Inside eBay’s payments strategy
EBay, which has used PayPal for checkout since 2003, is working to bring its payments system in-house within two years.
The switch to what eBay calls “managed payments” is the result of eBay wanting to own the payments experience, controlling the customer relationship from product discovery to checkout, simplifying transactions and giving eBay more insight into customer behavior. It also drives revenue for eBay, which will bill sellers directly for payment processing as part of a bundle of seller fees. The company announced its plans to do this early last year, and has so far rolled out its payments service to a small number of sellers as a test last September. In the new arrangement, payments company Adyen will be the back-end service provider, but eBay will be making decisions on the front end and controlling how the transactions appear on buyers’ statements. It’s a data and relationship advantage that the company hopes will drive up transaction volume and attract more customers, especially those who may not use PayPal.
“It offers strategic flexibility into the future as commerce continues to evolve, and it ensures that eBay has the flexibility to continue to iterate and evolve our experiences by having control on the payment side,” said Alyssa Cutright, eBay’s vp of global payments.
Owning the payments relationship, Cutright explained, streamlines the checkout process for both sellers and buyers. Sellers only need to deal with one relationship instead of two (they currently need to have both eBay and PayPal accounts), and buyers can use whatever payment method they choose, including Apple Pay, which Cutright said wasn’t available through PayPal. Instead of going through PayPal’s platform, the checkout will take place within eBay. Managing payments gives eBay access to transaction data, exerting more control and minimizing risk on payment transactions, she added.
“[Now] if you’re buying a pair of shoes from a seller on eBay, you put in your Visa card and PayPal is making the decision [on authorizing the payment] — in the future that will be fully controlled by eBay,” said Cutright.
In its fourth-quarter 2018 earnings, eBay reported that it has enabled more than $140 million in general merchandise volume from over 3,500 active sellers in eBay’s payments trial. Since it launched the program, it said it saved sellers more than $1 million in payment-related costs, and it expects the savings will increase as the program scales. According to the company, at full roll-out in 2021, payments will be a $2 billion opportunity at scale.
In 2002, when eBay acquired PayPal, the bulk of PayPal’s business was reportedly through eBay auctions. eBay and PayPal split into two separate companies in 2015 and have since branched out into different areas: PayPal has grown its point-of-sale capabilities for smaller merchants in an effort to take on Square; meanwhile, eBay wants to use payments to improve customer experience and generate additional revenue from its marketplace. EBay also reports that payments directly through the platform will cost sellers less, but it didn’t give exact figures on the cost reductions.
EBay said it’s not offering additional data to sellers. The data from the payments platform supports better payment security, according to eBay. But outsourcing payments to a third party doesn’t make sense if eBay wants to grow the relationships with its sellers and, by extension, their customers. Any information eBay can acquire about its customers and how they pay is likely a big advantage for them, according to payments consultant David True, a partner at Paygility Advisors.
“Anybody in business right now wants to hold on to as much data as they can — data is king,” he said. “You have to be careful with all the concerns around privacy, but as a general rule, everybody wants to have more data, even if what you don’t know exactly what you’re doing to do with it and you have to handle it very carefully.”
In addition, by reducing the number of steps buyers need to go through during the checkout process, reducing the number of abandoned transactions is also a likely motivator.
“Any challenges that a consumer has within the buying process is going to stop them from completing the checkout process, and that has a detrimental effect on revenue — even a small percentage could have a significant implication for eBay’s revenue,” said Chris Hansen, chief operating officer at IgnitionOne.
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