Donahoe to lead PayPal for now, maybe forever

On the face of it, this wouldn’t appear to be the way PayPal wanted to start off its year. The company is poised to begin rolling out a big initiative to bring its payment system into physical retail stores, part of an ambitious effort to open up PayPal’s business beyond online and simple mobile payments. Now it has to move forward without its president, Scott Thompson, who is leaving to become the CEO of Yahoo.

But more than the story about Thompson leaving, his departure signals the changing face of eBay, which increasingly looks at PayPal as its crown jewel. And who better to safeguard that than the man at the top? EBay CEO John Donohoe has announced he will take over PayPal as interim president for the time being. But from a source, we hear that Donohoe may be looking at keeping the title for good. We also hear that Donohoe was already crowding out Thompson because of the importance of PayPal and the company feels confident it can get on without Thompson, who spent four years as president.

Here’s what Donohoe told the troops in a memo today:

I will serve in the interim role as President and will be meeting with the PayPal leadership team this morning to plan a seamless transition. And while I’m sure Scott’s decision is a shock to many of you, as it was to me, there is one thing I am certain of: PayPal has an enormous opportunity in front of it and we will not slow down. We will not miss a beat. And we will continue driving the incredible momentum that each of you has helped to create. PayPal had an outstanding 2011 and a strong close to the fourth quarter. PayPal’s vision is clear. Our strategies are set and we have a strong, focused leadership team in place. And across PayPal, we have you — an incredibly talented team, committed to creating the future of money and changing how the world shops and pays.

EBay CEO John Donahoe

Whoever is at the top, it’s clear this is a pivotal moment for PayPal, which is vying for a big chunk of the mobile payments market, estimated to grow to $ 670 billion by 2015. It has been a big player in helping facilitate online transactions but those payments represent less than 10 percent of all transactions. The bigger prize is in helping people pay for offline goods in stores.

PayPal is now in the process of selling its in-store payment system to merchants and showing that it’s going to be a great alternative to emerging digital wallet and payment systems such as Google Wallet, Isis, Square and others. The company recently built a fancy New York showroom to get retailers on board, which underscores that this is a big effort in the works for PayPal and eBay.

“I think this is an enormous opportunity for payments,” said Donahoe in October during the company’s last quarterly earnings call. “It’s a huge market and it’s the next chapter in PayPal’s playbook.”

Overall, PayPal has been growing as a mobile payments provider and said in October it was expecting to do $ 3.5 billion in mobile payments volume in 2011. In the most recent quarter ending on Sept. 30, PayPal brought in $ 1.1 billion in revenue, up 32 percent year-over-year while net total payment volume increased 31 percent to $ 29.3 billion in the quarter. PayPal now represents 37 percent of eBay’s total revenue.

Thompson’s departure comes after the exit of Osama Bedier, who left PayPal for Google a year ago to help lead Google Wallet. Bedier has become the subject of a lawsuit by eBay, which has accused of Bedier of taking trade secrets and helping recruit other employees to Google. PayPal will need to hold on to talent and execute well in 2012 as it faces off against some well-funded opponents. The company has a generally good reputation in payments, something that will be key in attracting consumers, but it still has to convince merchants and consumers that it’s got the best solution for in-store transactions. Donohoe or whoever comes in will need to make sure PayPal can make good on this opportunity. If PayPal can get it right, there’s a lot of money to be made.

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