Launched in 1998, PayPal is no stranger to fintech. However, most consider the company a competitor rather than an ally to banks and traditional financial services companies such as Visa. This week’s news may change that perspective, though not all PayPal shareholders were enamored with the deal, as the stock fell 7% today.
The two payments companies entered into a strategic partnership in which PayPal aligned itself with Visa, conceding some of its turf in the fintech arena. The details below:
Benefits to Visa
- During customer enrollment, PayPal will present Visa cards as a “clear and equal payment option,” making it easy for consumers to set visa as their preferred payment method
- The image of Visa digital cards will be incorporated into payment flows
- PayPal will not encourage Visa cardholders to link to a bank account via ACH (PayPal used to do this to avoid paying fees to the card networks)
- PayPal will work with issuers to identify consumers who choose to migrate existing ACH payment flows to their Visa cards
- Consumers can use their Visa debit cards to move money from their PayPal and Venmo accounts to their bank account
Benefits to PayPal
- PayPal joined the Visa Digital Enablement Program (VDEP), meaning that consumers can pay using their PayPal wallet at all physical retail locations where Visa contactless transactions are accepted
- Visa is paying PayPal for increasing the number of transactions on its rails
- Visa has promised “greater long-term Visa fee certainty,” meaning the company will not raise or impose new fees charged to PayPal when a customer uses a Visa card to make a purchase on PayPal
For more in-depth analysis, check out the Wall Street Journal’s coverage.
PayPal, which spun-off from eBay in 2015, released financial and growth figures in tandem with this announcement. The company’s earnings are up 11% YTD. From PayPal’s Braintree division, Venmo transactions increased by 141% in Q2 of 2016 to $3.9 billion. PayPal’s quarterly earnings rose from $305 million to $323 million and its quarterly revenue was up 15% to $2.65 billion.
PayPal’s last Finovate demo was in 2012 where it debuted Instant Account Creation. The company’s Braintree Developer Evangelist, Justin Woo, presented at FinDEVr New York 2016. Visa has also presented at FinDEVr. The company’s VP of Product Development M. Tad Tilahun and Senior Director of Digital Developed Markets
Alan Johnson presented at FinDEVr San Francisco 2014. The company’s last Finovate presentation was at FinovateSpring 2010, where it demoed a tool to help consumers collect and organize products.