PayPal Strikes Partnership With Visa--Update
July 21 2016 - 6:23PM
Dow Jones News
By Telis Demos
PayPal Holdings Inc. is coming to the checkout line.
The online payments giant has struck a deal with Visa Inc.,
announced Thursday by the two firms, that will make paying with
PayPal an option when people pay in stores with their
smartphones.
It also will now be possible for users of PayPal's popular
mobile apps, including Venmo, to instantly withdraw money they
receive through the peer-to-peer payments service, if they link it
to their Visa debit cards.
The deal ends a year of tense negotiation between the firms, and
removes uncertainty for PayPal about the fees it pays to Visa, with
higher fees being a major threat to its profitability.
It also gives PayPal another tool with which to fend off the
growing focus of banks on instant mobile-app payments between
individuals.
"This agreement opens new avenues for PayPal to collaborate,"
said Dan Schulman, PayPal chief executive, in a statement. PayPal
seeks to provide "new experiences for our joint customers wherever
they transact, " he said.
PayPal shares were up 2% in after-hours trading, to $40.95. Visa
shares were down 0.3% to $78.52. Both companies also released
earnings Thursday afternoon. As part of the deal, PayPal agreed to
stop steering customers to link directly to bank accounts, which
allows it to avoid paying fees to card networks such as Visa or
MasterCard Inc.
In exchange, Visa will make PayPal a part of its "digital
wallet" program, enabling it to be accepted when Visa partners with
stores and banks for "contactless" mobile taps at the checkout
line. PayPal agreed to share data with Visa about these
transactions.
As recently as May, Visa Chief Executive Charles Scharf at an
investor conference had described PayPal as a potential "foe," and
threatened to "compete with them in ways that people have never
seen before."
On Thursday, in a statement, Mr. Scharf said: "We are excited to
begin a new chapter with PayPal. Our agreement provides a framework
for our companies to work together collaboratively."
Visa also will provide "fee certainty" to PayPal, and will offer
it incentives based on volume. The exact terms weren't
disclosed.
Some analysts, who been speculating about a deal for weeks,
warned that Visa's fee incentives may not make up for PayPal moving
away from steering customers to low-cost bank links.
Craig Maurer, analyst at Autonomous Research, wrote in a note in
reaction to the deal: "Investors will likely react positively to
the announcement initially, but once they pore over the details, we
believe they will come to the conclusion that Visa came out far
ahead in this deal."
Meanwhile, PayPal also raised its annual revenue guidance to
between $10.75 billion and $10.85 billion, from $10.5 billion to
$10.7 billion previously. The company now expects adjusted earnings
on a per-share basis between $1.47 and $1.50, up from $1.45 to
$1.50 previously.
For the quarter, PayPal's earnings rose to $323 million, or 27
cents a share, from $305 million, or 25 cents a share, a year
earlier. Excluding certain items, the company posted per-share
earnings of 36 cents, up from 33 cents a year earlier, on a pro
forma basis, in line with the average analyst estimate of 36 cents,
according to Thomson Reuters. The company had forecast adjusted
earnings between 34 cents and 36 cents.
The San Jose, Calif., company said revenue rose 15% to $2.65
billion, above the average analyst estimate of $2.6 billion. The
company had projected quarterly revenue of $2.57 billion to $2.62
billion.
--Ezequiel Minaya contributed to this article
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
July 21, 2016 18:08 ET (22:08 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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