Why eBay changed course with PayPal: Control, data, cost and user experience
By Ralf Gladis, CEO, Computop
The news of e-commerce behemoth eBay turning away from PayPal as its main payments processor has been widely reported. But why did eBay do this? Let's take a look at some of the reasons.
By replacing PayPal with a customized payment service eBay will gain more control of its checkout process. As such, eBay will be able to provide a smooth checkout process customized for the local habits of buyers in each and every market in which it operates. That will be a huge improvement for eBay users who are coming from many different countries and, therefore, have different habits and expectations with regards to payments.
Right now, eBay users have to register with PayPal first. After that, PayPal enables consumers to use their preferred local payment method; however, all of that happens on PayPal's platform without the knowledge or control of eBay. By integrating a payment process in its own checkout eBay will gain valuable intelligence and control of the buyer's choices.
One aspect of this new control for eBay might be about settling funds to sellers. At Computop we hear fair comments on PayPal coming from retailers regarding buyer protection: as soon as a buyer disputes a purchase the merchant's funds might be frozen for a very long period of time. For instance, I remember one of our customers who is a merchant for outdoor equipment complained about PayPal freezing all of their funds because it considered a Swiss knife to be a weapon. In the future 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, too. 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.
A second reason to replace PayPal might well be data and knowledge. By taking control of the payment process eBay will also learn more about buyers and their preferences. Knowledge and data about consumers, their preferences and their behavior is the currency of our times. That might prove to be a new goldmine for eBay that could be used to add or improve services to buyers as well as sellers. Being able to provide even more data and insights into customer behavior will be much appreciated by sellers.
Cost and user experience
Last but not least there are obvious advantages to replace PayPal with a full-blown payment solution. There is no doubt that many local consumers from different countries love to use their preferred local payment method. As every retailer knows this always translates into much better conversion rates. Taking ownership of the payment process enables eBay to better provide this.
Beyond enhancing the customer experience and winning more business eBay will be able to build a business model out of the payment process. The fees of local payment methods are typically much lower than PayPal's. Given that PayPal provides a global payment method it adds a lot of service and value which explains higher fees. However, 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.
What does this all mean for PayPal? First, PayPal will still be one of many other payment options on eBay even after the changes are in place. Many buyers might still prefer to use PayPal. And during the last 11 years PayPal has emerged to be a very important payment method in e-commerce, right next to Visa and MasterCard. At Computop we can see PayPal processing a third of all payments in industries like fashion and shoes, for example. Given that PayPal will still be a payment option on eBay and it's growing in online retail there is no reason to doubt PayPal's bright future.
For eBay, implementing all the changes necessary will be a "multi-year journey," as the company announced in its press release. The first signs of eBay's 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 – it's not an easy task.
Replacing payment options is a normal process for international retailers. In fact, it is my belief that eBay relied much too long on PayPal. The company has a significant challenge ahead that will bind many resources for several years as the company notes in its own press release. For the sake of its customers, I hope eBay will get it right.