Google Pay and PayPal are now integrated. What does this mean for the rest of the fintech players?

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This week, news that Google Pay will now include PayPal integration for online merchants has been released. This means, online retailers that accept Google Pay will also now be able to accept PayPal payments. All that is required is a small code change to begin accepting PayPal through Google Pay.

What is the benefit of this integration for both companies? For Google Pay, it means they can now access more of PayPals 200+ million accounts. It will also mean PayPal can connect with Google Pay’s online retailers it hasn’t connected with before, helping to grow its merchant base.

Google is one of the biggest players in fin-tech, working closely with Visa and MasterCard for years and being one of the early pioneers of the NFC, developing technologies such as Android Pay. 

What Google realised quickly was the power of mobile payment apps and launched Tez, a mobile payments service targeted at users in India. Tez exploded in India, and within 37 days from launch, it had successfully reached 8.5 million downloads. With its rapid uptake, Google Pay and Tez merged, in an effort to bring its own version of AliPay as an integral part of their value proposition. From my observation, this would have absolutely caused tension between Google, Visa and MasterCard; once these companies were strong partners and yet now, looking more like competitors.

Building a merchant network is hard, and juggling this objective whilst maintaining positive and productive partnerships with the likes of Visa and MasterCard makes it even more challenging. For Google, their business strategy is interesting. What better way to enrol merchants, and add merchants to your wallet than to partner with an established player that has its own proprietary acceptance network: Enter PayPal.

This time around it’s PayPal riding on the network Google has built, for online acceptance. Next time around this could equally be Google getting reach and acceptance at the PayPal merchants, both online and in-store. The fundamentals we need to care about is the convergence from one or two simple structures (like Visa and MasterCard) to a more complex arrangement where all players want to accept and get access to everyone. I have written about this fragmentation earlier, and predicted we will see an extreme growth in this complexity as PSD2 opens up for virtually anyone to be the primary interface to your money, but also because players are seeing an ever growing benefit of partnering to gain cross network coverage. This deal is one such example, the recent partnership between European payment wallets and AliPay is another.

As Google runs deeper and deeper into alternative payments, it will continue to strategically partner with companies to expand its reach. As PayPal also is soon to be challenged by AliPay in their home and European market reach, it also makes sense for PayPal and Google – both US companies – to partner. This is familiar territory and is similar to the Nordic banks who joined forces to protect themselves and saturate the market, ahead of international beasts making an entrance and possibly beating them one by one, if they stood alone.