eBay’s PayPal Says Thank You to Visa/MasterCard for Pissing off Retailers: an Opening in Payments

Retailers are fed up with Visa (V) and Mastercard (MA). Merchants have refused to sign off and settle a lawsuit that accuses the credit card companies of colluding to set swipe fees. So how angry are they? Investors will find out soon by watching eBay’s (EBAY) fast-growing PayPal.

PayPal just struck a deal with rival Discover (DFS), reports the Wall Street Journal. The deal will make PayPal's card-less check-out available at any merchant that accepts Discover cards. Customers can use their PayPal accounts to pay for things -- without a card -- by entering a mobile-phone number and personal identification number. Discover will process the payments.

This gives angry merchants another reason to accept Discover, whose stock happens to be on a roll.

DFS Chart

DFS data by YCharts

But the big winner here is PayPal, which has been looking for a way to get in front of retailers and their customers. As eBay said in its annual filing, PayPal "offers merchants an all-in-one payment processing experience that is generally less expensive than payment card alternatives." A merchant, it says, can open a PayPal account and start using it to accept payments within minutes -- with no set-up or monthly fees.

PayPal had plans to get 20 major retailers to test its point-of-sale service by the end of this year, Reuters reported back in February. The Wall Street Journal says it's in 16 national chains, and according to the UniBul blog, McDonald’s (MCD) has been testing out PayPal at French checkout counters. The Discover deal gives it a way to back into a payment network.

PayPal's a piker compared to the card duo, but it has been growing fast, including onto phones. Last year its net total payment volume from mobile devices was $4 billion, up from $750 million in 2010.

Crucially, PayPal considers this just a test year, says Reuters. It plans to scale up seriously in 2013. Visa and Mastercard have been solid businesses for years, but angry customers plus competition could spell trouble.

V Chart

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