MasterCard and PayPal have 'constructive dialogue' (MA, V, PYPL)

Thomson Reuters

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In late July, Visa and PayPal announced a collaborative deal that would push PayPal to better promote Visa cards as an option for PayPal transactions and have PayPal share more information with banks and card networks.

Now, it looks like Mastercard is seeking a similar partnership — the firm is having a “constructive dialogue” with PayPal, according to Mastercard CEO Ajay Banga in the firm’s Q2 2016 earnings call. That’s because Mastercard and its peers feel disrupted by PayPal and its 188 million customers, because it makes it easier for consumers and merchants to bypass card network rails, which ultimately limits card network and banks’ business and revenue.

Mastercard is “actively seeking to expand” its relationship with PayPal, according to Banga.  

• PayPal and Mastercard have a longstanding relationship. The firms have been offering a cobranded card product, called PayPal Extras, for ten years. The card, which is issued by Synchrony Bank, offers customers PayPal buyer protection and Mastercard rewards. The firms announced a multi-year renewal of their contract last week.
• But Mastercard believes further collaboration is better for both consumers and merchants. Since 2013, Mastercard has charged a small fee to digital wallets like PayPal, which allow customers to pay via their credit card but don't provide card networks and issuers purchase data. That data is key to Mastercard, which likely wants to know how consumers are spending as commerce moves online. By deepening its relationship with PayPal, MasterCard can grow its card spend while gaining insights about its consumers, which in turn could build a better, more transparent digital wallet offering for all parties. 

Building a relationship with PayPal could help Mastercard in two key ways:

• Becoming more competitive: PayPal’s partnership with Visa puts Mastercard at a slight disadvantage. As it currently stands, the new partnership should shift some of PayPal’s transactions funded by bank accounts — which comprise roughly half the firm’s volume —  to card networks. But because of the nature of the agreement, Visa specifically will gain most of that benefit. By inking a similar deal, or at least finding an agreement that promotes Mastercard products as an option preferable to ACH, Mastercard could gain standing in the digital wallet space. 
• Growing the ecosystem: Electronic payment providers’ biggest competitor is cash. By finding opportunities for synergy among electronic companies at odds, the entire digital ecosystem can stand to gain by creating more enticing opportunities that draw customers away from cash and towards other payment methods, according to Banga.

MasterCard and PayPal's relationship is just one piece of the larger payments ecosystem, which contains acquirers and processors, issuers, card networks, gateways, and more,

Evan Bakker and John Heggestuen, analysts at BI Intelligence, have compiled a detailed report on the payments ecosystem that drills into the industry to explain how a broad range of transactions are processed, including prepaid and store cards, as well as revealing which types of companies are in the best and worst position to capitalize on the latest industry trends.

Here are some key takeaways from the report:

• 2016 will be a watershed year for the payments industry. Payments companies are improving security, expanding their mobile offerings, and building commerce capabilities that will give consumers a more compelling reason to make purchases using digital devices.
• Payments is an extremely complex industry. To understand the next big digital opportunity lies, it's critical to understand how the traditional credit- and debit-processing chain works and what roles acquirers, processors, issuing banks, card networks, independent sales organizations, gateways, and software and hardware providers play.
• Alternative technologies could disrupt the processing ecosystem. Devices ranging from refrigerators to smartwatches now feature payment capabilities, which will spur changes in consumer payment behaviors. Likewise, blockchain technology, the protocol that underlies Bitcoin, could one day change how consumer card payments are verified.

In full, the report:

• Uncovers the key themes and trends affecting the payments industry in 2016 and beyond.
• Gives a detailed description of the stakeholders involved in a payment transaction, along with hardware and software providers.
• Offers diagrams and infographics explaining how card transactions are processed and which players are involved in each step.
• Provides charts on our latest forecasts, key company growth, survey results, and more.
• Analyzes the alternative technologies, including blockchain, which could further disrupt the ecosystem.

To get your copy of this invaluable guide, choose one of these options:

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