As eBay paves the way for PayPal to become an independent entity, the two companies have agreed to stay in their respective lines of business after the split in order to avoid directly competing with each other. The agreement is said to continue five years after the companies part ways.
eBay will continue to process the same number of transactions through PayPal. In turn, PayPal will continue to charge merchants on eBay lower rates, which will remain "largely consistent with today's pricing relationship," the groups say.
The online retail company will channel 80 percent of its online gross merchandise sales through PayPal. Both companies will pay each other a commission if the marketplace sales percentage rises or falls above the mark.
Following its scheduled separation from eBay later this year, PayPal will be given freedom to deal with other marketplaces and online retailers, such as Alibaba and Amazon.com.
However, the agreement forbids PayPal from establishing its own online retail division and prohibits eBay from building its own electronic payment platform until after five years. This serves as a stipulation in case PayPal is acquired by one of eBay's e-commerce rivals. If this happens, eBay would give PayPal advanced notice before establishing its own electronic payments division.
In a regulatory filing, PayPal remains confident of its standing in the payments industry.
"We have significant global reach, processing transactions in more than 200 markets, allowing our customers to receive payments in more than 100 currencies, withdraw funds to their bank accounts in 57 currencies and hold balances in their PayPal accounts in 26 currencies," said Daniel Schulman, President and CEO-Designee of PayPal. "We are a leader in mobile payments and processed nearly 1 billion mobile transactions in 2014 for our customers."
Analysts predict that once the split is made official, PayPal could be valued at $40 billion.
eBay made the decision to spin off PayPal six months ago, after receiving pressure from activist investor Carl Icahn. Market experts view the split as a way to give PayPal its own shareholder value.
After it was acquired by eBay in 2002, PayPal quickly rose to prominence in the e-commerce world. The electronic payments company has grown faster than its online marketplace partner in what is widely regarded as one of the most successful mergers in the history of Silicon Valley.
Photo: Kārlis Dambrāns | Flickr