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PayPal's Big Change: It Can Work With Amazon After eBay Split

Another change: eBay CEO John Donahoe will leave eBay's board for PayPal's after the spinoff.

Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

A lot will stay the same when eBay spins PayPal off into a separate public company later this year. But at least one big change is coming: PayPal will be free to work with other big shopping marketplaces owned by eBay competitors, such as Amazon and Alibaba, after the split.

That is one of the headline items in an operating agreement published today in an eBay regulatory filing, which eBay CEO John Donahoe briefed Re/code about on Wednesday. If Amazon or Alibaba were to want to work with PayPal, PayPal could do so, but would have to offer eBay the same rates it offers the competitors. Such tie-ups, however, would have the potential to dramatically increase PayPal’s revenue once it is independent.

Other changes to their working arrangement include PayPal paying eBay a referral fee each time it signs up a new user through eBay and eBay being able to work with other payment companies to process payments on its marketplace. That said, eBay will be penalized if the percentage of transaction volume on its global shopping platforms processed through PayPal drops below about 80 percent.

“You should continue to expect the kind of cooperation that’s been going on,” Donahoe said in an interview.

The two businesses will continue to share data around fraud, risk and customer service issues, but will not share data to be used for marketing purposes. PayPal will continue to allocate money and time in its product roadmap for eBay-specific projects. When it comes to competition, neither side can create a new business that competes with the other. That could only change if PayPal gets acquired by an eBay competitor, which would free eBay up after 18 months to create its own payments platform.

At the corporate level, Donahoe will leave eBay’s board and serve as the chairman of PayPal’s board of directors, as Re/code reported in December was likely to be the case. Donahoe confirmed that a big part of his thinking had to do with wanting to give eBay CEO-designee Devin Wenig the freedom to lead without looking over his shoulder at his old boss. PayPal CEO-designee Dan Schulman, on the other hand, is new to the company and may find Donahoe’s presence helpful, he said.

Longtime eBay board member Tom Tierney will replace eBay founder Pierre Omidyar as eBay chairman, while Omidyar will serve as a director on both boards after the spinoff. More details on board composition will come in the next month, the company said.

In September, eBay announced that it would spin PayPal off less than a year after investor agitator Carl Icahn publicly called on the San Jose-based e-commerce company to do just that. When Icahn first initiated his campaign for a split, Donahoe said the investor’s proposal flew in the face of industry trends. But by September, Donahoe had publicly changed his mind.

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