EBay, PayPal to split into separate public companies

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EBay, PayPal to split into separate public companies

CNBC
David Faber 3 hrs ago


After spending much of this year explaining why its two businesses are best left together, eBay's (EBAY) board of directors and CEO did a complete about-face Tuesday morning, announcing a plan under which its PayPal and eBay marketplace businesses will be split into separately traded public companies by the middle of next year.

And CEO John Donahoe will step down as CEO of eBay once the split takes effect in 2015.
Donahoe began 2014 under pressure from activist investor Carl Icahn to split the company into its faster growing payments business, PayPal, and its legacy e-commerce marketplace, eBay. Donahoe and eBay's board successfully resisted those pleas in winning a proxy fight, but only months later during the company's annual strategic review, decided that a split in 2015 is now the right move to position each of those company's for the future.
"What the proxy fight forced was me to come out and articulate our plan of record, our position at that moment, and that's what I did," Donahoe told CNBC, "As we've continued our annual assessment, looking forward three to five years about how we can best position eBay and PayPal, we think the competitive position and the competitive environment of commerce and payments are going through accelerating change. That creates new sets of opportunities and challenges for both eBay and PayPal and (we believe) that operating independently will give eBay and PayPal focused strategic flexibility and an ability to move quickly and decisively in this changing environment."

While Donahoe has spent much of 2014 extolling the benefits that eBay and PayPal derive from being part of one company, he now says those benefits are in decline."When you look forward, eBay will be less than 15 percent of Paypal's business three years from now and we can achieve many of the benefits of the synergies through arms-length commercial relationships." Donahoe told CNBC.
Devin Wenig, currently president of eBay Marketplaces, will become CEO of the new eBay when the split becomes final. EBay also announced that it has hired Dan Schulman, currently the president of the Enterprise Growth Group at American Express (AXP), to take over as PayPal's president immediately. Schulman will become PayPal's CEO once the split from eBay is complete.

While Donahoe expects to become a board member of both companies, his decision to no longer run either of them is a surprise. Donahoe says that by the middle of 2015 when the split is expected to become official, it will be time for him to step aside.
"I had a good role model named Meg Whitman. When Meg was CEO of eBay, she said she was going to do it for a decade. And she stepped down eight years ago in her early 50s and created opportunity for me, for which I'm enormously grateful. Next year will be my 10th year at eBay and I'll be creating opportunity for two great leaders to become CEO," Donahoe told CNBC in an interview.
While eBay's 180 degree turn is sure to be seen by some as placating a restless shareholder base and avoiding what could have been another bruising proxy fight, Donahoe says that is simply not true. "Very consciously we didn't make a reactive decision in Q1 based on a short term event like a proxy fight because we have a long history of being thoughtful and deliberate of how do we set this business up to succeed over the long term. From the beginning, Pierre Omidyar, our founder, has a deep commitment to the long term. ... And this process has gone through what is the best way to help eBay and PayPal succeed over the long term. I feel confident this is the right direction and that's the reason we're pursuing it."

—By CNBC's David Faber

http://preview.msn.com/en-us/financ...eparate-public-companies/ar-BB6yjvb?src=mymsn
 

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Why PayPal’s Split From eBay Threatens 70 Million Americans


PayPal’s coming split from eBay potentially threatens eBay, Apple Pay, and all the ungainly legacy tech companies whose investors are now pushing them to break into pieces. But there’s also a large group of people for whom the PayPal-eBay breakup is bad news: anyone who hates banks, particularly the low-to-moderate income people the industry calls “underbanked.”

That’s a lot of people. Around 70 million Americans, or one in five U.S. households. They’re everyone from students and immigrants to entrepreneurs and business owners. They pay some $78 billion in fees every year to cash their paychecks, take out payday loans or to use debit cards. Some of these people hate banks on principal, or because of sneaky things like overdraft fees; some of them can’t qualify for bank accounts or traditional credit card loans; some of them need to send money to relatives in other countries or use other financial services that banks often don’t provide.

And these 70 million Americans just lost the attention of the executive who was making some of their non-bank financial services cheaper.

That would be Dan Schulman, the incoming chief executive of the independent PayPal. Until last week, he was a senior executive at American Express, where he was leading the credit card company’s strange but surprisingly effective campaign to develop better financial services for underbanked consumers.

Strange: American Express, the company that taught us to refer to credit cards like they’re high-end jewelry (“Platinum!” “Gold!” “Silver!”), has always been an unusual standard-bearer for economy-class financial services.

Surprisingly effective: Since Schulman arrived at Amex in 2010 to “create new fee-based revenue streams for the post-recession environment,” the company has helped drive down industry prices for things like “prepaid” cards, which are something between debit cards and bank-less checking accounts.

Those cards tend to be predatory and full of hidden fees for basic functions ($0.99 just to swipe the card? $1.25 to call a customer service representative? $3 for not using the card??) But those fees have gotten less egregious, and slightly cheaper, in the past couple of years, according to Pew Charitable Trusts—and it’s hard not to give American Express at least a little credit.

Schulman oversaw Amex’s unveiling of two prepaid cards, Bluebird and Serve, which even financial industry critics acknowledged were pretty good about reducing fees. In 2011, the New York Times’ Tara Siegel Bernard said Serve “appears to right many of the industry’s wrongs.” At Reuters, Felix Salmon called it “a huge improvement, from a consumer perspective, over any prepaid alternative,” and suggested that it might even have some advantages over checking accounts: “The Amex card is never going to surprise you with something nasty and unexpected in the way that checking accounts are prone to doing.”

That’s a lot of good press for a traditional financial services company that, after all, isn’t in the business of being altruistic. But now the man responsible for championing those cards at American Express—and by extension, bigger companies’ efforts to improve their financial products—has taken his cowboy boots and left the building.

The company says its efforts of the past four years can survive one executive’s departure. American Express is promoting Neal Sample, a former eBay executive whom Schulman hired in 2012, and spokeswoman Leah Gerstner told me that CEO Ken Chenault is still very committed to the “enterprise growth” unit: “There’s no change in mission. We’re still very focused on bringing products to market for those who are underserved.”

The problem is that Schulman was very much the face of that mission. It got him written up everywhere from the Harvard Business Review and Fast Company to the New York Times and American Banker. It sent him to South by Southwest this year, promoting American Express’s glossy Spent documentary about financial difficulties faced by the underbanked. It put Schulman front and center at a red-carpet June event for the film in New York, where he rubbed elbows with Spent narrator Tyler Perry.

People who have worked with the company told me this week that they’re not concerned about American Express immediately abandoning its products for lower-income people. But they are worried that without Schulman as a powerful champion, the marketing budget for those products may slowly slip away.

That might have happened anyway, since it was never clear how sustainable this business was for American Express. The company doesn’t break out numbers for its prepaid cards, which "suggests they don’t contribute meaningfully to the company’s bottom line," RBC Capital analyst Jason Arnold told Bloomberg.

But the marketing dollars were getting Amex something more ineffable, as they’re supposed to do: goodwill, and attention to the cause of "disruptive" financial services.

American Express is hardly alone in trying to disrupt financial services, of course. There are many bona fide startups, including IPO-planning Lending Club and OnDeck Capital, trying to figure out new (but not always cheaper) ways to lend to Americans. In the realm of big companies, Wal-Mart has been as prominent as—though less lauded than—American Express; last week the retailer unveiled its version of a basic bank account for low-income people.

And yes, Schulman’s move is probably good for PayPal, one of the earliest and most successful financial disrupters. But that company’s interest has traditionally tended to be more in payments—including mobile wallets of the sort that Apple Pay is taking on—than in lower-priced financial products.

It’s possible that Schulman could change that, although he’ll obviously have other initial priorities when he starts his new job. PayPal isn’t making Schulman available for interviews, and a spokeswoman declined to comment.

But that brings us back to the problem with financial services disruption, especially in terms of making cheaper, better products for Americans who don’t have much money to begin with. Those people aren't hugely lucrative customers.

So most businesses would, understandably, rather focus on selling you a better smartphone wallet than on building a better bank account for people who might not be able to afford the iPhone 6. It's just unfortunate that one of the most prominent financial executives focused on the latter is becoming one more in the crowd of people devoted to the former.
http://www.slate.com/blogs/moneybox...e_out_with_incoming_ceo_dan.html?wpsrc=fol_tw
 

calflu

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Apr 3, 2012
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Interesting read.

But PayPal has helped a lot of small and mid sized businesses online or offline to accept credit cards.

Without PayPal, they have to go thru rigid restrictions imposed by banks and some of them can never meet those standards b/c they are too small. So I do see the fit there and unbanked or underbanked folks aren't necessarily losing out!