• Companies have also been at odds over security, account choice
  • Truce would follow tough talk from Visa CEO on competition

PayPal Holdings Inc. and Visa Inc. may unveil an agreement regarding data sharing, security measures and consumer choices on accounts linked to PayPal transactions, analysts said ahead of the companies’ earnings reports.

Speculation about a potential pact has emerged in part because of the timing of PayPal’s second-quarter report Thursday -- the same day as Visa’s -- as well as comments made by executives from both companies that suggest talks have been under way. Usually, PayPal releases earnings on the fourth Wednesday of the month following the quarter’s end. The company also scheduled its conference call for 6:30 pm New York time, leaving sufficient time for Visa’s 5 p.m. earnings call to end.

“While there is a slim chance the change was due to logistical reasons, we believe a possible modification in the relationship between Visa and PayPal is the more likely cause for the change," wrote Citi analyst Ashwin Shirvaikar, who predicts a potential truce between the companies.

Visa, the world’s largest payment network, has long accused PayPal of hurting its business by encouraging customers to link PayPal accounts directly to bank accounts so their payments can be processed via the cheaper, bank-owned ACH network, cutting Visa out of transactions entirely. A second sticking point is a lack of transparency from PayPal about what customers are buying with accounts linked to credit cards -- data that is valuable to card issuers for fighting fraud. The companies could also cooperate on tokenization, a security feature that swaps cardholder information such as account numbers with a unique set of numbers that validates a customer’s identity without giving card details to merchants to discourage online data theft.

Investors would prefer to see San Jose, California-based PayPal and card issuers strike a deal rather than duke it out over fees and data, said Gil Luria, an analyst at Wedbush Securities. Without an agreement, Visa and other issuers such as MasterCard can punish PayPal by raising fees on transactions and promoting their own digital wallets to their large customer bases, threatening PayPal’s growth.

"One of the main concerns investors have had since PayPal split from EBay is whether PayPal can peacefully co-exist with Visa and MasterCard," Luria said. "A deal removes a very large investor concern."

Visa Chief Executive Officer Charlie Scharf said at an investor conference in May that he hoped to reach an agreement with PayPal, or the San Francisco-based company would “go full steam and compete with them in ways that people have never seen before.”

His counterpart at PayPal, CEO Dan Schulman, a former executive at card network operator American Express Co., has prioritized increasing payment volume and customer engagement, even if it means PayPal makes less money on each transaction. On an April earnings call he said PayPal signs up more customers and they make more frequent transactions when it lets them choose how to structure payments instead of steering them to link PayPal transactions to their bank accounts, which is more profitable for PayPal. He also said he supported sharing data with payments partners, and that he was optimistic that PayPal conversations with other payments companies would result in a “win-win” for all parties.

PayPal stock, which has gained about 11 percent in the past year, has gyrated since speculation of a potential agreement began last week. Any agreement of this kind may cause short-term pain by hurting profitability, but would provide long-term benefits if it prevents competitive moves from the larger credit-card issuers.

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