAQ: NFLX), Facebook (NASDAQ: FB), and Uber to use Adyen.
In response to the announcement, Adyen CEO Pieter van der Dos noted that the company is "thrilled that eBay, one of the most successful e-commerce companies of all time, has chosen Adyen as its new, global payments processing partner," and that they "look forward to powering transactions on eBay, starting in North America, and supporting their continued global growth."
Although Paypal appears to be on the losing side of the split, the business decision may benefit them as well. In the past year alone, Ebay became the slowest growing component of Paypal compared to other auxiliary operations. Moreover, the Ebay-Paypal agreement enforced regulations that did not allow Paypal to offer payment services at the same level to other companies. Now that Paypal has a bit more freedom, the company can potentially create new agreements and alliances that will draw in more transactions and new clientele to compete against other payment companies such as Square (NYSE: SQ) and iZettle.
Paypal spokeswoman Amanda Miller perhaps puts it best when she says that "the planned evolution of [Paypal's] relationship with EBay is consistent with our strategic direction and growth opportunities and does not alter our financial guidance."