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Michael P. Regan

PayPal's Old Enemies Are Its New Pals

The digital payments company has a better chance of success as a partner, not a maverick.

PayPal Holdings has buried another hatchet

The digital payments company spun off from eBay last year ended another quarrel with a rival, this time Mastercard. 

The tension between the card networks and PayPal stemmed from a turf war staged in the plumbing of the financial system. PayPal had encouraged its 188 million users to fund their accounts by connecting them directly to their banks. That allowed the company to utilize what's known as the Automated Clearing House, which is a much cheaper way to move money through the pipes than the systems run by credit and debit card networks.

Much like the armistice reached with Visa in July, the deal means PayPal will no longer encourage users to connect accounts directly to their banks. In return, it means PayPal will be accepted in more brick-and-mortar stores that allow payments from cards by mobile phones. PayPal also receives incentives for increased volume and greater long-term certainty on the fees levied by the card network.

Investors reacted angrily to the deal with Visa when it was announced on July 22, sending the shares down almost 7 percent on concern that profit margins would be eroded by the higher costs of dealing with card networks. The reaction to the Mastercard deal announced Tuesday was much more muted, with the stock little changed. But the shares are still languishing more than 7 percent below where they were before the Visa deal was announced.