Visa CEO Alfred Kelly is less publicly adversarial toward market rival PayPal than his predecessor Charlie Scharf, even as Visa's push for a "single button" for online payments seems to undermine PayPal's business model.
Visa's 2016 deal with PayPal has boosted Visa's financial performance, and Kelly praised several other partnerships with PayPal that "remove friction" from payments during Wednesday's earnings call. For example, Kelly gave credit to partners such as PayPal and Venmo for expanding P2P payments volume, along with Facebook and Square Cash.
But it was Mastercard, not PayPal, that Visa has aligned itself with in its work for a single button for internet payments, based on EMVCo's Secure Remote Commerce (SRC) Framework. It's too soon to tell whether an SRC button would replace Visa Checkout and Masterpass as brands — but it's clear that the project could compete head-on with PayPal, which is built on a similar premise of providing a single checkout option funded by multiple card brands or bank accounts.
PayPal has cast the move as a rising-tide-lifts-all-boats scenario.
"We've seen that our own 'buy buttons' continue to accelerate," said Bill Ready, PayPal's chief operating officer, during a Wednesday earnings call. "And so we really want to power the entire movement towards seamless digital wallet buying experiences, happy to partner with those to do that."
Ready went on to describe the single button as more of a technical upgrade than an entirely new product category. He noted that Visa Checkout and Masterpass already accepted their rival network's cards.
Visa's Kelly, however, insists that the status quo has to be improved upon.
"It's too cluttered for merchants," Kelly said during Visa's earnings call, adding the company remains committed to Visa Checkout, but the ultimate future for e-commerce is a move to a "single button" that's similar to the card-present market, where any card works at any terminal.
"There's too much confusion for consumers and they fall out of the ecosystem … we've had the equivalent of multiple terminals in the e-commerce world," Kelly said.
Even as Kelly expressed his desire for a single payments button, he touted the success of the company's two-year-old truce with longtime rival PayPal, in which Visa offered incentives that helped PayPal's wish to expand into brick and mortar stores in exchange for PayPal giving up pushing ACH routing. PayPal entered a similar deal with Mastercard around the same time.
Kelly also mentioned collaboration with PayPal on ride sharing payments technology, and support for instant merchant deposits, noting PayPal recently partnered with Visa on instant merchant deposits, joining other collaborations such as WorldPay and Square.
Kelly's predecessor Scharf, who left Visa in 2016, took a much different approach to PayPal in the runup to the 2016 data sharing deal, often disparaging PayPal's business model and saying PayPal did things "that were not good for Visa's business." Most notably, PayPal urged users to fund payments by linking a bank account rather than use a credit or debit card.
"Overall our partnership with PayPal has gone well, and we're speaking with them on tokenization initiatives," Kelly said.
Kelly did not elaborate on the "tokenization talks" or whether they are related to the card network's push for a universal payment experience that will be based on EMVCo standards. Mastercard has pushed for a fully tokenized experience as part of the single button, which is still a work in progress—Kelly called the process "the first inning."
For its part, PayPal continues to point to its One Touch pay button as a widely used option that has a 90% conversion rate for online shoppers. It's a number that "is a great thing for consumers and an essential thing for merchants," PayPal CEO Dan Schulman said during the earnings call.
The relationship with the card brands has netted PayPal various partnerships with issuing banks, including one with Barclays that Schulman revealed during the call that allows customers to manage Barclays and PayPal accounts within the same app.
PayPal is also seeing momentum in its P2P channel with Venmo, which processed $12.3 billion in payments during the first quarter, an 80% increase over a year ago. The payment option is now available with two million merchants across the U.S. and PayPal expects the deployment of Venmo pay buttons on e-commerce sites to accelerate through the year.
In its work with other partners, PayPal brings 237 million users on its platform after adding 8.1 million during the first quarter — a 35% increase over the first quarter of 2017. The PayPal network also has more than 19 million active merchant accounts.
PayPal will continue to flex its muscles through sheer numbers as it gains its footing after the split from eBay and the giant marketplace's recent decision earlier this year to eventually move its payment processing to Adyen.
However, it's a multiyear transition process for Adyen, as eBay continues to have operating agreements with PayPal through July of 2023. Though PayPal chose not to extend its current agreement with eBay that ends in 2020, the companies penned a separate agreement with the 2023 date that allows PayPal to seek processing contracts with other marketplaces, starting in 2020.
In addition to more partnerships with issuing banks and co-branded payment cards, PayPal also has started to work more closely with Samsung Pay, enabling PayPal users to link their accounts to Samsung Pay for in-store purchases. At the same time, they can earn Samsung Rewards.
PayPal also has focused on other payment processing areas, including more emphasis in freelance, or gig economy, markets.
For the quarter ending March 31, Visa's earnings were $1.11 per share, versus the $1.02 forecast by Thomson Reuters. The card brand's revenue for the quarter was $5.07 billion, versus the Thomson-forecasted $4.81 billion. In the prior year, Visa reported earnings of 18 cents per share on $4.48 billion in revenue, or 13% year over year growth.
Kelly said both cross-border transactions and payments volume drove the results. The card network also noted debit card spending increased 16.3% compared to a 13.7% growth in credit cards, driven by increased spending form younger consumers who generally prefer debit to credit cards.
Visa raised its forecast for the full year to the "low 60s per share" from the low 50s.
During the earnings call, Kelly noted contactless adoption in the U.S. lags many European and Asian countries, but is on pace for quick adoption in the coming years. About 20% of Visa payments in the U.S. are contactless, up from about 13% in 2017. That's less than the U.K.'s 57% contactless penetration, for example—where transit payments on the London system are accelerating quickly compared to New York, which has still not migrated to contactless payments.
"The U.S. is in the early stages of embracing contactless," Kelly said, noting that in most markets it takes about two years to build the groundwork for contactless, followed by much faster uptake. Kelly also reported Boston and Miami have joined New York among U.S. cities that have joined Visa Ready for Transit, an initiative to boost contactless payments in transit systems. Transit payments are considered a gateway automation, since transit payments often precedes broader contactless and mobile payment adoption.