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eBay takes control over online payments by ditching PayPal

Dutch fintech Adyen will become eBay's primary payments processor as the online marketplace looks to move its payments intermediary service in-house.

eBay will take more control over customer payments from its long-standing partner PayPal, in a move that analysts say will help the former better compete with Amazon.

Dutch fintech company Adyen will become eBay's primary payments processor after the current PayPal deal expires in mid-2020, as eBay looks to bring more transactions to its in-house Marketplace platform.

"Moving away from PayPal, lowering the costs of selling products on the marketplace, makes eBay a more significant competitor because it lowers the relative cost versus others including Amazon," said DA Davidson & Co analyst Tom Forte.

Forte added that despite the decision there would "always be a place for PayPal on eBay", but it will just be less prominent. PayPal CEO Dan Schulman had said that the company had signed an agreement to make PayPal available as a way to pay on eBay until June 2023, suggesting it may remain a way to pay on the marketplace until then.

eBay's stock climbed 15 percent on Thursday, recording its biggest one-day gain since 1998, the year of its market debut. The company said it would add $500 million to operating profit after the PayPal deals expires.

PayPal, meanwhile, saw shares sink more than 8 percent on Thursday as a result of the announcement, although PayPal may be able to fill the hold created by eBay through its strong growth rate, according to BTIG analyst Mark Palmer.

PayPal has been eBay's preferred provider for the past 15 years, and transactions through eBay account for about 13 percent of total payments processed by PayPal.

On Wednesday, PayPal reported a strong Q4 net income of $620 million and non-GAAP earnings of 55 cents per share on revenue of $3.71 billion, up 24 percent year over year.

It said it grew its active account base by 8.7 million during the quarter, ending with 227 million active customer accounts. It also processed $131 billion in total payment volume during the quarter, and 33.6 payment transactions for each active account.

eBay reported revenue of $9.6 billion, up 7 percent compared to 2016, and earnings of $2.00 per share.

"Q4 was a record quarter for eBay, representing the fifth quarter in a row of volume acceleration in our US Marketplace," said Devin Wenig, President and CEO of eBay Inc. "We have made great progress transforming eBay while delivering meaningful growth and we expect further acceleration in 2018 as we continue to execute our strategy."

PayPal was acquired by eBay in July 2002 for $1.5 billion, and later spun off in 2015.

At the time, Schulman said that PayPal has been able to invest in technology due to the spin-off, giving it "the opportunity to invest in our infrastructure setting up state-of-the-art networks and data centers to give PayPal a competitive edge".

The split came alongside public criticism from shareholder and prominent financier Carl Icahn, who believed it would generate the most potential revenue and value.

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