Dive Brief:

• PayPal and Visa on Thursday declared a truce in their years-long battle, with PayPal agreeing to stop discouraging its customers from using Visa and Visa pledging to keep its fees in check.

• Per terms of the new partnership, PayPal will make it easier for new and existing customers to choose to pay with their Visa cards, with Visa presented as a clear and equal payment option during enrollment and subsequent transactions. In addition, Visa digital card images will be incorporated into payment flows, and PayPal will not encourage Visa cardholders to link to a bank account via automated clearing house (ACH).

• PayPal also will join Visa's VDEP partner program for token services and other digital capabilities designed to enhance transaction security and expand acceptance for PayPal’s digital wallet to all physical retail locations supporting Visa contactless transactions. Moving forward, consumers will be able to instantly withdraw and move money from their PayPal and Venmo accounts to their bank account via their Visa debit cards.

Dive Insight:

The agreement could go far in expanding PayPal more swiftly into more stores: While PayPal dominates in online payments, it’s lagging behind mobile wallets Apple Pay and Android Pay (and, of course, physical credit cards) in brick-and-mortar point-of-sale transactions.

While the deal has Visa paying PayPal for boosting the number of Visa payments, PayPal will likely be handing over more in fees because they will be higher than the bank account withdrawals that currently dominate PayPal’s system. PayPal has been making more money on the transactions it enables because the fees associated with ACH payments (where a user accesses a bank account rather than a credit card) are lower and flatter compared to the higher, percentage-based fees of credit-card transactions. As purchases grow, the differences widen, considering that those credit-card percentages can get hefty.

The situation has other companies fuming, too, with Wal-Mart most recently shutting down Visa payment capabilities in its Canadian stores in what has emerged as an entrenched feud over fees. That makes the PayPal/Visa agreement something of a breakthrough, and will likely help smooth PayPal’s efforts to become a payment option for shoppers in physical stores, or at least in those stores that support contactless Visa payments. PayPal’s peer-payment app Venmo will also see a boost.

“Giving consumers choice in how and where they pay is essential to our goal of being a customer champion and we welcome the opportunity to work with more partners like Visa who share our vision,” PayPal President and CEO Dan Schulman said in a statement. “This agreement opens new avenues for PayPal to collaborate with Visa, financial institutions, and others in the payments ecosystem to deliver greater value, more choice, and new experiences for our joint customers wherever they transact—online, in-app or in-store.”

Craig Maurer, analyst at Autonomous Research, said that Visa was the victor in the pact because PayPal will still be getting hit with those fees. “Investors will likely react positively to the announcement initially,” he wrote, according to the Wall Street Journal. “But once they pore over the details, we believe they will come to the conclusion that Visa came out far ahead in this deal.”

Investors did indeed like the development. Bloomberg reports that PayPal shares rose as much as 6.9% in after-hours trading Thursday on the news, which arrived alongside the company's fairly rosy quarterly earnings report.

PayPal reported second quarter revenue of $2.65 billion, beating analyst expectations for $2.6 billion. Its adjusted earnings of 36 cents per share met Wall Street expectations. PayPal also raised its full-year revenue guidance to between $10.75 billion and  $10.85 billion, and per share adjusted earnings between $1.47 and $1.50 for the year.