SAN FRANCISCO (BLOOMBERG) - PayPal and Alphabet's Google deepened their relationship on Tuesday (April 18) with a new agreement that enables payments through the tap of a phone from PayPal accounts at thousands of new retail locations.
The partnership lets PayPal users link their accounts to Android Pay, Google's digital wallet, on smartphones running most versions of the Android operating system.
This makes PayPal a funding option when people use Android Pay in locations including Walgreens Boots Alliance drug stores and Dunkin' Donuts restaurants.
PayPal was added as a payment method for Google's Play app and digital content store almost three years ago.
PayPal CEO Dan Schulman has been busy cutting deals with banks, credit card issuers and wireless carriers to convert PayPal from a payments button on websites into a versatile financial tool used to make payments in stores, transfer money overseas and shop from smartphones on the go.
The Android Pay deal increases PayPal's reach in stores, which Mr Schulman sees as key to getting customers to use PayPal more frequently than the current average of two to three transactions per month.
"This is the next logical step in our desire to partner with everyone in the ecosystem," said Mr Aunkur Arya, senior vice president at PayPal unit Braintree, which enabled the Android Pay tie-up."These partnerships don't happen unless there's value for both sides."
One big challenge remains: PayPal accounts can't link to Apple's digital wallet, Apple Pay.
The stronger relationship between Google and PayPal could rekindle speculation about an acquisition.
PayPal split from parent company eBay two years ago, prompting hope it could be a target of tech companies or financial institutions looking to enter the digital payments industry.
PayPal processed US$354 billion in payments through 197 million active customers in 2016.
"The more closely they work together, the more potential there is for a future combination," said Mr Gil Luria, director of research at D.A. Davidson & Co.
PayPal declined to comment on takeover talk, while a Google spokesman wasn't available to comment.
Shoppers accustomed to swiping credit cards have been slow to embrace digital wallets, which use technology called near-field communication to enable transactions between smartphones and retail payment terminals.
The PayPal deal may boost Google's mobile payments efforts, which have progressed in fits and starts. The search giant's Google Wallet failed to gain traction, and its Android Pay faces competition from Apple. Two years ago, Samsung Electronics, the largest Android phone maker, introduced its own payment system, Samsung Pay, for its devices.