PayPal/MasterCard Deal Fails to Lift Financial ETF

financial banksThe Financial Select Sector SPDR Fund (NYSE:XLF) pulled back this afternoon, despite news of a business deal between two popular payment processors.

Online payments giant Paypal Holdings Inc (NASDAQ:PYPL) and credit card issuer Mastercard Inc (NYSE:MA) struck a deal today that will allow PayPal users to make in-store payments via PayPal accounts by using their MasterCards.

PayPal has been very aggressive since its spin-off from eBay in trying to grow its payments network. From the WSJ:

This follows its big deal with Visa Inc. earlier this year. The two deals in quick succession are among the biggest moves so far in the online-payments pioneer’s post-independence strategy after splitting off from eBay Inc. last year.

The aim is to end bitter fights with the big card issuers and make PayPal a universally accepted method of payment. This would include in stores at the checkout counter, with MasterCard and Visa’s mobile-tap tools, the big new frontier for payments companies.

Yahoo! Finance added some additional color on the tie-up:

As part of the deal, MasterCard will allow PayPal users to withdraw cash from their accounts using a debit card and also waive the digital wallet fee it currently charges PayPal.

The two companies have an existing partnership for co-branded consumer credit cards in the United States and Puerto Rico.

Despite the positive banking sector news, the largest finance-focused ETF, the XLF, fell $0.14 (-0.57%) to $24.43 per share in afternoon trading. The XLF has gained 2.5% year-to-date, versus a 7% rise in the benchmark S&P 500 during the same period.

XLF-2016-09-06

The financial sector has struggled this year amidst a flattening rate curve, and its best-performing sub-sector, real estate, will be broken out into its own sector soon. That move could leave weak-performing banks exposed and lead to further underperformance as we progress through the second half of the year.

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