Soon a Spinout, PayPal Faces Threats From Stripe, Big Mobile Players

PayPal was a startup trailblazer of online payments back when it was acquired by eBay in 2002. Now the digital payments giant is slated to operate again as an independent company next year under a spinoff plan eBay announced Tuesday. But after a dozen years under the eBay umbrella, the new PayPal will emerge into a complex, intensely competitive landscape where companies that followed in its footsteps are hell-bent on divvying up its market.

Among those upstart competitors is San Francisco-based Stripe, which just got a boost from one of its largest outside investors. Venture capital firm General Catalyst Partners announced it would invest $10 million in seed-stage companies that create new applications to expand the value of Stripe to its users, such as online merchants. (Stripe is also backed by the likes of Peter Thiel, Elon Musk, and Sequoia Capital.)

That’s not a huge amount of money, but it speaks to the opportunity investors see around new payment systems, especially for purchases using mobile devices. General Catalyst has already committed $500,000 from the $10 million fund to startup Baremetrics, which analyzes customer data for Stripe users including sellers of software as a service. General Catalyst managing partner Hemant Taneja (pictured above) says the venture firm is trying to spur the formation of an app ecosystem around Stripe that will help online vendors operate through mobile devices, capture and analyze useful data, and integrate with other platforms such as Twitter. For the apps it powers, Stripe supports Alipay, an online payment method widely used in China, and will support Apple Pay, Apple’s new mobile payment feature premiering this month.

“Technology is completely disrupting the payment space,” says Taneja, who sees PayPal as a “legacy company.” He adds, “PayPal has the same challenge any big company has in trying to fight with a group of faster-moving, nimble competitors.”

As much as its young rivals might see PayPal as an aging Rip Van Winkle waking up to a changed era, PayPal hasn’t been standing still during its years under the eBay mantle.

Parent company eBay summarized PayPal’s strengths—including more than $7 billion in revenue over the last 12 months—as it announced plans to separate the two companies for strategic reasons. According to eBay, one out of every six dollars spent online passes through PayPal, whose payments volume increased by 26 percent to $203 billion over the last 12 months.

To help PayPal adapt for purchases through mobile devices, eBay in 2013 acquired Braintree, a member of the rising class of digital payment startups. PayPal facilitated mobile payments worth $27 billion in 2013, eBay reported.

However, eBay decided that the companies would be stronger as separate firms, because their best strategic moves were diverging as both the e-commerce and digital payments industries evolved.

Jeremy Allaire, CEO of Bitcoin startup Circle, said the long-anticipated split between eBay and PayPal … Next Page »

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Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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