PayPal targets financial platform dominance

The man tasked with making PayPal a giant of financial services told an audience of investors that software is eating into the sector

The man tasked with making PayPal a giant of financial services told an audience of investors that software is eating into the sector and PayPal is at the centre of this.

Due to the onset of digital banking, technology companies are increasingly seen as genuine competition to banks and other traditional financial services providers. PayPal has a large customer base, trusted technology and capital resources, as well as space to grow.

According to reports, Dan Schulman told an audience at the Morgan Stanley Technology, Media and Telecom conference in San Francisco that PayPal could be the world's leading open digital payments platform.

Schulman, who joined the company from American Express, is expected to lead PayPal when it splits from current parent eBay.

Schulman said PayPal only has a tiny market share but is in a great place to grow it. “We have an infinitesimally small percentage of our market," he said. "On market share, we have 0.4 or 0.5 of 1% of our addressable market. We have an enormous runway and opportunity in front of us.”

Ebay’s decision to spin off PayPal – announced in September 2014 – enabled each of the two to focus separately on growth and suggested that PayPal had its own ambitions. 

The e-commerce firm is already starting to navigate its own future. It acquired mobile payment startup Paydiant for $280m earlier this week. The startup sells mobile payment software to retailers to enable them to create their own branded mobile payment services. Subway and credit card company Capital One are customers.

PayPal could potentially go much deeper into financial services. According to research, it is the company most trusted with people’s personal financial details in the technology sector.

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In a Bizarre Insights study of more than 6,000 people, 72% said they trust their bank with card details, while PayPal was the most credible of technology companies, with 48.9% saying they trusted the firm. Amazon was trusted by 45.4%, and Apple and Google were some way behind at 21.4% and 12.9% respectively.

PayPal has 157 million active users. In comparison, Lloyds Bank has 30 million customers, HSBC has 52 million customers and Barclays has 48 million customers.

One source in the payments sector suggested a TV advert campaign from PayPal shows it is trying to raise its profile and brand.

"I don't know what they have in mind but the campaign makes me think they have a few ideas in the pipe,” he said.

The source added that the products offered by banks might not be required in the future. 

“Branches are less important with the rise of internet and mobile services. Cheques should be killed off. Cash and cash machines should go away eventually. If the essence of banking is just a place to keep your money and move it around then many of the traditional banking products are not needed,” he said.

“If a computer system can safely, securely and reliably enable people to hold and move money, you probably don't need a bank involved at all. Maybe those computer systems will be called banks but they won't have a vast army of staff or branches involved, so the services should be a lot cheaper.

"This also means loan interest could be lower and credit interest could be higher as the bank doesn't need to earn so much to remain viable."

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