eBay’s Payments segment includes core payments brand PayPal, and consumer credit business, Bill Me Later. The majority of Payments revenue comes from a take rate on the net TPV or total dollar volume of payments that eBay enables. eBay’s objective for the Payments segment is to become the digital wallet of choice for consumers and merchants to pay and get paid virtually anywhere, anytime, and on any Internet connected device, whether they are online or in the physical world.
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PayPal, which was acquired by eBay in 2002 for $1.5 billion, is eBay’s fastest growing business, with 5.2 million active registered accounts in the quarter and ended 2013 with 143 million users, a 16% increase.
PayPal saw revenue up 19% in 4Q 2013, outpacing 12% sales growth at eBay’s marketplace unit. Revenue increased 19% in both the quarter and the full year, resulting in $6.6 billion in 2013. PayPal’s net total payment volume (TPV) grew 25% in the quarter with 3 billion transactions generating $180 billion in net TPV for the full year. On-eBay payment volume, which accounts transaction on Marketplaces, grew 14% in both the quarter and for the full year, producing $54 billion in net TPV for the year. Merchant Services net TPV increased 31% in the quarter and 29% for the full year, resulting in $125 billion in net TPV for the year.
eBay reported that PayPal’s “take rate” was 3.53%, down 3.72% in the same quarter last year. PayPal’s transaction expense declined to 0.97% while the loss rate increased slightly to 0.32% sequentially. The company has previously attributed the reduction in take rate to high-volume users.
eBay’s struggles with improving marketplace revenues have led to calls for a spin off of the PayPal unit, which now accounts for 41% of eBay’s revenue. Last month, billionaire activist investor Carl Icahn proposed a separation of PayPal into a separate company, but eBay rejected the proposal. According to Susquehanna Financial Group analyst’s note, eBay’s mainstay marketplace unit “is a material and high margin driver of PayPal growth, bringing new users to PayPal with essentially zero customer acquisition cost.” Most analysts agreed that a spin off was unlikely.
For more on this, please read Carl Icahn opens an eBay position and proposes a PayPal spinoff.
PayPal’s technology platform supports growth with a variety of value-added services. This is designed to help businesses of all sizes manage their cash flow, invoice clients and pay bills, and to reduce the need for merchants to receive and store sensitive customer financial information, enabling Payment Card Industry or PCI, compliant transactions. PayPal does not charge merchants any setup fees and offers a standard service with no recurring monthly fees.
With the growth of Internet-enabled mobile devices, PayPal is a popular payment service for mobile commerce. In 2013, PayPal’s net TPV for transactions using mobile devices exceeded $27 billion, of which approximately 50% was from eBay Marketplaces. To expand PayPal’s availability as a payment option in physical stores, PayPal has entered into a partnership with Discover in the U.S., as well as similar relationships with merchant acquirers and ePOS (electronic point of sale) providers in the U.S. and Europe.
These businesses have seen lawsuits in relation to consumer protection laws and regulations. In May 2010, a lawsuit was filed against Bill Me Later, PayPal, and eBay in California state court, alleging that in its relationship with the chartered financial institution Bill Me Later is acting as the true lender to customers and violating various California laws, including the state’s usury law. eBay also stated that it is facing a probe by the Consumer Financial Protection Bureau (or CFPB) regarding aspects of PayPal’s Bill Me Later scheme.
To see the how the Internet affects the consumer’s life, see Must-know: Why is Cyber Monday such an opportunity for retail?