Ebay and PayPal Splitting. Why is This a Good Thing?

Ebay and PayPal have been together since 2002, when Ebay decided to acquire PayPal for $1.5 billion. At that moment both companies were heavy weights in their respective fields and growth was booming. Ebay struggled with a previous solution, called Billpoint, until deciding to give in and purchase PayPal.

eBay-and-PayPalSince then, both gained a lot from the other. Ebay benefited from PayPal’s ease of use and helped its customers send money to one another. This helped streamline and secure the purchase process, thus increasing transactions. PayPal, one the other hand, piggy backed on Ebay’s massive user base and international exposure. Its revenue increased by the year and in the second quarter of 2014, it amounted to 45% of Ebay Inc’s total revenue.

The fast growth of PayPal, as well the whole “payments revolution” potential lead Carl Icahn to propose a split between Ebay and PayPal this year. Icahn’s proposal / attack was then fended off by Ebay CEO John Donahoe and PayPal ex-leader David Marcus. Since february 2014, a lot of things happened. David Marcus left the company to join Facebook and biggest of the biggest, tech mammoth Apple launched the Apple Pay. What seemed like a closed case soon turned into a huge split between the companies.

Now – John Donahoe will still run Ebay Inc until the split is official. As of that moment he will step down as CEO and Ebay will be lead by Devin Wenig, now president of eBay Marketplaces. PayPal will split into a new company, directed by Dan Schulman, now president at American Express, Enterprise Growth Group.

PayPal benefits from Ebay Inc. spliting. The split means that PayPal will be able to roam free, grow and develop independently. On the other hand Ebay will be able to … well … do everything it was doing before. The marketplace division is not gaining much from the split. It loses a revenue stream, its shares will drop and it will have to find a new way to keep up with its growth in the future.

However PayPal needs independence to keep up with increasing competition in the omnichannel payments landscape. It needs to innovate, it has to connect online and offline and it has to do a bit better on mobile devices. The split will help the company evolve and here are three reasons why:

1. PayPal can mean more than just payments

Banking as we know is shifting from an old, rigid system to a new way of doing business. That means more than wiring money. It means deposits, it means financing, it means Peer 2 Peer Lending and more. Under Ebay, PayPal was bound to stick to payments and money transfers. Now that Ebay is no longer the umbrella that fosters PayPal innovation, we may soon see more financial goodies from PayPal.

2. PayPal should be more than an accessory to Ebay

Elon Musk explained best why Ebay should not hold PayPal back: “It doesn’t make sense that a global payment system is a subsidiary of an auction website… It’s as if Target owned Visa or something”.

The fact is PayPal outgrows Ebay. It can and should be a global financial company, a field that’s obviously larger than Ebay’s marketplaces can ever be.

3. PayPal could grow even faster as a separately traded company

It’s no secret that Ebay has already done what it could to help PayPal. Now it’s just living off PayPal’s growth. As a separately traded company PayPal can become a larger company, more attractive to investors, which in turn can help the company finance its expansion, growth and fight against Apple, Google, Amazon and even AliBaba.

But …

Carl Icahn is known as a corporate raider and maybe there’s more to this story than meets the eye. There is a possibility that he and others are just splitting the company to later organize a take over from companies such as Visa, MasterCard or one of the larger banks. What could be a profitable short-term strategy could hurt PayPal in the long run and kill one of the most promising financial companies in the world.

Home Depot discloses 56 million Credit Card Numbers lost in Security Breach

Home Depot, the largest home improvement retailer, has announced that 56 million credit card numbers have been compromised. In what is now known to be the biggest security breach in corporate history, Home Depot has been the target of an attack that lasted from April to September 2014.20140916_homedepot

Home Depot managed to beat the previous record, held by Target with 40 million compromised credit cards. As a result of Target’s security breach, the company laid off its CIO. Chairman, President and CEO Gregg Steinhafel then announced his resignation as a result of the security breach and previous unfortunate events, like losing $941 millions in a failed Canadian expansion.

Background

September 2nd: the same man that announced Target’s breach, Brian Krebs, announces a new security breach. This time on Home Depot. The same day, Home Depot starts digging through its POS systems and on the September 8th announces that indeed, a breach has happened.

Krebs reports that the same group of Russian and Ukrainian hackers that managed to steal Target’s data were responsible for the hack. The same day a new batch of credit cards shows up online. The batch’s code name: European Sanctions.

Implications

16 days later, Home Depot announced that it managed to clear all infected systems and has “has completed a major payment security project that provides enhanced encryption of payment data at point of sale”.

The company worked with security firms, banking partners and the Secret Service to find out as much as possible about the breach. Results show that hackers used custom built, never before seen malware. This was not the work of some isolated hackers group, acting on its own. A very well organized attack has been put in motion.

Home Depot has worked with banks to provide customer support to those in need. A small local bank, Dollar Bank, as well as larger banks such as JP Morgan Chase and Capital One, have started replacing credit cards.

Although Home Depot has not been hit by the market just as heavily as Target, one can still feel the tension looming over the retailer’s security actions. Consumers are more careful in how they use their credit cards and banks have jumped on board the Apple Pay system, which promises better security.

Is there a cyber war out there?

The fact that the same group of hackers seem to have been involved in attacking Target, as well as Home Depot points to a maybe. But then you have the Secret Service involved. You have an ex-Homeland Security contractor acting as CIO with Target. You have the FBI investigating whether Russia is behind the recent JP Morgan Chase cyber attack.

But most of all – you have Edward Snowden, defected to Russia with a few gigs of classified information on US cyber intelligence actions. Some of those actions may have included packing backdoors and security flaws into US digital infrastructure. Too bad.

Yes, there there probably is a cyber war going on and the US and Europe are extremely exposed. Retailers should pay a lot more attention to their security backbones and check each potential backdoor, should they not want to suffer the same unfortunate events Home Depot, Target and others have faced.

 

 

 

 

What does Apple Pay mean for Retailers?

Apple announced its newest products and everybody focused on the much awaited iWatch or the iPhone 6 and 6 Plus. The real news, however, both business-wise and from a consumer point of view is the launch of Apple Pay, an NFC (Near Field Communications) ready payment system. Simply put, Apple’s payment system allows customers to store credit card data on their iPhones and when the time comes, just tap to pay.

apple-paymentThe product launch was not unexpected. With the previous operating system launch, Apple packed several features that would allow for better mobile commerce. The iCloud Keychain was introduced to Safari in order to allow both faster logins to known websites as well as, in the future, a faster checkout.

With Apple Pay, the Cupertino company joins the omnichannel payment war as was predicted in this previous post. Google, Amazon, Ebay (through PayPal), AliBaba and even Facebook are trying to get a piece of the $15 trillion payments market. As banks and established financial institutions have failed to meet customer expectations in mobile payments, the gap between needs and available options will probably be filled by one of the tech titans.

Google tried its luck with the Google Wallet, Ebay’s PayPal is now crossing the bridge into offline teritorry and Facebook recruited Paypal’s former CEO David Marcus.  Marcus is the man that helped Paypal grow from $750 million in 2010 to $27 billion in 2013, so one can only assume Facebook is also serious about payments.

To help the product take off, Apple signed 220 000 merchants onboard its Apple Pay project. Among them: Mc Donald’s, Babies R Us, Macy’s, Staples, Sephora and of course, all Apple retail stores. The 220 k merchants are just 2.4% of the total 7 to 9 million merchants in the US but it is a great start given the fact that Apple has a habit on pulling seemingly impossible feats, starting with close to nothing.

For example the iTunes Store launched with not more than 200 000 songs and only Mac Users could move the purchased songs to their iPods By September 2012, it was home to more than 37 million songs, 700,000 apps, 190,000 TV episodes and 45,000 films. By February 2013, the iTunes store had sold more than 25 billion songs worldwide.

So yes, there is a pattern here and there is probably a whole lot of room for improvement in the payments area.

Apple Pay’s security

Although recent iCloud security issues clouded the product launch, the security behind the payment technology looks great. First of all it allows customers to save credit card data on their phone without exposing sensible details to potential hackers. It also features the Touch ID identification technique where users sign payments with their biometric input (the fingerprint).

The credit card information is not beemed online but rather stored in a special chip, on the iPhone, a hardware – software combination that Apple named Secure Element. When a transaction is processed, credit card details are not sent to Apple’s servers and the retailer can’t see the data. Instead, a proxy account number is issued that the retailers charges. Each transaction is secured by an unique security code that authenticates it. Apple has laid more layers of security then we came to expect and that should work just great. But take it with a pinch of salt because everything is secure untill it is not anymore.

The company states that it does not store transaction data regarding location, products purchased or the amount the customer has spent. That certainly leaves room to question why exactly would Apple choose not to store these valuable data. The answer lies with data from Bloomberg sources. According to these anonymous sources, Apple has partnered with banks in the system to receive a percentage from each transaction.

The banks involved are JP Morgan Chase & Co, Bank of America and Citigroup Inc. They agreed to integrate their cards into the system and alongside came three of the biggest card networks – Visa Inc., Mastercard Inc. And American Express Co.

So we have a great lineup for Apply Pay and although NFC payments where slow to take off, it seems that Apple’s incredible effort to bring every important player on board will be the push mobile payments needs right now.

As the company promissed it won’t charge users, merchants or developers, one of the biggest issues (the cost issue) seems to be out of the way. With customers using their mobiles more and more, retailers will be forced to adopt some form of omnichannel payment system.

How does Apple Pay benefit retailers?

Retailers and merchants in general receive several incentives to adopt NFC payment compliant technology.

First of all, the Apple Pay system allows a greater connectivity between online and offline sales channels. Customers can order products on the web store, in the brick and mortar stores or within a mobile app. The security and speed allow for greater ease of use.

The second big advantage is payment speed. By just tapping the phone, customers can pay within a 10 second timeframe, improving sales speed. This allows merchants to move customers through almost instantly.

Third big advantage Apple brings is an improvement in mobile purchases and payments. Although customers are so far browsing for products, they rather pay on the web store or order and pick up in a physical store. The biggest bottleneck is the mobile payment experience, one that is just awful for most retailers.

Famously Amazon has solved this issue with its One-Click Payments, where registered customers can use previously stored credit card data to move as fast as possible through the checkout process. Amazon’s patent sits at the heart of Apple’s payment system within iTunes, an extraordinarely usable example of mobile payments.

Actually that’s one of Apple’s strong points when implementing Apple Pay. The company will leverage almost 800 million iTunes accounts, most of them having their cards linked to the account. The magic of paying with a tap will now probably become mainstream.

Omnichannel Payments – Battle Between Giants

What comes to mind when you think digital payments? That would probably be PayPal. We all know Ebay subsidiary PayPal leads the game in digital Payments but now the game is set to change.

Paypal bets big on POS integration

Paypal bets big on POS integration

Although it does have the first mover advantage and has been going strong into omnichannel retail, PayPal is threatened by the largest tech companies in the world:

  1. First of all, company president David Marcus has resigned (or has been fired as rumor has it) to join Facebook. His mission – building a new type of … messaging tool. And by that I mean Facebook Payments.
  2. Google is pushing hard on its Google Wallet, a mobile bridge between online and offline sales. It is a fully NFC compatible payment system, which now accepts all major credit and debit cards, loyalty cards and discount cards. It also allows customers to save offers and buy using touch-to-pay systems.
  3. Everyone raved about the Amazon phone but the actual big news is … Amazon Payments. With over 200 million credit cards stored and the ability to pay with one click (for a very long time Amazon held the patent on that), Amazon is probably the biggest competitor to Ebay’s PayPal.
  4. Apple also has a huge database of credit cards stored on its server. It also has a massive database of customer options, customer history and a fully featured Keychain app built into Safari, ready to help customers do a quick checkout. Its wide device adoption allows it to become one of the most important players in the omnichannel payments area.
  5. Let’s not forget Ali Baba Group, the organization that controls over 84% of the fastest growing and biggest ecommerce market: China. AliPay is the group’s payment system, fully featured with the Yue Bao savings account. And now the company is set to have its IPO in the US.

Now this is the real Game of Thrones in the omnichannel world. Five tech monarchies are reaching for our wallets.

 

 

PayPal to Process More Offline Payments

Ebay subsidiary PayPal is dead serious about taking on a $10 trillion market: the Multichannel Payments Market. To do so it will have to prove its worthiness against older companies, especially in offline commerce.

Multichannel Payments

A steady increase in Ebay's Revenue. Biggest cash cow - PayPal, 41% of total revenue.

A steady increase in Ebay’s revenue. Biggest cash cow – PayPal, 41% of total revenue.

With more than 140 million registered users already, PayPal has the sweetest spot in the online payments today. Its acquisition of global payments company Braintree secured an additional 35 million registered users. As President David Marcus puts it – this is a part of an effort to redefine money and payments into what he calls “Money 3.0″ – a new way of looking at payments and how customers use them.

PayPal owner-company Ebay is at the front of what some would call a commerce revolution led by technology. Its three main branches (The Marketplaces, Ebay Enterprise and PayPal) all work together in this changing landscape.

The Marketplaces (including Ebay.com, Shopping.com and Rent.com) enable C2C Commerce, while Ebay Enterprise caters end-to-end multichannel commerce technology. Ebay Enterprise is the tech, operational management and marketing vendor for the likes of Toys’R’Us, Radioshack, Sony ant many others.

Between these two, the payment processing subsidiary PayPal leads the way in online payments. The company is Ebay’s most promising subsidiary, growing at 20% in 2013. As of 2011, it decided to go offline, allowing customers to handle their money, cards and PayPal wallets in one place.

POS solutions

paypalofflineTo increase offline usage, PayPal now offers point-of-sale solutions, mostly targeted at the new tablet-based counters. Store owners can easily implement its apps and start charging right away.

In an effort to increase adoption, PayPal started integration with third-party store management solutions such as ShopKeep POS, Booker, or Leapset.

Among its benefits for store-owners, Paypal lists security, quick implementation and an all-in-one approach to accepting payments, scanning barcodes, tracking inventory and sending invoices.

Customers willing to take their PayPal Wallet to an offline store account can pay by swiping their PayPal paycard, using their account or by paying online and picking up in store. Having a larger pool of companies accepting PayPal payments allows the company to securely handle all transactions, allow customers to receive loyalty points and handle all personal information.

Ebay and PayPal will stick together

paypal-growthSince Ebay purchased PayPal, both companies listed a successful increase in revenue. Ebay powered PayPal’s adoption to its marketplace users and in turn PayPal grew up to become one of Ebay’s most profitable subsidiaries, amounting to 41% of total revenue in 2013.

With the help from Ebay, PayPal grew from $600 million in mobile payments to $27 billion in just three years. The figures are posted on the 2014 annual shareholder meeting website, in response to Carl Icahn’s demand to spin PayPal off into a separate company.

Carl Icahn, one of the most notorious corporate raiders in the tech industry, demanded PayPal to be split into a separate company and become listed on its on. The board of directors fought his demands showing that even though the company is open to changes in the future, right now the two are working better together.

Luck would have it that shareholders reached an agreement to keep the companies together and handle the incoming commerce revolution as a whole.

“[...] we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.”

John Donahue, Ebay CEO. Source.

 

AliBaba decides to take its IPO to the US. Is it taking on Amazon and Ebay? Not just yet.

In terms of global Ecommerce, this was a very interesting day. The Chinese wonder, Alibaba Group Holding, has decided to take its IPO to the States. The company, founded by ex-english teacher Jack Ma in 1999, is now on track to extend its influence outside China.

Jack Ma - founder of Alibaba.com

Jack Ma – founder of Alibaba.com

The company started as a way to connect Chinese manufacturers to the western buyers. It than evolved a B2C and C2C approach, an online payment solution (AliPay) and even an investment fund, Yu’e Bao.

The company’s growth has been mostly fueled by its B2B division, one very important gateway to China’s manufacturers, and its connection to Yahoo. The american company, although not in its best year, was lucky (wise?) to invest in AliBaba, when it was just starting. Although the group has been buying back Yahoo’s stocks, it is still largely (24%) owned by Yahoo.

Given AliBaba’s growth, Yahoo’s stocks have been bumped up. Some analysts suggest that 21$ out of Yahoo’s 37$ stock price come from AliBaba. The future looks great for both Yahoo’s stocks and AliBaba. In the IPO the Chinese company is expected to raise $15 billion, at a valuation north of $140 billion.

Is AliBaba ready to take on Amazon and Ebay?

The answer is … probably not. This might not be its target. As mentioned in an announcement on the corporate blog, AliBaba initially intended to be listed on the Hong Kong exchange. Its management structure, however, would not have the same influence in the case of a Hong Kong listing. Senior management, owners of 10% of the company are not willing to bend to Hong Kong’s rules and have thus decided to switch markets.

“We wish to thank those in Hong Kong who have supported Alibaba Group.  We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.” – Source

Even though the company says it wants a global approach and a more transparent communication to the market, its senior executives still want the full control.

AliBaba needs two things right now: cash and popularity. It needs cash to keep up with its historic growth, as China’s economic growth is slowing down. It is still based in China, its main assets are Chinese manufacturers and it is China where AliBaba controls 80% of ecommerce. But Jack Ma was wise enough to share its company’s growth with Yahoo, which was a bless in terms of global reach and brand awareness. The company now needs to go a little further. The global media has its eyes on the New York stock exchange and AliBaba needs to show it is more than just another Chinese company.

It doesn’t matter that the company is already listing a tenfold increase in B2B transactions or the fact that the Chinese ecommerce market will reach$655 billion by 2020 . The spotlight is somewhere else. And AliBaba needs to be there.

The P2P (Peer to Peer) Banking Revolution. Can The Big Online Retailers Take on Banks?

Banks are one of those things people take for granted, whether they understand them or not . Their systems and inner workings are unknown to most of their customers. Their influence has, to some extent,  shaped the modern world. Strength, rigidity and, until recently, stability have been the common attributes for banks.

Change rarely, if ever, happens in the banking sector. When it does, it’s usually for the worse. Recently, however, something seems to have been shaking its very foundation: the evolution of electronic markets and peer to peer cooperation.

Commerce has been liberalized by the likes of eBay, Amazon and AliBaba. These companies are responsible for shortening the supply chain from manufacturer to the end consumers. As recent developments show, the banking sector is next. Who knows, maybe the companies that changed retail will also be those able to change banking.

Lending for the People: Top Peer to Peer Banks

Although just recently launched, some new companies have been taking the banking world by storm. These companies match lenders and borrowers, through a common marketplace platform, usually using auctions.

225px-Zopo-logoZopa, UK’s leading P2P lending company, offers a 5% return to lenders and charges 5,6% on personal loans. Apparently it works great as overall acceptance has been steadily rising. In the past 6 months alone the company has lend 100 million pounds, 25% of the total lend since it was founded in 2005.

Among the things responsible for a growth in P2P lending acceptance was the fact that traditional banks’ risk aversion that slowed lending to a halt. Savers have also been ignored by banks so they had no other choice but to turn to new methods of growing their savings. “UK savers seem to have been forgotten by the banking establishment, so it is not surprising more people are giving Zopa a try”, says Giles Andrews, CEO of Zopa.

isepankur-logoIt’s not just the UK or the western world that seems to have an appetite for P2P lending. IsePankur, an Estonian based P2P banking startup, has just added lending options to investors outside Estonia. The company was accepted quickly as an reliable financial player and now it lends money to 60 000 people. Although it tackled the  acceptance issue, it still has to deal with higher risks than UK-based Zopa. It manages this issue with the help of a high return on investments (aprox. 22%) that seems to be enough for everyone willing to lend against a default rate of 3%.

Source: Wiseclerk

Source: Wiseclerk

lending-club-logoGoogle itself is pretty interested in the P2P area as it purchased a share of Lending Club, valuating it at $1.55 billion. The company, based in San Francisco, is boastful about providing loans in 43 states and earning its investors more than $300 mil so far.

Lending Club was founded in 2007, 2 years after Zopa, by Renaud Laplanche and it has lend more than $2 billions in 2013.

lending club

Usual destinations for loans contracted on Lending Club

Deposits are also being disrupted. AliBabab.com shows a growth rate of 1211%

AliBaba.com, China’s main digital company, the biggest online retailer in the world has joined the banking digital revolution. It has recently launched the Yu’e Bao (“Remnant treasure”) fund , that allows its customers to capitalize on AliPay’s growth by depositing money in this fund.

Customers will use money parked in their accounts. Their funds can thus increase with the company’s development. Although it is taking on some of the largest and richest banks in the world, it shows an outlandish growth rate. “Yu’E Bao fund reached 4.24 billion yuan (USD 693 million) in Q2 2013, growing by 1211.33% in Q3″ it is reported.