Visa and PayPal could be on the verge of a split

BI Intelligence

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PayPal was, for quite some time, the only real player for online payments.

This led to Visa's friendly relationship with the company, according to remarks made by Visa CEO Charles Scharf at the JP Morgan Technology, Media, and Telecom conference. But as more alternatives have emerged, including Visa's own Visa Checkout service, the two have started to develop a more competitive relationship.

Scharf said that Visa could either figure out a better way to work with PayPal or "go full stream and compete with them in ways that people have never seen before."

Visa's issue with PayPal is disintermediation. Half of PayPal's volume is funded by payment cards, and approximately half of those are Visa-branded, according to TheStreet. The other 50% is funded directly through users' bank accounts over ACH rails, a method that helps PayPal because it removes transaction fees tied to card-based processing. And these ACH payments cut out Visa.

Visa could enhance its presence in several areas if it wants to truly compete with PayPal, according to a note from Autonomous Research's Craig Maurer cited by Recode.

Firstly, Visa and PayPal both provide one-click buy buttons online, but PayPal's service is both bigger and more widely accessible. Visa could bolster its Visa Checkout offerings and marketing in order to expand its merchant network and turn Visa Checkout into a more attractive option for consumers.

Apple Pay, Android Pay, and Samsung Pay all accept Visa cards, but none of them take PayPal yet. If and when mobile wallets become more popular, then this could increased Visa card usage.

Finally, Visa could reduce its transaction fees for payment platforms that user biometric or multi-factor purchase authentication for enhanced security, which could in turn convince digital merchants to partner with Visa to take advantage of the reduced fees.

Mobile payments are becoming more popular, but they still face some high barriers, such as consumers' continued loyalty to traditional payment methods and fragmented acceptance among merchants. But as loyalty programs are integrated and more consumers rely on their mobile wallets for other features like in-app payments, adoption and usage will surge over the next few years.

Evan Bakker, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile payments that forecasts the growth of in-store mobile payments in the U.S., analyzes the performance of major mobile wallets like Apple Pay, Android Pay, and Samsung Pay, and addresses the barriers holding mobile payments back as well as the benefits that will propel adoption.

Here are some key takeaways from the report:

• In our latest US in-store mobile payments forecast, we find that volume will reach $75 billion this year. We expect volume to pick up significantly by 2020, reaching $503 billion. This reflects a compound annual growth rate (CAGR) of 80% between 2015 and 2020.
• Consumer interest is the primary barrier to mobile payments adoption. Surveys indicate that the issue is less the mobile wallet itself and more that people remain loyal to traditional payment methods and show little enthusiasm for picking up new habits.
• Integrated loyalty programs and other add-on features will be key to mobile wallets taking off. Consumers are showing interest in wallets with integrated loyalty programs. Other potential add-ons, like in-app, in-browser, and P2P payments, will also start fueling adoption. This strategy has been proved successful in China with platforms like WeChat and Alipay.

In full, the report:

• Forecasts the growth of US in-store mobile payments volume and users through 2020.
• Measures mobile wallet user engagement by forecasting mobile payments' share of their annual retail spending.
• Reviews the performance of major mobile wallets like Apple Pay and Samsung Pay.
• Addresses the key barriers that are preventing mobile in-store payments from taking off.
• Identifies the growth drivers that will ultimately carve a path for mainstream adoption.

To get your copy of this invaluable guide, choose one of these options:

1. Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of how mobile payments are rapidly evolving.