The “First” eBay Digital Wallet Doesn’t Solve User Pain Points

During eBay’s Investor Day, the company announced the launch of its “First” Digital Wallet, but if you thought this would be a PayPal-like service, you will be disappointed.

eBay used to own PayPal but can get away with calling this its “first” Digital Wallet because PayPal operated as a separate company, not as part of the eBay platform.

The idea of launching an eBay platform based digital wallet isn’t actually as new as it seems.

eBay CEO Jamie Iannone already mentioned in late 2020 during the 43rd NASDAQ investor conference that eBay Managed Payments (EPM) will become a wallet experience hinting at a 2022 launch window.

What we got during this year’s Investor Day was just a confirmation that eBay is finally rolling out a wallet-like experience he promised over 15 months ago. The emphasis is on “like.”

However, whether this will be a slow rollout or being made available to all users at once, the company didn’t really say. Neither did eBay reveal a timeline of when it would expand the Digital Wallet to other major eBay markets like the UK, Germany, or Australia.

eBay Digital Wallet

The striking part of the Digital Wallet announcement was how limited the experience really will be. In its press release, eBay said the digital wallet allows customers to “use proceeds from their sales to conveniently purchase their next item or pay their selling expenses.”

This cures a long-time gripe by eBay sellers that they can’t use the funds from sales to make purchases on the platform.

When eBay launched its eBay Managed Payments program in 2018, it rolled out a very limited beta that wouldn’t even accept PayPal payments and sellers couldn’t even buy shipping labels with their funds.

Although all these early limitations have been rectified now. Since then eBay has combined its selling and payment transaction fees and automatically deducts those from sales proceeds.

Strangely, the ability to pay eBay fees was highlighted as another major benefit of the eBay Digital Wallet. Yet, this function already exists for selling fees, including advertising fees due from its Promoted Listings Standard program.

As eBay is tinkering with new advertising products to drive more revenue per sale, it seems the only other fees users will be able to pay with the Digital Wallet pre-paid advertising fees from such programs.

That’s it folks, that’s the eBay Digital Wallet as announced in a nutshell.

To be blunt, calling this a Digital Wallet is about as accurate as calling a Motel 6 a Ritz Carlton!

You can get a good night’s sleep at both, but the guest experience at the Ritz is very different from the Motel 6.

What Else Did eBay Announce About Managed Payments?

Along with the Digital Wallet announcement, eBay also announced a few new features it’s rolling out for its payments platform.

Flexible Withdrawals

The company is launching a new feature this month for sellers to select how frequently they want their eBay sales proceeds to transfer to their bank account.

Sellers will have the choice to make on-demand withdrawals and also schedule daily, weekly, biweekly and monthly withdrawals, automating the withdrawal process.

Except for the daily withdrawals, all other withdrawals will be initiated on Tuesdays.

As the company has previously advised, most withdrawals should arrive within 1 to 4 days in the seller’s bank accounts.

Somewhat frequently, sellers continue to complain about how long it takes for eBay funds to transfer to their bank after payouts are initiated on the platform, but much of that process is outside of eBay’s control and can vary greatly by the bank receiving the funds.

The eBay payout system has been plagued by a number of reported glitches last year, which the company admitted were on their end, but the majority of the reports today appear to be individual issues that may also be on the receiving bank’s end.

Near Instant Withdrawals

Since some sellers seem to want access to their funds quicker, the company will be rolling out instant withdrawals later this year.

This feature will follow other companies such as PayPal/Venmo and Apple Pay that offer this service. Users will need to have a debit card and the instant payout will be credited to the debit card (or bank account with a debit card), usually within 30 minutes, eBay said.

The catch is there will be a fee for this service, but that is a standard practice today.

eBay didn’t say what it may charge for its instant payout feature. But to provide a couple of competitive examples, PayPal and Venmo charge a 1% fee with a maximum of $10 while Apple Pay charges a 1.5% fee with a minimum fee of $0.25 and a maximum of $15.

eBay sellers should expect the instant payout fee to be somewhere in that range.

Multicurrency Balances

eBay will introduce multicurrency cash balances, enabling eBay users to maintain funds in multiple currencies on the payments platform.

Although most users won’t find much use for this feature, assuming it will work as it did on PayPal, this feature should allow sellers to list items on foreign eBay marketplaces without buyers incurring foreign transaction or currency conversion fees from their bank, debit or credit card.

In theory, this should boost sales conversions.

Of course, sellers will have to convert the foreign funds into their primary currency so that they can be transferred to the seller’s bank account. There is usually a hidden foreign exchange cost for such conversions, but that is standard practice with banks as well.

And when it comes to cryptocurrencies, it’s just something they are still just keeping an eye on and it didn’t sound like there will be any movement on that front anytime soon.

Working Capital and Insurance

eBay said it will be launching Working Capital and Insurance options later in the year.

On Working Capital, it appears the program will be similar to PayPal’s working capital loan program where sellers take out a loan that immediately adds a cost of the loan (interest), and is paid back automatically from a predefined percentage of each paid sale.

There may be variations of this scheme depending on local market regulations and practices.

The advantage of such loans is that they are simple and payback amounts are fixed on a percentage basis from sales, fixing the payback amount to cash flow, which is often easier to handle for small sellers.

Unfortunately, the downside of these loans is that they are typically more expensive than a traditional line of credit and even accelerating the payback by making extra payments does not reduce the cost of the loan.

Typically, the total interest to be paid is fixed, regardless of how long it takes to pay back the loan amount.

Most of these working capital loans do include some language that requires borrowers to either hit minimum payback targets or max out the time how long sellers have to pay back the loan.

This way the lender has ensured the payback of the loan falls within expectations of the interest charged.

For the insurance choice, eBay did not provide any details yet. It’s likely they will partner with insurance providers to offer some form of product liability, business, or health insurance options to sellers. It could also include buyer product insurance or a warranty extension program.

Partnerships

During the Investor Day presentations, eBay spent a significant amount of time highlighting the advantages of having its own payments platform, including the ability to launch unique financial partnerships or solutions for specific markets.

For example, it has partnered with Afterpay in Australia to offer a Buy Now, Pay Later (BNPL) payment option for nearly two years now. While Afterpay expanded its services globally and was acquired by US-based fintech Square (Block) last year, Afterpay has a significant brand awareness in Australia that probably drives more sales there than competing services would.

In Germany, eBay has worked with the popular BNPL solution Klarna since 2020 but is now expanding its partnership to include a service to pay on invoice as well. That is a common payment option for German consumers.

While not mentioned during Investor Day, here in the US, eBay recently partnered with Quickbooks, the most common small business accounting platform.

Being in control over its payments platform definitely gives eBay a significant advantage to pick partnerships that make sense for specific countries.

It doesn’t have to rely on a third party to build those partnerships. Also, it likely gets some revenue from these partnerships as well, adding another revenue stream.

My Take

eBay adding more features to its payments platform is good, but the company is still well behind what PayPal offered to sellers.

Adding the ability to pay for products on the marketplace does not make its service a Digital Wallet alone and that is about the only major improvement over the current system the “wallet” will offer.

In some ways, the Digital Wallet moniker may be what eBay Managed Payments will be known as in the future. I wouldn’t be surprised to see the “Digital Wallet” branding more and “eBay Managed Payments” being sent to File 13.

I smell a rebrand here from the still toxic with many sellers “eBay Managed Payments” name.

But let’s get back to what a Digital Wallet really means and why it falls so short of expectations with this name.

Investopedia defines a digital wallet as “a software-based system that securely stores users’ payment information and passwords for numerous payment methods and websites.”

“Digital wallets can be used in conjunction with mobile payment systems, which allow customers to pay for purchases with their smartphones. A digital wallet can also be used to store loyalty card information and digital coupons,” the investor site adds.

In other words, a true digital wallet allows users to combine various financial payment solutions into one, including to be able to use it online and offline. Nothing eBay announced with its Digital Wallet points in that direction.

Right now, it seems at most, eBay may add some partnerships where users could use eBay Digital Wallet funds with those partners.

Additionally, the company didn’t address a major pain point with its current payments platform which still doesn’t make funds available immediately.

All payments go through a clearing process and unlike PayPal, there is a small waiting period before they can be transferred. Making quick purchases on eBay with the Digital Wallet will apparently still be limited by this delay.

Julie Loeger, eBay SVP and Chief Growth Officer who led the presentation of the company’s payment platform said, “earnings will be available almost immediately.”

By comparison, although funds in PayPal also at times went through a hold or clearance waiting period, most payments were credited immediately.

This means most received funds in PayPal were available for transfer to a bank account, use on the PayPal debit card, or available to be used with online merchants that accept PayPal.

eBay did not say if sellers receiving forms from another eBay user using their cash balance in their Digital Wallet would become available immediately.

Certainly, the excuse to wait for banks to clear payments shouldn’t apply within the eBay ecosystem, right?

And that brings me to another point regarding eBay’s Digital Wallet.

I felt throughout various presentations and answer the eBay team provided during the Q&As, the eBay Digital Wallet’s primary purpose will be to drive more GMV (Gross Merchandise Volume) on the platform (“eBay ecosystem”).

There is a case to be made that when users have funds available on eBay, they may be more inclined to use them on the marketplace, which could help drive some GMV growth.

One Wall Street analyst tried to get an answer during the first Q&A session on this possibility by referencing eBay’s history with PayPal.

But Julie Loeger only offered a vanilla answer sidestepping the heart of the question and saying it’s early days for the Digital Wallet, they are excited about it, and it “could be a huge win for us.”

eBay had 166 million active buyers in Q1 2021, exited Q4 with 147 million buyers, lost 2 million sellers in Q4 2021, was flat the three quarters prior, GMV was down 10% in Q4 and flat for the entire year of 2021, the numbers are alarmingly trending in the wrong direction.

eBay needs a huge win to turn this ship around. The Digital Wallet’s primary purpose seems to be to keep users and funds on the platform, hoping it will help trend this ship the other way.

With no hint of a debit card that would draw funds from eBay’s Digital Wallet, the strategy seems to be to keep as much of the money on the platform for as long as possible.

As I said at the start, those that thought the eBay Digital Wallet will bring a more PayPal-like experience to the table will be disappointed. But let’s give eBay some room to improve here, maybe there will be a “second” Digital Wallet that will be much more like what PayPal or other digital wallets offer.

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