PayPal Adds to a Growing List of Partnerships in Payments Space

Link with Google ties PayPal into Android Pay

Author: Ezra Palmer

April 18, 2017

PayPal added to its growing list of partners in the digital payments space, extending its existing relationship with Google to include PayPal as a payment option within Google’s Android Pay product.

The move is an incremental one, coming on the heels of partnership announcements with platforms, banks and payments systems including Visa, MasterCard, Alibaba, FIS, Citi and Discover.

For all the activity, digital wallet usage has remained fairly uncommon in the US.

A survey of US adult internet users in November 2016 by Finder.com found that the majority had never used a digital wallet. Only a small group—less than 20% of respondents—used a digital wallet more than once a week.

PayPal occupies a unique position in the digital payments ecosystem. It pioneered the online payments space and remains, by far, the most commonly used product.

In January 2017, Verto Analytics found that PayPal was the No. 1 mobile banking and financial app in the US—by a long shot, with 89.3 million users who used it an average of five times per month.

The Verto Analytics data is notable not only in illustrating PayPal’s dominant position, but also Android Pay’s comparably weak one.

However, the relationship with Android Pay is focused on physical-word transactions, where PayPal has not yet established a strong presence. PayPal’s broadly recognized brand could not only help it become a tool for making small purchases at drugstores and grocery retailers, but also help Android Pay win additional users. Moreover, it could aid in persuading retailers to implement systems to accept payment via Android Pay.

That said, the obstacles for all players in the digital wallet space are significant.

For one, mobile payments have yet to prove a distinct value proposition for US consumers—a defining reason to replace physical wallets and credit cards. Next-generation markets in Asia, Latin America and elsewhere have taken up mobile payment options more enthusiastically, but in most cases these were markets with less entrenched banking and credit systems, and large numbers of unbanked and underbanked consumers hungry for new ways to pay.

Exacerbating the problem is the sheer number of competing platforms and providers. Without an obvious, widely accepted payments system, many consumers may not feel much urgency around adopting any one in particular—or any one at all.

Meanwhile, rewards and points have become a critical tool for attracting credit card users, so it may take similar offers from digital wallet and payments providers to ignite meaningful usage.

Finally, even as digital systems expand in other markets, consumers in the US appear to be growing comfortable using cards for smaller purchases. These are the types of purchases many forecasters, including those at eMarketer, have predicted consumers would use to become accustomed to mobile wallets. If consumers don’t grow used to using digital wallets for small buys at gas stations, coffee shops and drugstores, they are less likely to extend their use to bigger-ticket items.