eBay is planning to split off its payments system PayPal into a separate company next year, amid claims they are holding each other back.
eBay said that after “a strategic review of the company’s growth strategies and structure” its board decided the two businesses would be better off going it alone.
The spin-off is to take place in the second half of 2015.
Of the two businesses, PayPal is growing more quickly, registering 19% revenue growth year-on-year. However, it still lags behind in overall revenue with eBay making $9.9bn a year compared to PayPal’s $7.2bn.
eBay bought PayPal in 2002 primarily to make payments on its auction site more trustworthy and quick for new customers, and it’s proven to be a huge success: even as new entrants into the payments space like Apple Pay emerge, PayPal is still adding another 20 million users a year as of 2013.
“eBay and PayPal are two great businesses with leading global positions in commerce and payments,” said eBay Inc. President and CEO John Donahoe. “For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value.
“However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively. The industry landscape is changing, and each business faces different competitive opportunities and challenges.
“eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets.”
Pre-market shares in eBay surged by 11% on news of the announcement on Tuesday.
The move comes nine months after investor activist Carl Icahn demanded a split of the two divisions.
Mobile payment technology is becoming an ultra-competitive sector and Apple recently announced an entry into the domain.
PayPal is currently available in 203 markets worldwide and expects to process one billion mobile payments this year.
Meanwhile, eBay relaunched itself some 18 months ago in an attempt to move away from being an online auction site for private sellers.
It has sought a rebranding as a global market place primarily for businesses using the ‘Buy It Now’ function.
Watch this video from Bloomberg explaining the deal here:
