PayPal's new partnership with Alliance Data spans multiple products at both companies, but it has barely scratched the surface of what the two payments providers say is possible.

The relationship affects credit and in-store products, and comes at a time when PayPal is accelerating its push to become ubiquitous at the register.

"PayPal was being aggressive at the point of sale, so it made sense for us to partner with them," says Brian Billingsley, Alliance Data's director of strategic business development.

Under a multi-year agreement announced on August 6, Alliance Data and PayPal will develop and test strategies that leverage both companies' services. Alliance Data will also become an issuer for PayPal's Bill Me Later credit products and will maintain a partial interest in the receivables generated under the program. Bill Me Later, which PayPal bought in 2008, provides instant credit for online shopping on a purchase-by-purchase basis.

Also under the partnership, merchants that accept PayPal in stores and offer private-label credit cards through Alliance Data will be able to link the two products, allowing their private-label cards to fund PayPal purchases made in stores, online and on mobile devices.

"We think we can drive consumers to the PayPal Wallet and we can also drive usage for our private label cards through this partnership," says Billingsley.

PayPal, a unit of eBay Inc., can benefit greatly by accessing Alliance Data's network of retail payment cards and loyalty programs, says Phil Philliou, a payments consultant. PayPal has been attempting to build an in-store presence for more than a year, using a mix of plastic cards, the PayPal Here mobile card reader and electronic payments.

"This is an extremely exciting strategic partnership as it makes sense at face value and is full of potential. [Alliance Data's] management team has really transformed their business into a payments powerhouse focused on retailers; offering brilliant data analytics, cobranded credit and private label," Philliou says.

PayPal's point of sale payments pursuit has already benefited from a major partnership with Discover, which in April began enabling PayPal acceptance at all of its merchants.

The Discover rollout has been gradual, but the Alliance Data relationship "truly opens the door to retailers for PayPal," Philliou says. "The dealmakers at [Alliance Data] and PayPal have created a great framework, now it's all about execution. If executed well, this deal should be transformative for PayPal and a solid revenue generator for [Alliance Data]."

The maturation of PayPal's retail strategy should give the Alliance Data partnership even more heft, Billingsley says.

"As the eBay and PayPal ecosystem becomes more cohesive, the sky is the limit as to what we can do to drive engagement on the card," Billingsley says.

One example is using PayPal's messaging capabilities to send reminders of special offers at retailers to consumers that have not made a payment at a particular retailer for several months, Billingsley says.

There's also an opportunity to combine the mobile capabilities of both companies, Billingsley says. Alliance Data's bar code-powered mobile payments technology could add features from PayPal's mobile wallet, he says.

PayPal did not make an executive available for an interview. In an emailed statement, David Gilcreast, a PayPal spokesman, said, "We're looking forward to collaborating with Alliance Data Systems to bring the most innovative payments solutions to both our consumers and merchant partners."

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