The e-commerce corporation headquartered in San Jose, California known around the world as eBay just announced that it is breaking up with PayPal and will be doing business with another partner. The two companies have worked together for more than a decade, but eBay said that it will stop using PayPal for its primary payments processor.

Why is eBay cutting ties with PayPal?

The company announced on Wednesday, January 31 that it has already signed an agreement with Adyen to replace PayPal by 2020. People are more familiar with PayPal, but they will get used to the Amsterdam-based global payment company if they continue to buy and sell on e-Bay.

When the auction company acquired PayPal in October 2002 for $1.5 billion, the two online services were a perfect match. The payment company's market value was close to $50 billion when it became a partner with eBay. Now PayPal's value is more than $100 billion. The partnership is no longer needed for either one of the two companies to succeed.

Benefits to buyers and sellers

The transition will start gradually in the United States later this year, and PayPal will continue to be one of the payment options through July 2020. Most of eBay's payments will be processed by Adyen, PayPal's rival, by 2021.

PayPal will remain a payment option at the checkout for eBay customers until July 2023.

According to the auction giant, the move to use the smaller company will benefit both the buyers and sellers. There will be lower costs for sellers and an easier tracking system. Buyers will have more payment options when they are ready to check out at a more convenient checkout site.

About Adyen

Naturally, Adyen is thrilled to be getting eBay's payments business. It is a very small Dutch company that is getting a big account. It made only $178 million in 2016 compared to PayPal that made almost $11 billion. Immediately after the announcement on Wednesday, PayPal's shares went down as much as 11 percent, but its market value is still around $102 billion.

That is more than Ebay’s market value of $42 billion. PayPal doesn't have anything to worry about. During the fourth quarter of 2017, it had a 59 percent increase in profits.

The Amsterdam-based company is already working with other big companies including Uber and Netflix. Despite its size, the company says it can handle more than 200 different payment methods using more than 150 currencies.

People are wondering why eBay would drop PayPal when their partnership has been so successful especially since PayPal is buyers and sellers' preferred method of payment. However, eBay is happy with its decision.