What the eBay Split Means for PayPal

EBay-PayPal divorce makes sense: Case
EBay-PayPal divorce makes sense: Case   

PayPal hasn't aged so gracefully, but eBay's decision to spin it off next year could give it renewed life.

There are plenty of questions remaining about the plan eBay announced on Tuesday morning to remake PayPal as its own public company, but one thing seems likely: It'll improve hiring and fortify the company amid a recent onslaught of competition from startups such as Stripe and even tech behemoths like Apple.

Read MoreEBay, PayPal to split into separate public companies

One big concern before eBay's decision to spin off PayPal was that eBay wouldn't be able to find a top replacement for former PayPal President David Marcus, without a guarantee of eventual independence for the company. The company today announced that well-regarded American Express exec Dan Schulman is taking over as PayPal's president and eventual CEO, which allows the company to stabilize the executive ranks and put to rest that concern.

Paypal
Aidan Crawley | Bloomberg | Getty Images

It's not clear if Schulman would have taken the job without a promise of future independence, but industry sources have previously told Re/code that several potential candidates wouldn't have.

The hiring dilemma also extends down into the rank-and-file. Based on conversations with people who work in the payments game, PayPal rarely ranks at the top of wish lists that top talent wants to work for, despite generating $6.6 billion in revenue last year and growing at a rate of 20 percent annually. Part of the reason for that is after 12 years as an eBay subsidiary, PayPal is no longer seen as an innovator.

EBay has a history of attempting to acquire its way into a solution to the hiring problem. It bought Marcus' startup Zong in 2011, and late last year it spent $800 million on Braintree, a popular payments platform for mobile apps that came with a talented team.

Read MoreApple Pay faces huge challenges: PayPal exec

But an independent PayPal can presumably come up with its own solutions. As a public company, it will be able to issue its own stock to help attract potential hires and retain its best employees. Having a direct voice in the company's governance will also help it attract top leadership.

All of this is more critical now than ever with fierce competition approaching from all sides. Apple Pay is a serious threat to PayPal in mobile apps, and will be increasingly so if Apple decides to extend its payment option to regular websites.

EBay to spin off PayPal
EBay to spin off PayPal   

Stripe, a payments processing startup that competes head to head with Braintree, has signed big partnerships with Twitter, Facebook and Alipay. Then there's Amazon, whose low-priced entrance into the credit card reader space adds another serious competitor in addition to Square to PayPal's already shaky brick and mortar initiatives. Google, too, still has the deep pockets to make a big payments play despite more failures than successes in the space so far and executive turnover.

While a split from eBay could help with a lot of this, big questions still remain. If PayPal is going to keep its spot as the backbone of eBay's marketplace, the two companies are going to have to ink an arm's length agreement that works for both. PayPal may have to pay for this privilege like other companies do to get its payments buttons on e-commerce sites. It's not clear how expensive that deal will be, but the relationship is an important one. EBay's marketplace is responsible for more than 30 percent of PayPal's revenue and more than 50 percent of its profits, as eBay was happy to point out when it was battling activist investor Carl Icahn earlier this year.

The move could also make PayPal a takeover target, with Google often brought up as a possible buyer. It may now get its chance.

Either way, the split from eBay should give PayPal something it hasn't had in a very long time: The freedom to choose its own path.

By Jason Del Rey, Re/code.net.

CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.