Online payments company moves further into traditional retail banking territory

PayPal has struck a deal with Visa that enables it to issue debit cards in Europe, as the online payments service company moves further into traditional retail banking territory.

The two companies have signed an agreement to collaborate in offering payments services across the continent, easing a long-standing competitive tension.

Card companies have come under pressure from the rise of PayPal, whose users are able to make payments directly from bank accounts, bypassing the card network.

As part of the deal, PayPal, which already has a banking licence in Europe, will be able to offer PayPal-branded Visa debit cards.

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The move is expected to appeal in particular to small businesses that carry balances in their PayPal account for buying supplies, or for people who do not have a bank account but use PayPal.

Until now, PayPal has used its banking licence largely for treasury functions. The deal with Visa opens up a broader customer base as the company shifts towards retail banking.

Jim Magats, head of payments, product and engineering at PayPal, said that although there was no immediate goal to launch a debit card, planning was under way.

PayPal already offers pre-paid cards with MasterCard in some countries, such as Italy. It also offers debit cards in the US. The move would mark a first in Europe.

Mr Magats said that PayPal had several merchant customers that would prefer to use PayPal rather than a bank account for day-to-day spending, and customers who conducted all their online transactions via PayPal who wanted to extend this to card spending.

The deal with Visa will give PayPal users access to Visa’s contactless payment points in retailers and shops across Europe, providing PayPal with access to in-store retail transactions. It also means that customers would be able to use their phone to “tap and pay” in a shop, for example, through their PayPal account.

The development is a boost for PayPal, which has traditionally operated online as a payments service, by deepening its foothold in the world of in-store commerce.

For Visa, the deal makes it easier for PayPal customers to pay with their Visa card online or in a mobile app.

Mr Magats said that PayPal had “historically created friction for a customer to get to their Visa card if they had a balance or a bank account . . . we will create an equal environment for someone to get to their Visa account”.

The move should mean that Visa sees more card transactions going through PayPal. In return, Visa will pay “economic incentives”.

- (Copyright The Financial Times Limited 2017)