PayPal is forming a new partnership with Visa for digital payments, a deal that will allow consumers to use their Visa cards as easily as PayPal in electronic transactions.
The new agreement will see PayPal avoiding ACH transactions in some cases, a significant change for the company, which historically has used the network. The ACH (automated clearing house) system is run by banks and not the card companies, and so transactions that go through that network don’t require PayPal to pay a fee to a card company. With the Visa partnership, PayPal said it won’t encourage customers to link their bank accounts to their PayPal accounts via ACH.
PayPal owns a big chunk of the online payment market, and it is presented as a payment option on virtually all of the major shopping sites. The company, which is owned by eBay, currently allows customers to use credit or debit cards as funding sources for their accounts, but the agreement with Visa steps it up a notch.
“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,” the companies said in a statement.
Another big change with this partnership is PayPal joining Visa’s Digital Enablement Program, which allows Visa’s partners to access the company’s secure token services.
“This will enhance transaction security and expand acceptance for PayPal’s digital wallet to all physical retail locations where Visa contactless transactions are enabled,” the statement says.
The agreement between PayPal and Visa comes at an interesting time. In May, Visa CEO Charlie Scharf complained about the way that PayPal pushes customers to ACH transactions, rather than card transactions, and said that if the company didn’t change its model, Visa would “go full steam and compete with them in ways that people have never seen before,” according to Recode.
That sentiment has changed now that the two companies have forged a partnership.
“We are excited to begin a new chapter with PayPal. Our agreement provides a framework for our companies to work together collaboratively,” Scharf said.
The electronic payment landscape is changing quickly, as more and more consumers are using systems such as Apple Pay and other mobile payment methods, both online and in person. Those systems typically use a linked credit or debit card as the actual payment method, but the card companies and issuers have been struggling to keep up with the changes in user behavior and the security threats that go along with them.