Dive Brief:

• PayPal has teamed up with Citigroup and Fidelity National Information Services (FIS) in partnerships aimed at allowing customers who load their debit and credit card details into PayPal to use their mobile phones to pay for purchases at in-store terminals.
• Citi card users will be able to start using PayPal to pay at in-store terminals where Visa and MasterCard contactless payments are accepted beginning in 2017. Those customers will see a familiar digital representation of their Citi-issued card in their PayPal Wallet when they pay, and the partners also plan next year to drive incremental digital spend for joint PayPal and Citi customers through activities that will include pilot programs to make it easier for customers to add their existing cards to PayPal.
• The FIS partnership allows PayPal to reach more than 6,000 banks and card issuers with which the banking technology firm has existing relationships to encourage those institutions to drive more digital spend with their customers through PayPal accounts. FIS will make it easier for those customers to link their card accounts to their PayPal accounts, and will grant them visibility into their PayPal account balance directly on partner bank sites.

Dive Insight:

These partnerships come at the end of a year in which PayPal has been shifting its strategy to become more of a player in the world of in-store payments, especially those in which a smartphone would be used for contactless payment at the terminal. While PayPal has been a major online player and has expanded into mobile in general, it historically lacked the relationships to make it a payment force in stores. In the last year or so that has become a more sensitive issue for PayPal, as it has watched the rise of Apple Pay in particular for contactless in-store payments.

PayPal has begun to correct this gap in its strategy by ending longstanding disputes with Visa and MasterCard. It partnered with Visa earlier this year to start playing a bigger role in in-store payments, an evolution that was not entirely welcome among PayPal investors because PayPal theoretically would have to pay higher transaction fees to Visa on those payments (although Visa claimed it would keep its fees under control.)

PayPal is now essentially making nice with Citigroup in a similar way in hopes of getting more of Citi's 143 card members to use PayPal at in-store checkout. The FIS arrangement also is aimed at broadening PayPal usage.

The world of in-store payments may be somewhat virgin territory for PayPal, but with self-branded retailer payment apps, bank apps, Apple Pay, Android Pay and others, PayPal will be just one of many options. Yet, as Apple Pay moves into PayPal's online world, it's a move that PayPal needs to make.