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MasterCard (MA) and PayPal Pact Expands Payment Options

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MasterCard Incorporated (MA - Free Report) and PayPal Holdings Inc. (PYPL - Free Report) have announced an extension of their long-standing partnership. The deal entitles PayPal to make MasterCard a "clear and equal" payment choice in its wallet. The card will be shown as a default payment method, making it easily identifiable to customers while transacting. Also, PayPal will "not encourage" Mastercard customers to link a bank account any more. It will also make Masterpass a payment option for Braintree (a PayPal subsidiary) merchants.

PayPal will use MasterCard’s tokenization service, which swaps cardholder information such as account number, with a unique set of numbers that validates a customer’s identity to prevent online data theft. Consumers can use a tokenized MasterCard in their PayPal Wallet to make in-store purchases at more than 5 million contactless-enabled merchant locations across the world.

The deal will also enable consumers and small businesses to instantly transfer funds from their PayPal account to a MasterCard debit card.

The partnership will give MasterCard higher prominence in online transactions, by funneling more transactions through its network. It will save MasterCard from transaction fee loss that it suffered when PayPal users linked their PayPal digital wallets to their bank accounts. The agreement should boost spending through MasterCard. Merchants should also benefit from improved customer experiences, efficiency, and security, which together act as sales drivers.

On the other hand, this deal will help PayPal to expand its reach into physical stores, an area it has been struggling with for the past many years.

In July, MasterCard announced another deal with PayPal which saw the multi-year extension of the PayPal Extras MasterCard co-branded consumer credit card program in the United States and Puerto Rico.

In the same month, another player in the industry, Visa Inc. (V - Free Report) . announced a similar deal with PayPal per which the latter 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.

These deals will put to rest the growing friction between credit card companies and PayPal over online transactions as the former encroached upon the latter’s share of online payments and digital wallets.

MasterCard carries a Zacks Rank # 3 (Hold). A better-ranked stock in the same space is JetPay Corp. , with a Zacks Rank #2 (Buy).

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