On July 17, 2017, PayPal announced a new partnership with Samsung to enable PayPal as a payment method within the Samsung Pay mobile wallet. This parallels a similar announcement with Android Pay on April 18, 2017. PayPal followed this up with another announcement on July 20, 2017 that it would be incorporating Chase’s wallet Chase Pay as a funding mechanism in its own wallet, including the ability to redeem Chase Ultimate Rewards at the point of sale.
These two deals are mirror images of each other, and illustrate a property of digital wallets that makes them very different from physical wallets: the ability to reference each other as funding sources. Like a series of concentric circles, a digital wallet can draw from another digital wallet, which in turn can draw from a third digital wallet, and so on until at some point you get to a final funding source, which can be a card or bank account.
In the first case, PayPal’s digital wallet is now a source of funds for Samsung Pay. Combining this with the second announcement, we can envision a scenario where a Chase cardholder provisions the PayPal wallet with their Chase card using Chase Pay, and then automatically gains the ability to use that card with Samsung Pay at the point of sale by making it their default payment method within PayPal.
But it doesn’t stop there. Even if the consumer doesn’t have a Chase card, they can still do this by leveraging the agreements PayPal has with Visa and Mastercard. In essence, PayPal is positioning itself as an intermediary between various wallets; it accepts certain wallets as funding sources, and extends itself into certain wallets that go places PayPal can’t, such as contactless payments at the point of sale (although, interestingly, in the Chase announcement, PayPal refers to an upcoming NFC capability, which is a complete reversal from the anti-NFC attitude they had under David Marcus).
The really promising aspect of all this is the way it suggests a solution to the proliferation of digital wallets, which threatened to fragment the market and prevent any one digital wallet provider from reaching its goal of market dominance. Now digital wallets can inter-operate, acting as the front end in some situations and as a funding source in others. A question remains how information will flow from one wallet to another. For example, if I use my Samsung Pay wallet at Best Buy, will my Chase Pay wallet know that? Or will it just know that I used PayPal? How will rewards work? If I can redeem Chase Ultimate Rewards in my PayPal wallet, will that capability carry forward into the Samsung Pay wallet? Or is that something that PayPal will keep to itself, to encourage consumers to use it as the primary wallet?
In any case, PayPal is doing something really interesting here; positioning itself as the glue between all the different wallets that are proliferating out there. If it follows up its status as a payment method for Apple stores such as iTunes, the App Store, and Apple Music with the ability to be a funding source for Apple Pay (which seems likely to me), then it will have ubiquity on smartphones, and that in itself will drive further adoption of mobile wallets and NFC at the point of sale. This is an exciting development for those of us who have watched digital wallets struggle to get off the ground, and suggests that 2018 will become known as the year digital wallets became mainstream.