This past week PayPal and Visa announced a partnership in which Visa will allow users to use PayPal as a funding source when checking out in stores using Visa Checkout. So which party got the better end of the deal?
- PayPal users will be able to use the PayPal app to to pay for items where Visa tap-and-pay is accepted. Positive.
- PayPal will also be provided volume incentives aka cash payments when exceeding payment volumes thresholds. Slightly positive.
- PayPal will receive "greater long-term Visa fee certainty." Meaningless.
- Assurance that PayPal will stop intentionally steering customers to directly link bank accounts to PayPal and instead seek payment through Visa. Game changer.
So which party got the better end of the deal? PayPal will certainly see increased revenue opportunities with ties to Visa tap-and-pay but will the incremental revenue and incentives outweigh the higher cost of processing customer transactions via Visa in place of checking accounts? Doubtful in my opinion. PayPal's largest driver of profits was is ability to have customers pay using checking accounts. Processing payments via checking accounts is a fraction of the cost of processing fees from Visa. I believe Visa played its' heavier hand in this negotiation and came out better. There are two main pipes with volume: Visa and Mastercard. With this "partnership," PayPal increased its' reliance on the Visa pipes to run their increasing volume of transactions.