In July 2002, eBay acquired PayPal for $1.5 billion in stock, marking one of the most influential deals in early internet history. At the time, PayPal was just four years old, yet it had already become the payment method of choice for over 70% of eBay transactions. The acquisition wasn’t just about buying a payment processor but securing the infrastructure eBay needed to keep growing. With more than 20 million registered users, PayPal had proven its value by solving some of eBay’s biggest friction points: payment delays, fraud concerns, and the challenges of cross-border commerce.
This case offers a compelling look at how integrated financial infrastructure, especially an embedded wallet for marketplace operations, can shape the trajectory of a platform.
In the early 2000s, eBay had established itself as the leading online auction marketplace. However, one major friction point remained: payments. Buyers and sellers were still relying on outdated methods such as checks and bank transfers, which slowed down transactions and introduced trust issues.
PayPal also played a crucial role in onboarding new users to eBay by simplifying the payment process and enhancing the overall user experience.
At the same time, PayPal emerged as an email-based money transfer solution that quickly resonated with eBay users. It offered:
By 2002, more than 70% of transactions on eBay were processed via PayPal. eBay recognised the growing user preference and, to retain control over the payment experience, acquired PayPal for $1.5 billion. This move shifted eBay from a marketplace with a payment issue to a vertically integrated commerce and payments ecosystem.
Sellers previously had to wait days for bank transfers or cheques. PayPal enabled instant confirmation and fulfilment, significantly increasing completed transactions and reducing cart abandonment by giving users the ability to complete transactions instantly.
The introduction of PayPal’s buyer protection gave customers peace of mind. If a product didn’t arrive or match the listing inaccurately, they could safeguard their money by getting a refund. This sense of security encouraged more users to transact on eBay.
PayPal made it easier to buy and sell across borders. In regions where local payment infrastructure was limited, PayPal provided a single, trusted solution for currency exchange and cross-border transfers. This eliminated the need for switching between multiple apps, thus streamlining the process for users.
Users holding PayPal balances were more inclined to spend them on eBay. This created a closed-loop effect where money stayed within the platform, promoting repeated use and loyalty. Additionally, the embedded wallets mitigate the risk of losing a wallet’s private key, enhancing user experience through advanced security measures.
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Learn moreThrough PayPal, eBay added a second layer of monetisation. In addition to listing and transaction fees, eBay now earns revenue on each payment processed.
Funds held within PayPal accounts often circulated back into eBay purchases. This limited the outflow of value to external platforms, reinforcing the platform economy model.
With PayPal under its control, eBay reduced its reliance on banks and card networks. This improved cost efficiency and enabled a more tailored payment experience.
Compared to legacy payment gateways and banks, processing payments internally via PayPal significantly cuts down costs per transaction.
Modern marketplaces can draw several lessons from the PayPal-Ebay model. An integrated e-wallet isn’t just a payment tool. It’s a strategic asset. In fact, implementing an embedded wallet for marketplace environments has become a foundational component for many leading platforms.
There are two key reasons to integrate an e-wallet into your marketplace. First, it helps boost customer lifetime value (LTV). You already have a loyal audience – monetise it. By offering a wallet that stores user balances and supports internal payments, marketplaces can turn daily user engagement into financial value.
Second, it helps cut down on payment processing expenses. Processing payments internally reduces third-party gateway fees, keeps more revenue within the platform, and increases operational efficiency. Below are some of the most impactful benefits marketplaces can expect from integrating an ewallet:
When users store balances in the platform’s ewallet, the chances of repeat purchases increase. The fewer cash-outs, the lower the outflow to external services.
Each withdrawal to a bank or card incurs fees. Keeping transactions inside the system reduces gateway and banking charges.
By owning the wallet layer, marketplaces can also generate extra revenue through commission fees on internal transactions. This transforms cost optimisation into a revenue-generating opportunity.
Internal peer-to-peer or buyer-to-merchant payments are instant with an ewallet. This improves satisfaction and boosts overall transaction velocity.
eWallets open doors to offer value-added services:
This not only drives revenue but also deepens user engagement.
By owning the transaction layer, marketplaces can implement stronger anti-fraud measures, real-time dispute resolution, and build trust through buyer/seller protection systems.
An embedded wallet is a digital wallet solution integrated directly into a platform, allowing users to store balances, make payments, and manage funds without leaving the platform’s ecosystem. For marketplaces, this functionality is essential to support seamless internal transactions, increase user retention, and create new monetisation opportunities.
An embedded wallet brings banking-like functionality into your platform, helping you manage funds internally, reduce payment processing costs, and enhance the user experience. Here’s a quick look at how it works:
Users fund their wallets by linking a bank card, making a bank transfer, or using a cash-in method. The money is stored in their account within your platform.
Funds in the wallet can be used immediately to pay for services or products. For service providers (e.g., drivers or freelancers), payouts can be made instantly, without the need to wait for traditional bank transfers.
Because the money stays inside your platform, there’s no need for third-party payment processors on every transaction. This reduces fees and creates a seamless user journey.
Your system tracks all wallet activity – top-ups, payments, refunds, commissions – via a central ledger. You can configure transaction limits, fee structures, and user roles with precision.
Users can withdraw funds to their bank account or card whenever they choose, offering flexibility without relying on external systems for every transaction.
SDK.finance offers a comprehensive embedded wallet solution specifically designed for marketplaces, such as ride-hailing, delivery, freelance, and multi-vendor platforms. SDK.finance brings five core strengths to marketplaces looking to integrate an embedded wallet solution:
Our FinTech Platform includes everything required to launch and operate a robust marketplace payment solution:
Available as SaaS or source code, the SDK.finance solution gives marketplaces full control, faster time-to-market, and compliance-ready infrastructure. Whether you need a white-label mobile wallet app or a deeply integrated financial layer, SDK.finance is your expert partner to help you monetise your audience and scale securely.
By embedding wallet functionality using SDK.finance, businesses gain:
The result is a self-contained financial layer that enhances customer engagement, increases retention, and improves the economics of your platform.
The acquisition of PayPal by eBay marked a turning point in online commerce. What started as a workaround for slow payments became the backbone of trust, liquidity, and scalability for one of the world’s largest marketplaces.
For marketplaces today, an e-wallet is not a nice-to-have. It’s a core part of the infrastructure that supports faster growth, deeper user relationships, and better unit economics.
Success stories like AliPay (Alibaba), WeChat Pay (Tencent), and MercadoPago (MercadoLibre) show that integrating e-wallet functionality is key to building a resilient, profitable marketplace.
If you’re building a marketplace, consider the long-term value of an internal e-wallet, not just to process payments, but to power your ecosystem.
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