PayPal Expands Partnerships

by Raymond Pucci 0

PayPal keeps expanding its partnership opportunities with other players in the payments ecosystem. According to the following report, the most recent agreement with Discover Financial Services has similarities with others completed in 2016.

Last year, PayPal Holdings Inc (NASDAQ: PYPL) announced it was going to prioritize customer experience by offering more payment options than ever before. PayPal management believed this would enhance its platform’s convenience and lead to higher user engagement.

In PayPal’s 2016 second-quarter conference call, CEO Dan Schulman stated: “Being a customer champion means always prioritizing the needs of our customers. … By making customer choice a priority for PayPal, we are creating a significantly better customer experience to accelerate adoption and drive engagement.”

With this mindset, it is no wonder that PayPal finished 2016 on a wave of deal-making momentum. In the past 12 months, PayPal completed agreements with a number of financial and tech companies including Alibaba Group Holding Ltd (NYSE: BABA), Citigroup Inc (NYSE: C), Facebook Inc (NASDAQ: FB), Mastercard Inc(NYSE: MA), Visa Inc (NYSE: V), and Vodafone Group Plc (NASDAQ: VOD).

While a new year has been ushered in, it is clear PayPal’s philosophy has not changed. Last week, PayPal entered into another major agreement, this time with credit card issuer Discover Financial Services (NYSE: DFS).

In a world where consumers can pay for a pizza on an app 15 minutes before picking up their pies at the restaurant, the lines between point of sale, online, and in-app purchases are increasingly blurred. This makes it imperative that payments companies’ customers have options to utilize their payment accounts however they wish. This deal accomplishes this for both companies.

As with any business deal, the devil is in the details. PayPal is trading off high margins for a bigger piece of the volume pie. That means more exposure and customer contact opportunities. Given that the pie is expanding and being driven by multi-channel payment transactions, the strategic course set by PayPal is heading in the right direction.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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