Online auction site eBay plans to spin off its PayPal business into a separate publicly traded company next year, the company announced on Tuesday.

The surprise move comes after the company had rebuffed calls from billionaire hedge fund investor Carl Icahn to sell off its online payments business.

The decision comes shortly after Apple unveiled a new mobile payment system, Apple Pay, that looks set to be a fierce rival to PayPal and Alibaba, China’s massive online marketplace, debuted on the New York Stock Exchange.

“The industry landscape is changing, and each business faces different competitive opportunities and challenges,” eBay chief executive John Donahoe said in a news release.

Donahoe won’t have an executive role at either company. Devin Wenig, current president of eBay Marketplaces, will be the chief executive of the new eBay, while American Express executive Dan Schulman will lead the PayPal. Schulman was the founding CEO of Virgin Mobile and was chief executive of discount travel site Priceline.com.

Shares for eBay surged about 9% ahead of the stock market opening. PayPal accounts for almost half of the online marketplace’s revenues. In January, facing pressure from Icahn, Donohoe rejected a split.

“We and our board believe the best way to drive long-term shareholder value is to keep eBay and PayPal together, to capitalize on the opportunities,” he told analysts, adding the “distraction and dis-synergies of separation would be happening exactly at the wrong time.”

The fight was settled in April with Icahn adding a director to eBay’s board.

“We are happy that eBay’s board and management have acted responsibly concerning the separation – perhaps a little later than they should have, but earlier than we expected,” Icahn said on his website.

In a note, analyst eMarketer said the split would provide PayPal more autonomy to compete, particularly with respect to Apple Pay and other emerging mobile wallet providers.

Apple Pay follows attempts by Google and startup Square to enter the mobile payment market. PayPal too has its own app. So far few of the technologies have caught on with consumers. But eMarketer predicts that the tipping point is near. In the US, mobile proximity payments - including payments made using a phone to make a physical transaction at the point of sale – will reach $3.5bn in 2014, according to eMarketer estimates. By 2018, that figure is expected to reach $118bn.

In a note to investors analyst Keefe, Bruyette & Woods said: “We are not entirely surprised by the separation announcement given investor activism coupled with a challenging operating environment and heightened perceived competitive threats (eg Apple Pay).”