The partnership between PayPal and MasterCard follows a similar partnership between PayPal and Visa. The deal is expected to increase MasterCard usage and improve PayPal’s presence in physical stores.
PayPal – MasterCard Partnership
From the strategic point of view, this is a good decision for PayPal. The company spends more on processing card transactions than on ACH transactions and is in an unstable situation. Given eCommerce transactions, PayPal has been a top payment method, but Visa Checkout, Stripe, and other options bring more competition for those dollars.
When it comes to in-app purchases, PayPal faces strong competition from Apple Pay and Android Pay. PayPal should move into physical stores to further grow. According to the US Department of Commerce, in-store transactions counted for 92% of the $97 billion in US retail transactions in Q2 2016.
Merchants interested in reliable payment processing should consider turning to eMerchantBroker (EMB) as a great PayPal alternative. EMB is voted the #1 high risk merchant account provider in the US and boasts an A+ rating with the BBB.
Advantages of PayPal – MasterCard Partnership
Below you can find the main benefits of the deal:
Advantages for MasterCard
- MasterCard will be presented as a payments option in the PayPal wallet
- MasterCard’s branding will be displayed in the PayPal wallet
- PayPal customers will be able to enable MasterCard as their default payment method in the app
- PayPal will use MasterCard to tokenize MasterCard payment information held in the PayPal app
- PayPal will no longer promote ACH as a payment option to MasterCard cardholders
- MasterPass will be offered by PayPal’s Braintree as a checkout option
Advantages for PayPal
- Due to the volume of MasterCard transactions processed, PayPal will gain undisclosed financial incentives
- PayPal will not pay a digital wallet operator fee for MasterCard transactions completed through its services
- It will be possible to use PayPal wallet at more than 5 million contactless merchant locations all over the world
Advantages for Card Issuers
- Card issuers will take advantage of transaction level data from those MasterCard customers who are using PayPal
- MasterCard and PayPal will work together to figure out which customers may be willing to move from ACH payments in PayPal to MasterCard payments
Modern Payments Ecosystem
According to a detailed report on the payments ecosystem provided by Evan Bakker and John Heggestuen, analysts at BI Intelligence, payments companies are working on improving security and expanding their mobile offerings.
It is important to have a better understanding of the traditional credit- and debit-processing chain. Also, it is critical to understand the roles played by acquirers, card networks, processors, issuing banks, gateways, software/hardware providers, and independent sales organizations.
Alternative technologies could break up the processing ecosystem. Devices such as refrigerators and smart watches now feature payment options and will bring about changes in consumer payment behaviors. In the same way, the blockchain technology (the protocol underlying Bitcoin) could change the way consumer card payments are verified today.