eBay Spins Off PayPal: Does Showdown with Apple Pay Await?
Online auction giant eBay announced Tuesday that it will spin off PayPal, its online payments system, beginning in 2015. Each of the businesses will operate separately while maintaining the ties that benefit both. But what will that mean for the online payments business -- and for the consumers that have more options than ever in that area?
PayPal processes billions of dollars for about 15,000 banks and other financial groups, in 26 currencies, representing about one-sixth of all online dollars spent. The company has made its way into such difficult markets as China, and its independence will let PayPal work its way into new arenas, especially with mobile payments.
That dominance will be an important asset when it comes to dealing with competitors. Other major players in the online payments arena include Amazon, Google Wallet and PayPal subsidiary Venmo. But most of the attention among PayPal competitors will be given to Apple Pay, which is set to launch this month.
Easy and Easier
The battle between the two could come down to how they’re used. In a scenario involving dining out, PayPal requires users to open the app, find the restaurant and check in. They are then given the option to order ahead and choose which accounts they would like to use to pay their tabs.
With Apple Pay, users simply have to position their iPhones near a payment point at a store, and hold their fingers on their Touch IDs. A vibration and a beep will tell them that their transactions were successful.
Consumers will also want to learn more about the security features in the two respective services. With Apple Pay, neither Apple nor the merchants who use it see or store any of their customers' private information. Instead, users take photos of their credit cards and add it to Passbook no their phones. There the photos are assigned unique device account numbers that are encrypted and stored in the Secure Element Chip of their phones.
When the user wants to buy something, the device account numbers and a dynamic security code are used to complete the transaction.
PayPal, on the other hand, does store personal information such as bank account data, credit card numbers and billing addresses, although it claims such information is "heavily guarded, both physically and electronically."
Who Will Win?
As the battle for dominance in the online payments market heats up with the turf-guarding move by eBay, both sides are making strategic moves. As Apple touts the card-free features of its service, PayPal has retorted with ads chiding Apple for letting leaked celebrity photos go into circulation.
Apple also recently hired Mary Carol Harris, the former director of mobile for Visa Europe. She has significant experience with mobile payments, as well as expertise with NFC (near-field communication) technology, the foundation of Apple Pay.
PayPal’s spinoff from eBay should be completed by the end of next year. It will reduce eBay’s day-to-day business almost exclusively to its online auction page. PayPal will be free to pursue its own business strategy independently.