Nearly a year ago, PayPal and eBay announced they wouldn’t renew their operating agreement when it ends in 2020. The news sent shares of PayPal cratering, while eBay stock climbed on the idea that it would save about $2 billion per year.
A year later, PayPal continues to improve its position as it distances itself from eBay. It’s winning a presence in the checkout process of more and more top online merchants. Morgan Stanley analyst James Faucette says PayPal added eight more merchants in the top 500 internet retailers recently, giving it a presence at 82% of top 500 merchants.
PayPal’s two-sided network strategy continues to enable it to grow payment volume faster than the overall e-commerce market. So, even as it prepares to lose a good chunk of eBay’s business, it looks well prepared to keep growing for the next decade.
PayPal’s operating agreement with eBay ends midyear 2020. The agreement states PayPal will handle all of eBay’s online payment processing. So, even when a customer types in his or her credit card details, PayPal is still receiving revenue from eBay for processing those cards on the back end.
eBay started to transition to its new payment processor Adyen at the beginning of last year. The agreement allows eBay to migrate 5% of its transactions in 2018 in two countries of its choice. That number steps up to 10% later this year, before the PayPal agreement ends in July 2020.
That business is valuable for PayPal, and its loss will sting. The company said 11% of its total payment volume came from eBay in the third quarter. That said, PayPal’s presence on eBay isn’t going anywhere. Customers will still be able to check out using the PayPal wallet by leaving the website.
Importantly for investors, eBay is growing sales at a much slower pace than the overall e-commerce market. E-commerce grew 14.3% year over year in the United States during the third quarter. eBay’s gross merchandise volume increased just 3% in the U.S. during the same period. That makes it slightly less important to the future growth of PayPal.