PayPal will become a separate, publicly traded company, allowing management to focus on the lucrative funds-transfer business, which all banks covet because of the fees involved in moving money around.
Must Read: Warren Buffett's Top 10 Dividend Stocks
The other factor is the move by Lending Club, a peer-to-peer lending company, to go public. Lending Club's decision was another signal that funds transfers were getting a lot of interest from investors, including Google (GOOG) .
Of course, there was the earlier effort by billionaire investor Carl Icahn to get eBay to spin off PayPal so that it could focus on the funds-transfer business. Surely, this set the stage for the current decision.
The banking industry is clearly changing because of advances in information technology. But traditional banks have been slow to adapt, keeping outdated computer systems in place and resisting combining and upgrading systems following acquisitions.
Banks have also been reluctant to abandon their network of branches, which are costly but less important because so much banking is now done online.
The Great Recession also devastated the banking industry and brought on a host of new regulations, further discouraging banks from modernizing their payments systems. So new alternatives to "commercial" banking have arisen, including a number of technology-based start-ups, which are starting to define the financial industry.
Must Read: Apple Pushes Digital Wallet with Apple Pay
PayPal is in good shape. It has a large customer base, is profitable, is growing rapidly and is the most successful of the "first movers" into the funds-transfer business.