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PayPal Cuts Deal with Visa, Abandons ACH Push

PayPal HQ 2015For those wondering if the post-eBay PayPal would act differently, July 21 gave us the answer: Yes. On Thursday, PayPal announced a strategic partnership with Visa where Visa would get preference—in both PayPal and Venmo apps—and PayPal said that it would “not encourage Visa cardholders to link to a bank account via ACH” and “PayPal will also support and work with issuers to identify consumers who choose to migrate existing ACH payment flows to their Visa cards.”

Aite Group Senior Analyst Thad Peterson pointed to the ACH surrender as most key. “PayPal is walking away from steering their customers to ACH as the preferred payment type and is instead adding sufficient value to Visa payment offerings to essentially make Visa the preferred payment option for PayPal customers,” Peterson says. “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.”

The announcement of the deal included quite a few promises, such as PayPal’s commitment that “Visa cards will be presented as a clear and equal payment option during enrollment and subsequent payments, with an easy ability for consumers to set as their preferred payment method” and that “Visa digital card images will be incorporated into payment flows.”

The two companies stressed ease of money exchange between PayPal/Venmo and Visa. “Consumers will be able to instantly withdraw and move money from their PayPal and Venmo accounts to their bank account via their Visa debit cards leveraging Visa Direct—providing an experience that offers speed, security and convenience,” the statement said.

Arguably, the most valuable element in digital transactions today is data and, as Peterson noted, this deal promises to deliver a lot more of it, provided the transactions touch PayPal and Visa. “PayPal will ensure that data provided to issuers and their cardholders for Visa-funded transactions will be consistent with the information that is received with traditional Visa card transactions. This will ensure a better consumer experience, reduce cardholder confusion, ensure proper application of rewards, and reduce costly and time-consuming disputes,” the statement said.

The pair said that there will be revenue-sharing, but were scant on specifics. “The agreement affords PayPal certain economic incentives, including Visa incentives for increased volume, and greater long-term Visa fee certainty,” the statement said.

Critically, the deal will sharply increase where PayPal is accepted in physical environments that already accept Visa contactless payments. PayPal is joining Visa’s Digital Enablement Program (VDEP), giving it access to Visa’s tokenization program. “This will enhance transaction security and expand acceptance for PayPal’s digital wallet to all physical retail locations where Visa contactless transactions are enabled. Consistent with VDEP, issuers will be able to choose whether to participate and retailers can expect to pay fees that are consistent with other contactless transactions they accept today.”

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