PayPal: Apple Pay Opportunity 'Remains to Be Seen'

PayPal is on track to handle 1 billion mobile transactions this year, but the company can't yet say it will benefit from the imminent launch of Apple Pay.

When it debuts this month, Apple Pay will enable consumers to make purchases funded by Visa, MasterCard and American Express accounts. Though PayPal is a funding mechanism for Apple's iTunes and App stores, it can't be used for purchases made through Apple's mobile wallet.

"Apple's always been an important partner of both eBay and PayPal, and [regarding Apple Pay] it remains to be seen," said John Donahoe, eBay's chief executive, in an Oct. 15 conference call to discuss its third-quarter earnings. "We're hopeful, but we will work toward whatever's right in the months and years ahead."

PayPal's advertising messages are more clear in casting Apple Pay as a competitor. After Apple announced its mobile wallet, PayPal began a marketing campaign emphasizing its security in contrast to Apple's, which was under fire after Apple's iCloud storage service was linked to a recent link of celebrities' personal nude photos.

During the conference call, Donahoe emphasized PayPal's own innovation in mobile payments, such as the "one-touch" mobile commerce technology it began testing in August. Donahoe also reiterated that PayPal would support contactless Near Field Communication payments if consumers demand it, and predicted that NFC technology's mainstream adoption might accelerate due to recent trends, including the push for more security at the point of sale.

EBay expects to complete its split of PayPal in the second half of 2015. PayPal's net revenue rose 20%, to about $2 billion, in the third quarter from a year earlier. Net revenue for the eBay marketplace business grew 6%, to $2.2 billion.  The combined company's  revenue for the third quarter rose 12% ,to $4.4 billion, and its net income slipped 2%, to $673 million.

The growth level of eBay's marketplace business "is neither what we wanted nor what we expected," Donahoe said.

EBay is still reeling from a cyber-attack that prompted it to ask marketplace users worldwide to reset their passwords in May. It is also working to adapt to a change in Google's search algorithms that reduced traffic from search. Both of these issues have made it harder for consumers to buy from eBay merchants, and led the company to lower its revenue guidance following the second quarter.

"The majority of our users have gone through the password reset, but the reset is causing friction with our users … some users have had to reset their password multiple times," said Bob Swan, eBay's chief financial officer, during the call. "We are making adjustments to the login process and increasing customer service to address the pain points."

Swan and Donahoe expect to step down from their executive management roles when PayPal completes its split from eBay. Dan Schulman, PayPal's president and future CEO, did not speak on the conference call. Devin Wenig, the president of eBay Marketplaces and its future CEO, was also absent.

"We're still accountable for the results until separation occurs," Donahoe said of himself and Swan.