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Article By: Steven Bertoni a Forbes Staff

eBay EBAY +7.83% and PayPal are going their separate ways. Today eBay announced that its fast-growing PayPal division would be spun off as a new company in 2015. In 2013, PayPal moved $180 billion in 26 currencies across 193 nations. Its revenue jumped 20% to $6.6 billion–41% of eBay’s total  and 36% of its profits.[/entity]

The move—-prompted in no small part by Apple’s AAPL +0.95% jump into the mobile payment game and Alibaba’s massive IPO–is meant to free up PayPal  to focus solely on payments. It will also help attract top talent–few CEO types want to run a subsidiary of a larger company.  ”A thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively,” Donahoe said in a statement today. “The industry landscape is changing, and each business faces different competitive opportunities and challenges.” Former American Express president, Dan Schulman, will lead the new PayPal and Devin Wenig, the current head of eBay marketplaces, will be eBay’s CEO. Donahoe will step down after the spin-off but hold a seat on both boards.

While  Donahoe has long said that eBay would spin-off PayPal once the time was right, the new move is a drastic reversal for eBay, which this February fended off an aggressive attack from activist investor Carl Icahn who called the two companies to split.

“PayPal’s a jewel and eBay is covering up its value,” Icahn told me this winter when I was writing a FORBES cover story on PayPal and the coming wallet wars. “If you just went out and took it public you’d get a huge premium because of growth.”

Donahoe disagreed: “Ebay has accelerated and enhanced PayPal’s success, allowing it to be more aggressive, bolder and to take more risk than if it was separate.”

The fight turned nasty. Ebay created a new website (which I can’t seem to find now…) touting the advantages of keeping the two companies together. Meanwhile, Icahn launched a verbal assault on eBay management calling it a poorly run company and accusing eBay board members Marc Andreessen and Scott Cook of placing their interests ahead of shareholders and self-dealing.

Icahn wasn’t alone on his calls for eBay to spin-off PayPal.

“It doesn’t make sense that a global payment system is a subsidiary of an auction website… It’s as if Target owned Visa or something,” said Elon Musk, the billionaire cofounder of PayPal who is now running SpaceX and Tesla Motors. PayPal “will get cut to pieces by Amazon payments or by other systems like Apple and by start-ups if it continues to be part of eBay… It will either wither or be spun out.”

Former PayPal COO David Sacks shared the same sentiment. He told me that an independent PayPal could hit a market cap of $100 billion. “If you allowed PayPal to pursue its destiny there are moves it could make to become the largest financial company in the world.”

Donahoe eventually won the fight. In February Icahn backed off his attack, settling for an independent member to be added to eBay’s board. But a series of big events seemed to give eBay a change of heart. First, in June, PayPal’s new president David Marcus left to join Facebook. This month Alibaba, which runs a massive mobile payment arm Alipay, went public at a giant $230 billion valuation. And then there is was Apple’s iPhone 6 launch that introduced Apple Pay–a mobile wallet feature that could change the entire payment game.
As I’ve written (many times) before–money is going mobile. Research firm Gartner estimates that mobile payments will top $720 billion a year by 2017, up from $235 billion last year. The upside remains enormous: Humans made $15 trillion worth of retail transactions in 2013. Everyone wants a piece of that market. In addition to apple and PayPal there’s Alipay, Amazon, Google and Square. Let’s not forget the traditional titans: Visa, American Express and MasterCard. As Apple showed demonstrated this month, the payment arms race is on–PayPal is getting battle ready.