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This is why eBay is dropping PayPal as their payments provider

Person using iPad after eBay drops PayPal

It is no secret at this point that eBay, one of the world’s largest online marketplaces, will be replacing PayPal as its main payments processing provider.  eBay had purchased PayPal back in 2002 and spun it off in 2015, but the two organisations had remained tightly linked, with PayPal continuing to process payments for eBay.  Now, this will change.

With the rapid growth and acceptance around the world of PayPal as a strong ecommerce payment option and PayPal being the preferred payment method for most customers who buy and sell on eBay, many may be wondering why eBay would do this.

There are several reasons why this move makes sense for the company, and they all come down to the three “Cs”:  customer (experience), control, and costs.

Customer Experience

While PayPal is convenient and used by many, ultimately customers want choice, and many want to be able to easily use their preferred local payment method.  And when customers can use the payment method they like and trust with ease, they tend to convert more.

By replacing PayPal with a customised payment service, eBay will be able to provide a smooth checkout process customised for the local habits of buyers in all markets in which it operates. That will be a significant improvement for eBay users who are coming from many different countries and, therefore, have different habits and expectations with regards to payments.

By taking ownership of the payment process, eBay will be better able to meet shoppers’ preferences and drive more business for the company as a result.

Control

As things currently stand, eBay users have to register with PayPal.  Once they do that, PayPal then allows customers to use their preferred local payment method – an extra step on the customers’ side.  The problem for eBay in this is that all of that happens on PayPal’s platform without the knowledge or control of eBay.

By integrating a payment process into its own checkout, eBay will be able to control the entire process and gain valuable intelligence on the buyer’s choices and preferences.  This insight, in turn, could prove highly valuable for eBay as it could be used to add or improve services for both buyers and sellers alike.  Customer data, including on their preferences and behaviours, presents a wealth of opportunity for eBay.

eBay logo

Control can extend even further, into eBay settling funds to sellers.  In our experience, we have heard a lot of discussion from retailers regarding issues with PayPal’s buyer protection and settlement process.  For example, as soon as a buyer disputes a purchase a retailer’s funds could be frozen for a very long period of time. I remember one of our customers who sells outdoor equipment complained about PayPal freezing all of their funds because it considered a Swiss army knife to be a weapon.  By moving away from PayPal, eBay will be able to shield their sellers from this kind of experience.

Taking control over dispute management is an opportunity for eBay to improve the service for sellers and buyers. However, the dispute management also points at new risks that eBay will assume responsibility for, as well. While PayPal provides protection from fraudulent transactions, eBay will have to ensure a proper risk management to balance seller and buyer protection itself. To be better than an experienced global payment expert like PayPal might prove to be much harder than some people think.

Costs

As you can see, there are obvious advantages to replacing PayPal with a comprehensive payment solution. Beyond enhancing the customer experience and likely winning more business and controlling the process so it can better serve not only itself but buyers and sellers alike, eBay will also be able to build a business model out of the payment process.

Since PayPal provides a global payment method it adds a lot of service and value which explains the high fees involved. The fees of local payment methods are typically much lower than PayPal’s. As a result, eBay will probably be able to provide lower payment fees to its sellers and still secure a margin for itself in the process given its large volume.

eBay’s Future

Replacing payment options is a normal process for international retailers. Now, implementing all the changes necessary will be a “multi-year journey” for eBay, as the company announced in its press release.

The first signs of the new checkout should appear in the U.S. during the second half of 2018, but it will take until 2021 until the new payment process should be in place – this will not be an easy task for the company.  It has a significant challenge ahead that will bind many resources for several years as the company notes in its own press release.

What About PayPal?

So we have discussed the benefits – and potential challenges – to eBay of making this change, but how will this impact PayPal in the grand scheme of things?  First, PayPal is not going away on eBay.  It will still be one of many other payment options available on the site even after the changes are in place.

In fact, many buyers might still prefer to use PayPal as it has emerged to be a very important payment method in ecommerce, right alongside Visa and MasterCard. For example, at Computop we can see PayPal processing a third of all payments in industries like fashion and shoes. Given that PayPal will still be a payment option available on eBay and that it is continuing to grow in online retail the future still looks bright for PayPal.

What Does This Mean for the Future of Payments?

PayPal’s expected bright future despite the shift at eBay shows us, among other things, that convenience and trust is still going to be key when it comes to retail payments.  Those payment brands that make things easy for customers and that they have confidence in will be the ones that help retailers win in the battle for conversions.  And those will include options like e-wallets from PayPal, AliPay, MasterPass and WeChat, as well as tried and true options like domestic credit cards.

Beyond those, we are starting to see evidence of the rising popularity of bank accounts for ecommerce payments due to the introduction of Faster Payments in the U.S. and UK and Instant Payments in Europe. These make it much faster, easier and more convenient for customers to send money from account to account.

Image of mouse click on pay online button

Source: Keybridge Web

Historically, in Europe, with 28 member states and just as many banking systems, it had been difficult, expensive and slow to transmit money between countries. However, with SEPA Instant Payments announced for 2018 it will be easy, fast and cost-effective to send money to any European account within 10 seconds, 365 days per year.

As shown, convenience appeals to shoppers’ wants and needs.  In the not-too-distant future, this will be reinforced with innovations in the retail space.  We will be living in a world where our devices will process payments for us, and virtual and augmented reality will present new sales channels.  We’re already seeing user names and passwords being replaced with biometric authentication like fingerprints, face and voice recognition for payments.  For e-commerce, we won’t have to type in complex passwords on small touch screens anymore.

Those payment options that support innovations like these and are easy, efficient and secure for shoppers will be the ones that will reign supreme moving forward. 

Conclusion

Retailers that offer payment options that take into account customer preferences, convenience and trust will be the winners.  To that end, the future looks promising for both eBay and PayPal, assuming eBay executes on this payments shift successfully.  As long as all parties keep shoppers and their desires top of mind, there is a bright light at the end of this long tunnel ahead.

 

By: Ralf Gladis, CEO, Computop

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