EBAY eBay Inc

By Telis Demos 

PayPal Holdings Inc. is coming to the checkout line.

The online payments giant has struck a deal with Visa Inc., announced Thursday by the two firms, that will make paying with PayPal an option when people pay in stores with their smartphones.

It also will now be possible for users of PayPal's popular mobile apps, including Venmo, to instantly withdraw money they receive through the peer-to-peer payments service, if they link it to their Visa debit cards.

The deal ends a year of tense negotiation between the firms, and removes uncertainty for PayPal about the fees it pays to Visa, with higher fees being a major threat to its profitability.

It also gives PayPal another tool with which to fend off the growing focus of banks on instant mobile-app payments between individuals.

"This agreement opens new avenues for PayPal to collaborate," said Dan Schulman, PayPal chief executive, in a statement. PayPal seeks to provide "new experiences for our joint customers wherever they transact, " he said.

PayPal shares were up 2% in after-hours trading, to $40.95. Visa shares were down 0.3% to $78.52. Both companies also released earnings Thursday afternoon. As part of the deal, PayPal agreed to stop steering customers to link directly to bank accounts, which allows it to avoid paying fees to card networks such as Visa or MasterCard Inc.

In exchange, Visa will make PayPal a part of its "digital wallet" program, enabling it to be accepted when Visa partners with stores and banks for "contactless" mobile taps at the checkout line. PayPal agreed to share data with Visa about these transactions.

As recently as May, Visa Chief Executive Charles Scharf at an investor conference had described PayPal as a potential "foe," and threatened to "compete with them in ways that people have never seen before."

On Thursday, in a statement, Mr. Scharf said: "We are excited to begin a new chapter with PayPal. Our agreement provides a framework for our companies to work together collaboratively."

Visa also will provide "fee certainty" to PayPal, and will offer it incentives based on volume. The exact terms weren't disclosed.

Some analysts, who been speculating about a deal for weeks, warned that Visa's fee incentives may not make up for PayPal moving away from steering customers to low-cost bank links.

Craig Maurer, analyst at Autonomous Research, wrote in a note in reaction to the deal: "Investors will likely react positively to the announcement initially, but once they pore over the details, we believe they will come to the conclusion that Visa came out far ahead in this deal."

Meanwhile, PayPal also raised its annual revenue guidance to between $10.75 billion and $10.85 billion, from $10.5 billion to $10.7 billion previously. The company now expects adjusted earnings on a per-share basis between $1.47 and $1.50, up from $1.45 to $1.50 previously.

For the quarter, PayPal's earnings rose to $323 million, or 27 cents a share, from $305 million, or 25 cents a share, a year earlier. Excluding certain items, the company posted per-share earnings of 36 cents, up from 33 cents a year earlier, on a pro forma basis, in line with the average analyst estimate of 36 cents, according to Thomson Reuters. The company had forecast adjusted earnings between 34 cents and 36 cents.

The San Jose, Calif., company said revenue rose 15% to $2.65 billion, above the average analyst estimate of $2.6 billion. The company had projected quarterly revenue of $2.57 billion to $2.62 billion.

--Ezequiel Minaya contributed to this article

Write to Telis Demos at telis.demos@wsj.com

(END) Dow Jones Newswires

July 21, 2016 18:08 ET (22:08 GMT)

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