PayPal Strikes Partnership With Visa on Smartphone Payments — WSJ

By Telis Demos 
 Stock Market Quotes, Business News, Financial News from http://commodity-market-news.com

PayPal Holdings Inc. is coming to the checkout line.

The online-payments provider has struck a deal with Visa Inc., announced Thursday by the two companies, 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 get through the peer-to-peer payments service if they link it to their Visa debit cards.

The deal ends a year of tense negotiations between the firms and removes uncertainty for PayPal about the fees it pays Visa, with higher fees being a major threat to its profitability.

It also helps PayPal move beyond what helped it first revolutionize internet payments in the 1990s — providing an online alternative to cash and credit cards — to what it hopes is a bigger role in the system, serving people and businesses that use Visa or any other payment tool everyday.

“This is a new PayPal, one that is actively partnering across the digital payments landscape,” Chief Executive Dan Schulman told analysts.

In an interview, he added: “We want customers to pay any way they want, and the deal with Visa allows us to move more aggressively into the store.”

The shift, which Mr. Schulman called “fundamental to long-term growth,” is investors’ strongest indication of PayPal’s direction as an independent company. Last year it was split off from eBay Inc., where it focused on helping buyers pay sellers in the online marketplace, as part of a plan to unlock more value. PayPal’s shares are up 11% in the year to date through Thursday’s close. released earnings

Some analysts have noted the impact on profitability of moving more transactions to Visa’s network, for which PayPal pays fees. PayPal said that while its transaction expenses would increase starting next year, it would also begin to unlock more revenue opportunities.

“I truly don’t think any doors have closed, multiple doors opened,” Mr. Schulman said.

PayPal has recently expanded its range of moneymaking services, like one-touch online checkout, business and personal loans, customer-loyalty tools and cross-border remittances.

The instant Visa linkage also gives PayPal another tool with which to fend off the growing focus of banks on their own instant mobile-app payments aimed at competing with Venmo. Venmo transactions grew by 141% in the second quarter to $3.9 billion, PayPal said Thursday.

PayPal shares fell about 2% in after-hours trading to $40.13. Visa shares were flat at $78.85 after hours. 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.

That was also a point of contention with banks, which often don’t like it when nonbank firms connect to accounts and which wanted PayPal to promote use of the cards they issue.

In exchange, Visa will make PayPal a part of its “digital wallet” program, enabling it to be accepted at stores that are set up for “contactless” mobile taps with Visa, once PayPal gets banks that issue cards to agree to support it. PayPal has agreed to share data about the Visa transactions it facilitates, which banks want to see.

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 an call with Visa analysts, Mr. Scharf said Visa had secured “principles that we’re happy with….This is all about driving growth in the electronic payments universe.”

Visa also will provide “fee certainty” to PayPal, avoiding the possibility of new or higher fees, and will offer it incentives based on volume. The exact terms weren’t disclosed.

Craig Maurer, analyst at Autonomous Research, wrote in reaction to the deal that the fee discounts won’t offset the higher expense of using Visa’s network more.

“Investors will likely react positively to the announcement initially,” he wrote, “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 raised its annual revenue guidance to as much as $10.85 billion, up from a high of $10.7 billion. It also expects adjusted per-share earnings to be at least $1.47, up from at least $1.45.

For the quarter, PayPal’s earnings rose to $323 million, or 27 cents a share, from $305 million, or 25 cents, a year earlier. The San Jose, Calif., company said revenue rose 15% to $2.65 billion, higher than the average analysts’ estimate of $2.6 billion.

–Ezequiel Minaya contributed to this article.

Write to Telis Demos at telis.demos[a]wsj.com

Copyright (c) 2016 Dow Jones & Company, Inc.