It's extremely unlikely that MasterCard Inc. would buy out PayPal Holdings Inc., Bernstein analyst Lisa Ellis wrote in an e-mail Tuesday amid speculation that a deal may be on the table. Bringing the competitors together wouldn't make strategic sense since the two business models are so different, she said.
"Combining them would destroy value," Ellis wrote. PayPal would have to wave goodbye to its relationships with Visa Inc. and American Express Co., which make up about 30 percent of volume. In addition, it would be forced to shut down its digital wallets, which have 170 million users. It’s also unclear how PayPal would benefit MasterCard, she said.
Shares of PayPal spiked Tuesday, climbing 3 percent, the most in more than three months. Twitter users buzzed about a potential acquisition by MasterCard — an idea that isn't novel. In March, Wedbush analyst Gil Luria cited MasterCard as a possible "dance partner" for PayPal. BTIG analyst Mark Palmer said in November that Google may make a bid.
"You get PayPal rumors like this from time to time; the last one was AmEx," Credit Suisse analyst Paul Condra wrote in an e-mail. "All of these deals make sense on some level but also sound very complicated."
Relations between the two companies have become increasingly tense in recent months as MasterCard has said PayPal is "steering" customers toward certain payment methods.
"We have two big issues with PayPal," MasterCard Chief Financial Officer Martina Hund-Mejean said on a June 15 conference call. The first, she explained, is lack of visibility on data from transactions that use MasterCard. The second is PayPal guiding users to make purchases in a certain way, which can result in lower fees for MasterCard.
"We want the consumer to be deciding what they want to do," Hund-Majean said. "Do they really want to link their checking account or do they want link any of the card products?"
Giving customers the best experience is synonymous with giving them options, PayPal Chief Executive Officer Dan Schulman said on an April 27 earnings call in response to a question about the company's relationship with MasterCard. "In addition, we are very willing to share data back with the issuers and the networks," he said.
MasterCard and other traditional payment companies are fighting to keep up as alternative-checkout platforms like PayPal draw in customers and new players enter the space. “We are not a credit-card company," Hund-Mejean told investors at a conference May 24. "We are actually a technology company."
A spokeswoman from PayPal didn't immediately respond to a calls seeking comment and a spokesman from MasterCard declined to comment.