PayPal is one of the early success stories in mobile payments, with strong consumer adoption enabling it to process approximately $20 billion in mobile payments volume last year. However, more recently the focus and excitement around mobile payments has shifted to Apple Pay, near-field communications technology and Stripe, with PayPal appearing to lose some of its headwind as a result.

“PayPal has a bit of catching up to do on industry buzz; this void has been filled by Stripe recently,” said Sam Maule, management consultant at Carlisle & Gallagher Consulting Group, Charlotte, NC.

“PayPal has talent on staff; now the question is how fast can they iterate and pivot product wise,” he said. “Offline commerce is still the Achilles heel for PayPal.

“Can they pivot and make inroads in offline while continuing to innovate in online payments?”

Shifting winds
Earlier this year, activist investor Carl Icahn called for eBay and PayPal to split, something the company said at the time that it was not ready to do.

Several things changed in months since then to cause eBay’s leadership to decide in favor of breaking apart the company.

Mobile is a key part of the picture. While the expectation that mobile will play a significant role in payments going forward is not new, the market’s growth has been slower than expected over the past few.

However, with Apple’s announcement of its NFC-enabled payments scheme, this is driving a new flurry of activity in mobile payments as Apple is expected to be able to shore up a significant portion of the market while also spurring consumer adoption.

The challenge for PayPal will be that since it does not manufacture handsets, as Apple does, it does not have the same access to NFC chipsets.

“PayPal’s acquisition of Venmo is positioning the company well when it comes to P2P-based mobile initiated transactions,” said Drew Sievers, former CEO at mFoundry and now founding partner at fintech investor Operative Capital.

“However, PayPal will face challenges when pushing to expand into the new world of retail NFC since they won’t have unfettered access to the chipset like Apple,” he said.

Independence day
For PayPal, operating as an independent company could help it better compete in this space if it is able to refocus on innovating payments.

Dan Schulman has been appointed president of PayPal and CEO-designee of the standalone PayPal company following separation. Mr. Schulman joins PayPal from American Express, where he was president of the company’s Enterprise Growth Group.

Devin Wenig, currently president of eBay Marketplaces, will become CEO of the new eBay company.

“The move today allows both eBay and PayPal to focus on their core business models,” Mr. Maule said. “PayPal’s new CEO has a strong background and successful track record in alternative payments and mobile strategy; combine this with the brain trust PayPal has from Braintree and you have a strong area of focus for PayPal.”

Another reason the spin off could benefit PayPal is that while in the past, most of PayPal’s transactional volume occurred through eBay, increasingly this is no longer the case.

For example, last year PayPal acquired Braintree, enabling it to handle mobile payments for popular app-based companies such as Uber, the car-ride sharing service, and Airbnb, the room rental service.

“As a global leader in payments, PayPal has outgrown eBay:  PayPal has 80 percent penetration on eBay, but eBay is a rapidly decreasing share of PayPal transactions – eBay is currently 30 percent of PayPal’s volume and expected to fall quickly to just 15 percent (down from 50% just a few years ago),” said Denée Carrington, senior analyst at Forrester Research, Cambridge, MA.

“PayPal needs speed and flexibility to effectively defend and grow its business without worrying about whether it is helping a competitor to eBay,” she said.

Key partnerships
Not only is eBay’s share of PayPal transactions shrinking, but increasingly eBay is also standing in the way of the payment company making necessary partnerships.

Partnerships are critical in the complex mobile payments space. For example, getting retailers to embrace a payment system can help spur adoption. However, because PayPal has been intricately linked with eBay, a merchant that some retailers view as a competitor, the company has been hampered here.

“Partnerships will be critical for PayPal moving forward, and without the connections to eBay, those partnerships might be more forthcoming,” Mr. Sievers said.

“Losing the link to eBay should allow PayPal to accelerate and grow their business even faster,” he said. “EBay, on the other hand, may struggle a bit since PayPal was one of the brightest spots in the eBay business.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York