PayPal Holdings Inc. is nudging its
customers closer to mainstream banking services.
San Jose, Calif.-based payments company has been reaching out to groups of
customers in recent months with an offer to add basic banking features to their
PayPal digital wallet. The features include Federal Deposit Insurance Corp.
insurance for balances up to government-set limits, a debit card that can be
used to withdraw cash at ATMs and the ability to add funds to accounts by
taking a photo of a paper check or by having employers direct-deposit earnings
users already served by traditional banks may not be tempted to ditch their
existing checking accounts. The company isn’t paying interest on balances and
is charging a fee of 1% on any check a customer deposits via a photo, in
addition to fees for taking money out from ATMs other than the 25,000 inside
PayPal’s network, said Bill Ready, PayPal’s chief operating officer.
it could be a better option for certain consumers with smaller balances who are
largely ignored by banks and have to rely on check-cashing centers and other
alternative providers of financial services. PayPal isn’t charging a monthly
fee and isn’t requiring customers to keep a minimum balance.
In contrast, Bank of America Corp. earlier this year discontinued a free checking account popular with
lower-income customers, switching them into one that charges a $12 monthly fee
unless certain conditions are met.
Ready said the company’s goal was to give those excluded from the banking
system access to the digital economy. “If you don’t have a bank account, you
can’t take an Uber ride, can’t stay in a room on Airbnb,” Mr. Ready said.
PayPal has been
adding other financial functions to its website and smartphone apps that go
beyond its original business of offering a checkout button that enabled
shoppers to buy goods and services online. Through a series of partnerships and
acquisitions, PayPal now offers consumer loans, cross-border remittances
and automated savings and investment services.
A number of other
technology firms with large user bases are looking at providing banking
functions. Square Inc. gives out bank cards to users of its Cash App who want
one, and Amazon.com Inc. has been in discussions to build a checking-account-like product for its customers.
There is a catch,
though: PayPal and other tech firms don’t have a U.S. banking license. The FDIC
doesn’t backstop funds stored at nonbanks, and Visa Inc. and Mastercard Inc. only permit
cards that run on their network to be issued by banks.
PayPal’s case, the company turned to a hodgepodge of small banks that stay
anonymous and behind the scenes. It cut deals with a Delaware bank to issue
debit cards, a Georgia bank to deposit checks instantly after users take a
photo of them and banks in Utah to make loans to consumers and small
mostly just a question of stringing together the supply chain,” said Thomas
Brown, a partner in the global banking and payment systems group at law firm
Paul Hastings LLP. “You can use technology to create the appearance of
integration across accounts at different financial institutions.”
Ready said that working with several different banks allows PayPal to get
products out to consumers faster and that the company has no intention of
becoming a bank. He added that if its users already have bank accounts they are
using within PayPal, “this isn’t an account for you.”
launched a prepaid card that offered some banking features in 2012 but charged
users fees when they opened an account and when they loaded funds to it.
here for the original article from The Wall Street Journal.