After a 12-Year Marriage, PayPal and eBay Finally Call It Quits

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eBay CEO John Donahoe, architect of the split Photo: Victor J. Blue/Bloomberg via Getty Images

In 2002, after eBay noticed that many of its hardcore sellers were abandoning the site’s in-house payments tool, Payments by Billpoint, for PayPal, a growing start-up that allowed users to send money back and forth with ease, the auction giant decided to pay $1.5 billion to acquire PayPal and make it the default payment mode for all eBay auctions.

What followed was one of the most uneven marriages in tech history. PayPal grew and grew — providing 20, 30, 40, percent of eBay’s overall revenue — but with security breaches, losses to Amazon and other competitors, and a slow turnaround effort, eBay could never quite seem to keep up. Now eBay is spinning off PayPal into an independent company, finally admitting that the payments company may flourish more on its own.

The catalyst for eBay’s decision was a breakup campaign by activist investor Carl Icahn, who pressured the company to set PayPal free earlier this year. But Apple’s move onto PayPal’s turf seems to have accelerated the decision. Now that Apple Pay is poised to become the 800-pound gorilla of the digital-payments market, PayPal will need to sharpen its elbows and compete. It’s easier to do that without a parent company dragging you down.

The new, independent PayPal will be led by Dan Schulman, an American Express executive who once spent a day living as a homeless person. And as Re/Code notes, there’s no guarantee it will remain independent forever — the split “could also make PayPal a takeover target, with Google often brought up as a possible buyer.” After a decade in eBay’s arms, PayPal could find itself rebounding with a more stable partner.

PayPal and eBay Call It Quits