Keith Robois, former PayPal VP

eBay Inc.’s announcement yesterday that it will spin off PayPal into a separate business in 2015 may position PayPal to more effectively respond to growing competition in the online payments market. PayPal faces rivals from the likes of Google Inc.’s Google Wallet, Square Inc. and Skrill Ltd. to name few of the more established players.

Meanwhile new players are entering the market with Apple Inc. scheduled to launch its recently announced service, Apple Pay, next month. PayPal was in negotiations with Apple, but was ultimately excluded after it partnered with Samsung Electronics Co., Ltd. during the negotiations, said Ian Kar from Bank Innovation.

And while the world was focused on the eBay announcement, Dwolla quietly announced that it has raised a further $9.7 million in funding, led by the CME Group, to further build out its payment platform.

In an interview with Bloomberg, Keith Robois, former PayPal VP said “…in the United States there has been an incredible innovation in payments over the last decade and PayPal hasn’t participated in any of it whether it’s Square or Stripe, Braintree, which they had to acquire, Bitcoin and the derivative consequences of Bitcoin.  PayPal has completely been irrelevant in all of those conversations…”

So what comes next for an independent PayPal?

As a unit of a rival e-commerce company, PayPal has been limited in its expansion with the likes of Amazon.com and brick-and-mortar shops. As a standalone entity, PayPal will be better positioned as a strategic and pertinent player in the fast-changing online payment industry. Untethered from eBay, PayPal may be a viable partner for the likes of Amazon.com and the newly IPO’d Alibaba who would not have considered it an option while PayPal was part of rival eBay.

Carl Icahn, eBay’s sixth largest shareholder with a 2.8 percent stake, does not believe PayPal should stay on its own for too long. He believes that the online payments market should be consolidated, either by PayPal buying up smaller rivals or by merging with another major player. “In light of the development of strong competition such as the advent of Apple Pay, the sooner these consolidations take place, the better,” he wrote on his website.

In its statement eBay says that PayPal services $1 out of every $6 dollars spent online. It has over 150 million fee paying users who use the online service to send money to other users and pay for goods and services in more than 200 markets. The last quarter saw it post a 20 percent revenue increase to $1.95 billion. When it IPO’s next year, it is likely to be in a cash strong position that will allow it to aggressively take on the market.

eBay investors welcomed the news as eBay shares soared nearly 8 percent to close at $56.63 on Tuesday.

Image credit: Jason Howie