PayPal’s Future Will Be Built on Partnerships

© Can Stock Photo Inc. / dolgachovPayPal‘s partnership with Visa is only the beginning, according to CEO Dan Schulman.

The payments industry was awash in rumors of a PayPal-Visa partnership this week, and yesterday, when both companies reporting their Q2 earnings, the rumor was shown to be true. Exact terms of the deal were not disclosed.

“This is a new PayPal, one that is actively partnering across the digital payments landscape,” Schulman announced. He added that PayPal has a number of conversations going on with other digital payment companies. Later in the call, he said, “I think this opens us up to new partnerships: new partnerships with issuers, networks and others.”

PayPal will steer customers to use Visa-branded cards, rather than ACH, and receive incentives from Visa, as long as certain volume targets are hit. PayPal users will also gain access to Visa Checkout mobile payments locations. This is important for PayPal because the company has seen little success getting customers to use its wallet at the point of sale.

Visa will extend its tokenization services to PayPal when a Visa-branded card is used in the PayPal wallet. Tokenized transactions are still processed by PayPal’s acquiring platform. The move has given PayPal “fee certainty” in transacting in the offline world, Schulman said, as well as receive the guarantee of “no targeted actions against PayPal.” These unspecified actions could have been what Scharf was threatening a few months back.

PayPal, in turn, will give issuers increased visibility into transaction data, which led Bloomberg to label the agreement  a data-sharing partnership. Here’s Schulman discussing the deal in the context of PayPal’s self-proclaimed role as a customer champion:

This deal has the potential to be transformative for PayPal, Visa and the industry. We believe it provides us the flexibility and the capabilities to execute against our customer-champion vision, to partner with issuers and others who share our vision, and to accelerate PayPal’s in-store access in new and profitable ways. We also believe it provides more options for growth and the ability to partner with others to mutually cross-sell our various current and projected services to consumers and merchants around the world.

Visa CEO Charlie Scharf referred to the agreement as a 12-month exclusive deal, meaning MasterCard, American Express and Discover will need to wait a year to reap benefits similar to those enjoyed by Visa. But a few hours later, PayPal CEO Dan Schulman referred to the deal as “multiyear.” We have reached out to PayPal for clarification.

PayPal processed a total of $86.2 billion in the second quarter, up 29% from the previous quarter. Mobile payments increased 56%. Venmo processed $4 billion during the quarter, 141% over last year.

PayPal has 188 million active accounts.

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