In July, Visa and PayPal surprised many people in the payments sector by announcing a new strategic partnership in the US, which will see the firms work more closely together. The companies claim that the move will benefit financial institutions, merchants and customers by providing a fast, smoother payments experience.
But with two of the biggest names in the business set to join forces, what impact is this likely to have on the sector, both for users of Visa cards and for competitors in the space?
Driving consumers to cards
According to PayPal president and chief executive Dan Schulman, the deal is all about providing more choice to users in when and how they pay. He said: “This agreement opens new avenues for PayPal to collaborate with Visa, financial institutions, and others in the payments ecosystem to deliver greater value, more choice, and new experiences for our joint customers wherever they transact – online, in-app or in-store.”
One result of this may be to drive more consumers to pay using cards. PayPal users have the option of linking their account either directly to a bank account via ACH or a card, but until now PayPal has encouraged the former option, as it would otherwise have to pay fees on each transaction. This will now change, with Visa cards “presented as a clear and equal payment option” within PayPal.
More in-store options
It could also make PayPal a much more common option when it comes to in-store payments, as PayPal will gain access to the Visa Digital Enablement Program in order to improve its Point of Sale acceptance. This will allow users of PayPal’s digital wallet to use this method at any location where Visa contactless transactions are accepted.
This should give PayPal access to a huge new market, potentially numbering in the millions as contactless NFC technology becomes more widespread in the US. It could therefore be in a great position to expand its brand as a key in-store mobile payment method ahead of competitors such as Apple Pay.
Faster transfers, more data
Users of PayPal will also be able to transfer money instantly from their PayPal or Venmo accounts to their bank account via Visa debit cards, and also easily send funds to their PayPal account, which could make life more convenient for many people.
Michael Moeser, director of the payments practice, retail and small business, at Javelin Strategy and Research, stated: “What took days to reload a PayPal account with a checking account is now turned into minutes or less with Visa Direct.”
It will also allow better sharing of data between the two parties and card providers, which should also improve customer experience by reducing confusion and disputes. So for instance, transactions previously only listed as ‘PayPal’ on a cardholder’s statement will now list the merchant’s name.
An era of consolidation?
For the payments industry as a whole, the deal could be indicative of a new era of consolidation and cooperation in an increasingly fragmented market. One of the biggest benefits for PayPal will be greater brand presence, which could give in the edge over competitors in the crowded mobile payments space.
Elsewhere, it’s been reported that MasterCard has also begun talks with PayPal to form a similar alliance, and the company has already announced it will acquire UK-based payment system Vocalink, which operates several key platforms in the country. It therefore seems the big players in the industry are making moves to position themselves as the first choice in the future of payments. We now wait and see how the rest of the industry reacts.