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PayPal and Visa End Battle, Unveiling Pact on Fees and Data

  • PayPal agrees to stop steering business away from Visa
  • Visa offers some certainty on what fees it will charge PayPal

PayPal Holdings Inc. and Visa Inc. just made up after more than a decade sparring over the future of digital payments.

The two companies announced an agreement Thursday in which PayPal will stop discouraging customers from linking accounts to Visa cards and share more data with the card network in exchange for "long-term Visa fee certainty" and other incentives.

For Visa, the deal stems the loss of transaction fees when PayPal users link their PayPal and Venmo digital wallets to their bank accounts. For PayPal, it removes the threat of higher costs from those new fees and re-invigorates its push to become a common in-store payment tool.

The deal ends years of acrimony between the companies that escalated as PayPal’s transactions volume soared and Visa expanded into PayPal’s turf of online payments and digital wallets.

"This is a watershed moment because for the past 17 years -- ever since PayPal was founded -- Visa viewed it as an adversary," said Gil Luria, analyst at Wedbush Securities. "PayPal is now in a position to negotiate with Visa about rates, which it never had before."

PayPal shares rose as much as 6.9 percent in after-hours trading on news of the deal and strong quarterly results. Visa shares were little changed in extended trading.

Less ACH

PayPal’s strategy of steering customers to link their digital wallets with a bank account drew ire from Visa executives as it allowed PayPal to process payments via the cheaper, bank-owned ACH network, cutting Visa out of transactions.

The ACH system charges a...