If it up to Visa executives, the war on PayPal will kick off any day now. This comes as quite a surprise, considering the online payment platform has been rather supportive of the credit card issuer throughout the years. But not everything is as rosy as most people think it is, and there are some grudges waiting to be settled.
For the longest time, it appeared all was well between PayPal [NASDAQ: PYPL]and credit card issuers. After all, the platform supports Visa [NASDAQ:V], Mastercard [NASDAQ:MA], Discover [NASDAQ:DFS], and American Express [NASDAQ:AXP]. Without discrimination. Additional cards are accepted around the world, depending on the user’s location.
Visa Has Big Plans For Online Payments
But very few people seem aware of how the PayPal business model works. It is convenient to send funds from a credit or debit card through the online payment processor, but the card issues want a bigger slice of the cake. It is equally important to keep in mind there are a lot of bank transfer-funded deposits and withdrawals taking place, which take away business from credit cards issues such as Visa.
Visa CEO Charles Scharf was clear on the position of his company:
“PayPal drives a lot of business our way — that’s supposedly the friend part of it. The foe part is where they then use historically those transactions to do everything they can to get those to ACH, where our clients and we get disintermediated from the transaction, the entire experience, and it causes tremendous customer service problems for the bank specifically. And so anyone that’s trying to take your customers and disintermediate you — is not a friend and so that’s the reality of the way we viewed PayPal historically.”
These stern words seem to indicate the Visa CEO is for removing bank account support from PayPal. However, since the platform has so many users who may not have [easy] access to a credit or debit card, that may not be a smart business decision. For the online payment processor, it is pertinent to get as many customers on board as possible, regardless of payment method used.
At the same time, Visa seems open to figuring out a different business model with Paypal. However, Scharf is also very clear in stating his company will not hesitate to outcompete the online payment processor if needed. Both options are on the table, and either solution will work fine for Visa. The ball is now in the camp of PayPal, but it is doubtful they will prioritize credit and debit cards over bank accounts.
In fact, Visa already has a competing tool available, in the form of Visa Checkout. This online credit card service launched in 2014, yet it has not gained any significant traction just yet, despite over 12 million consumers using the platform. PayPal, on the other hand, has over 184 million active users.
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