(Bloomberg) -- Last week, the payments world was taken by surprise when EBay Inc. announced plans to shift payment processing from longtime partner PayPal Holdings Inc. to Adyen BV, a global payments company based in the Netherlands.
EBay and PayPal don't typically report earnings on the same day, so when the schedule lined up perfectly this quarter, everyone assumed something was going down. However, the vast majority of analysts and journalists (including myself) thought it meant they were extending their agreement. While the two companies did extend part of their deal until July 2023, Adyen will gradually take over processing EBay payments, beginning in North America this year and will handle a majority of transactions by 2021.
While PayPal Chief Executive Officer Dan Schulman said in an interview that EBay has continued to become a smaller part of its total payment volume and won't impact the company's forecast, this is nonetheless a big win for Adyen. So how did they do it?
The Dutch company, said to be planning an initial public offering sometime this year, is making a big push into the U.S. before it will have to go on a road show. Having big names like EBay to tout to investors can help. EBay has 170 million global active shoppers.
No wonder Adyen co-founder and CEO Pieter van der Does told me he's thrilled to have this new partnership. However, is the startup, which has been profitable for a while now, signing big names at terms it will later regret? “EBay likely pushed negotiations with PayPal well beyond realistic limits, knowing Adyen wanted the win at whatever the cost,” said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
Whatever the circumstances, there is concern on Wall Street about the future of PayPal given rising competition. The company has been seeing a great deal of success with Venmo and Braintree, which offer mobile payments and power the systems on websites like Facebook Inc., and shares had been surging along with optimism before last week's news. PayPal is up more than 90 percent over the past year, even after the 10 percent hit it took late Wednesday.
But PayPal isn't just up against a startup from Amsterdam. SoftBank Group Corp., one of the technology industry's most lavish spenders at the moment, is reportedly working on a digital payments service, and the biggest banks are teaming up on an app called Zelle. “SoftBank's recent announcement and strong Zelle growth should give pause,” Andrew Jeffrey, an analyst at SunTrust Robinson Humphrey Inc. wrote in a note to clients. “While the transition should be manageable,” Jeffrey added, “it is a blow to PayPal's competitive position.”
Things are about to get heated.
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To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net.
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