PayPal Signs Exclusive 12-Month Deal with Visa

© Can Stock Photo Inc. / NomadSoul1When Visa CEO Charlie Scharf said his company would “go after PayPal in ways that people have never seen before,” he apparently meant he was pursuing a partnership.

That deal was announced today, and means Visa will get access to PayPal payment processing and Venmo, and essentially become the preferred payment type within PayPal. PayPal will no longer steer Visa cardholders toward ACH transactions. PayPal will also join Visa’s digital enablement program (VDEP), meaning it can use Visa tokenization, and its mobile wallet will be accepted at more locations that accept Visa Checkout. Visa’s checkout strategy will not change, Scharf said today.

The deal is exclusive for 12 months, it was revealed on Visa’s earnings call today, which means MasterCard and American Express will not see the same benefits for at least a year. Visa issuers will have a year to promote their brands on PayPal. Visa will pay PayPal based on the volume of transactions driven to Visa cards.

It’s another victory for the card networks, and a blow to ACH, which lost the MCX mobile payments platform recently. It’s also a blow to payments neutrality. Grand things were expected of an independent PayPal. This, though it may be lucrative to PayPal, simply moves a major unaligned player into the camp of the largest payments player out there.

But MasterCard hasn’t been sleeping either. Today it acquired U.K. payments technology company VocaLink for $1.1 billion.

Aite Group senior analyst Thad Peterson noted that the Visa deal may make things awkward for PayPal with MasterCard or American Express, especially given its exclusivity.

“What we’re really interested in doing is providing a level playing field for Visa,” Scharf said on the earnings call today.

Peterson also commented, “From a customer experience perspective, the agreement will allow issuers to provide more detail for PayPal transactions on customer statements, and onboarding will be much simpler and faster than with ACH. This will reduce friction, enhance the customer value proposition for both PayPal and card issuers, and increase the value of Visa to the payment ecosystem.”

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