PayPal Doesn’t Need eBay. No, Really.

April 29, 2019|Posted in: Uncategorized

I may be putting too much thought into something no one else cares about—it’s certainly happened before—but my intuition tells me that PayPal is in for a much rougher future than it’s letting on. The company would like us to believe that they are in great shape going forward. In fact, they’re saying it SO often and SO loudly that, well, as ol’ Willie once wrote, “The lady doth protest too much, methinks.”

See, PP is making all this noise about future profits for a reason: their exclusive contract with eBay expires in 2020, leading to a loss of BILLIONS of dollars in processing fees that eBay will start collecting instead—roughly 10% of PayPal’s current payment volume. PayPal claims that this will be offset by the increased number of merchants signing on. More merchants mean more customers using the service, which pressures more merchants to sign up, which creates more customers, ad snowballum. It is possible, of course.

The thing I don’t think people are taking into consideration is just how many people have PayPal accounts only because of eBay. PayPal’s rosy scenario appears to be based on the idea that tons of people have PayPal accounts that they absolutely love and use to make purchases everywhere…including, incidentally, eBay.

I’m not sure that’s really the case.

In my research, in talking to people, in my own experience—OK, mostly in my own experience, but still—what I see is people using PayPal mainly because they use eBay, and eBay has been completely geared to favor PayPal over other payment options. Consumers use PayPal on other sites, not because they think PayPal is wonderful (even a casual online search will reveal plenty of PayPal detractors), but simply because they currently have a balance in PayPal. Or maybe because they’re already signed in. Or—and this is the big one—perhaps because their PayPal accounts are already linked to their respective eBay accounts: one click, no sign-in, you’re done.

To my understanding, that won’t be the case post-2020; in fact, it may not even be possible. Which means, honestly, that a lot of people just won’t have a reason to maintain a PayPal account.

Think about it: what does PayPal offer the consumer? Secure online transactions and an intuitive user interface.

Big deal.

WePay offers that. So does 2CheckOut. Google Pay offers the same thing, tied to its vast network of other interconnected products. Ditto Amazon. Authorize.Net is backed by Visa. Intuit lets you connect your account directly to QuickBooks. And so on.

Security is a toss-up: none of PayPal’s inherent security protocols are going to be any more effective than just using a credit card with a virtual account number. Besides which, as I constantly preach, any computer program can be hacked: PayPal has already had to deal with a massive data breach of personal information. To be fair, that wasn’t entirely their fault…but that doesn’t negate my point.

And what is my point? Simply this: by losing eBay, PayPal is losing its unique selling position. They could have a trick up their sleeve, but as of right now, I see no significant reason to sign up with PayPal over any other similar service, post-2020.

Sure, momentum will keep them going, but only for so long. If you primarily purchase from Amazon and use Amazon Pay on a regular basis, why on earth would you bother with a PayPal account as well? Up until now, the reason has been clear: eBay doesn’t accept Amazon Pay, due to it’s exclusive contract with PayPal.

After that contract expires, however, it’s a whole new ball game: if eBay chooses to accept Amazon Pay—and I see no reason why it wouldn’t—well, suddenly the momentum is all on Amazon’s side. Consumers are way more likely to just opt for the method they’re accustomed to using for everything else…meaning that unless PayPal somehow can build itself a better mousetrap, they’re going to start losing relevance quickly.

And what would that better mousetrap look like? My first thought would be embracing blockchain technology, something eBay itself already appears to be doing. However, since all indicators suggest that blockchain is posed to become the new normal, PayPal can’t count on that for differentiation, at least not for long. Same thing with mobile payments: PayPal has got a jump on a lot of others at the moment, but how long can that last?

In fact, that will be a problem across the board, as far as I can tell: at it’s core, the financial payments industry serves a pretty basic function. It’s going to be hard for any player to come up with a new way—let alone a sustainable way—to separate themselves from the pack. Coke or Pepsi? Home Depot or Lowes? Honda or Toyota? When all the options cover the same basic territory, it comes down to whatever works best for each consumer.

None of which means PayPal is going to go away any time soon. But it does mean those binoculars they’re using to view the future are a bit too rose-colored to for me to trust.