What to Expect from a Newly Independent PayPal

Navigator Edition: July 2015
By: Jeff Crawford and Laura Levy

On July 20th, PayPal and eBay officially separated, a result of shareholder activism, PayPal’s robust growth, a hot IPO market, and enthusiasm over the prospects for mobile payments. PayPal’s market cap reached a high of $52 billion on the day of the split.

Prior to the separation, PayPal made several strategic acquisitions positioning it for further growth. In April, PayPal acquired Paydiant, adding white label mobile wallet development and ecommerce security capabilities. On July 1st, it acquired Xoom, an international remittance company using online and mobile platforms. The addition of Xoom’s technology will allow PayPal to play a larger role in the global P2P marketplace. With Xoom’s presence in 37 countries, PayPal will be able to better tap into emerging economies, most notably India, China, Brazil, Mexico, and the Philippines.

Both acquisitions support PayPal’s long-term merchant and consumer expansion goals. PayPal is working to increase merchant acceptance, both online and at the point of sale. According to PayPal’s Chief Product Officer, Hill Ferguson, the Paydiant acquisition allows PayPal to give merchants “the right tools to integrate payment experiences into their environment.” PayPal Here—its mPOS product that competes with Square and Clover and now supports NFC payments—is aimed at increasing the number of small merchants using the PayPal platform. As more merchants accept PayPal, the company expects to see consumers use PayPal more frequently—two to three times a week instead of one to two times a month. To encourage consumers to use PayPal regularly, the company will build on wallet and P2P capabilities and scale to make—in Ferguson’s words—“…the most open digital wallet on the market.”

In the short term PayPal will likely pursue several strategic initiatives:

  • More Acquisitions: As indicated by CEO Dan Schulman, “The balance sheet affords [PayPal] the opportunity to look opportunistically where it makes sense to acquire.” (Recent financial statements show PayPal to have about $6 billion in cash, prior to its $890 million Xoom acquisition).
  • Expanded Digital Payments Activities: We expect to see PayPal continue to make an aggressive push into mobile payments, perhaps enhancing the speed and security of its Express Checkout by offering biometric authentication similar to Apple Pay.
  • New Products and Services: PayPal may capitalize on its reputation as a secure and safe payments provider and work to “tokenize” its existing payment gateway service for merchants.
  • Partnerships and New Business Models: PayPal may become a provider of white label digital payment services for merchants and issuers alike, e.g., building the CurrentC wallet for MCX. This approach would clearly differentiate its offering from branded products such as Apple Pay and Samsung Pay.

These activities appear to be a natural strategy given the company’s new independence, robust balance sheet, and the added capabilities from its recent acquisitions. Incumbent providers of digital payment services should expect increased competitive pressure from PayPal in the coming months.

Source: FierceFinanceIT, “Weeks Ahead of Independence, Paypal’s Acquisition of Xoom Hints at Future Strategy,” 07/7/2015; Hill Ferguson, “Why PayPal Is Buying Mobile-Payment Startup Paydiant, Bloomberg (; PayPal, San Francisco Chronicle, “EBay, PayPal Outline Plans for After Split,” 07/16/2015 (updated 07/20/2015); Siliconbeat, “PayPal Shares Soar After eBay Split,” 07/20/2015.

For more information, please contact Jeff Crawford, Manager,; or Laura Levy, Analyst, Both specialize in Debit and Prepaid.

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