During its quarterly earnings report yesterday, PayPal outlined a new deal with Visa that will enable it to start offering tokenized payments at physical retail stores. In exchange, PayPal will stop encouraging users to link their bank accounts to its service instead of a credit card, giving Visa a boost.
But what does that mean for consumers? For starters, the deal shows that PayPal is trying to compete more directly with the tap-to-pay convenience of Apple Pay and Android Pay. Right now, you can pay with PayPal in-store via a mobile app, but it uses different technology and is not accepted everywhere. That's because PayPal doesn't have access to the hardware necessary for tap-to-pay.
Apple isn't likely to open up its iPhone chip technology to an Apple Pay competitor. And while PayPal could potentially gain access to the chip on non-iOS devices, the tap-to-pay feature will feel half-baked—as I've explained before—if all PayPal users are not able to use it. By forging a relationship with Visa, PayPal can sidestep this issue and create a tokenized payment method that is available to all its users and accepted in the same places as Apple Pay and Android Pay.
The catch? PayPal's new in-store payment type probably won't be activated through a mobile app like its competitors. Token-generating chips aren't limited to phones. As we've seen from Visa's contactless payments ring for the Olympics, payments can be baked into anything. So when PayPal emerges with its own tokenized payments, expect the unexpected. RR