Last month Visa CEO, Charlie Scharf announced to Wall Street that he no longer wanted a “Frenemy” relationship with PayPal.  In his words, it was going to be either “Friend or Foe” and the choice was up to PayPal CEO, Dan Schulman.  Visa was sending too much business in PayPal’s direction only to have that company promote ACH to its customers over Visa cards.  In closing his speech, Mr. Scharf said that should PayPal choose the “Foe” war path that he would go after PayPal “in ways that people have never seen before.” 

Even here in peaceful, sunny Silicon Valley, we would view those statements as very, very aggressive.  To use the more succinct Wall Street terms: “Them’s Fightin’ Words.”

Days later, Dan Schulman spoke at Wall Street conference trying to defuse the situation saying that everything was still okay.  A quick look at the PayPal stock, now unshackled from the vestiges of EBay, showed that Wall Street was not buying what Mr. Schulman was selling.

And then something miraculous happened.  Both men blinked.

It’s as if both companies realized that commerce is truly moving to digital channels and that working together would be more beneficial than engaging in a costly, fruitless war.  Interestingly enough, shortly after Mr. Scharf’s harsh threats to PayPal, Javelin Strategy released its Online Retail Payments Forecast report showing that digital commerce will reach almost $650 billion in 2020, comprising over 12.4% of all retail sales, up from $424 billion and 9.1% penetration in 2015.  In other words, there will be plenty for all to share, only if they work together.

So today, PayPal and Visa have announced a “Partnership to Extend Consumer Payment Choice.”  What this means to consumers is that both companies will collaborate on a variety of fronts to improve the customer digital experience.  What this means to Wall Street is the announcement of a mutually beneficial partnership that should lead to stronger earnings per share growth and higher stock prices.  It’s a win-win for all parties.

The announcement covers specific details of the joint agreement:

Enhanced consumer choice and an improved experience for Visa cardholders.
PayPal will make it much easier for new and its current customers to choose Visa cards and improve the experience.  During sign up Visa cards will be presented as an equal payment option to ACH and other choices.  It will be easy for consumers to set up Visa as the default option.  Digital images of Visa cards will be incorporated into the payment flows so a customer will be able to more easily recognize their physical card in a digital wallet and during a transaction.  PayPal will not target Visa cardholders to link a bank account via ACH as it currently does now.  In fact, PayPal will work with Visa issuers who want to target their existing customers who have an ACH in place to migrate them back to a Visa card.

Access to the Visa Token Service. PayPal will join the Visa Digital Enablement Program (VDEP) to expand point of sale acceptance. 
This will improve security and most importantly, expand acceptance for PayPal’s digital wallet to all physical retail locations where Visa contactless transactions are enabled.  This expansion is what PayPal has been attempting to achieve for the last 5+years.  That is, allowing you to use PayPal in a physical store. 

Access to the Visa Direct service to allow instant withdrawal of money. 
Customers will be able to instantly withdraw and move money between PayPal and Venmo and their bank account using Visa debit cards with Visa Direct.

PayPal will provide enhanced data quality to Visa. 
This will provide greater clarity to consumers using a Visa card in a PayPal wallet since the transactions will no longer show up as just “PayPal” but will also include details such as merchant name.

Economic incentives that include specific direct Visa payments to PayPal to encourage incremental volume growth on Visa cards. 
There will also be greater fee certainty in payments from Visa to PayPal – this removes any saber rattling concerns that had occurred in the past month.

While this is a US based agreement only, we should expect more from both parties on a global basis going forward.

Overall, this is fantastic news for consumers, Visa bank issuers, and of course Visa and PayPal (and their respective shareholders).

So what’s next?  I would expect Mr. Ajay Banga (CEO of MasterCard) will soon be calling on Mr. Schulman to have a similar discussion.  However, given Mr. Banga’s announcement today of the VocaLink acquisition, that phone call may take a little time.  But I would not suggest waiting too long since PayPal is now in a better bargaining position having just completed a deal with the biggest card network in the world. 

The question to Mastercard will be “What can you do for PayPal?”


About Michael Moeser

Michael heads Javelin's payments practice. He advises clients on the rapidly changing payments industry. Michael is focused on tracking the evolution of the payments industry, covering specific areas such as person-to-person payments, U.S. and global EMV card migration, digital wallets, merchant acceptance of different payment forms, cross-border payments, real-time transactions, and digital payments.

Michael specializes in assisting clients in developing new payment products or repositioning existing services to capitalize on market opportunities, understanding how to market to particular consumer and small business market segments, and developing new corporate strategies that can transform an existing payments franchise.

Michael brings over 20 years of experience from the payments and consulting industries. Before joining Javelin, he led the international small business card portfolio at Visa, launching new and growing existing debit and credit card programs with banks and financial services companies across the globe. Previously, he was the Head of Competitive Intelligence at Capital One, a Payments Knowledge Expert at McKinsey’s Payments Practice, and the Head of Product Marketing at Ondot Systems, a Silicon Valley mobile card control startup. He has presented to audiences around the globe, primarily at Visa and McKinsey client and public audiences.

Michael holds a BBA in finance from the Ross School of Business at the University of Michigan and an MBA in marketing and entrepreneurship from the Kellstadt Graduate School of Business at DePaul University.

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