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PayPal is the latest tech giant to enter retail banking. It will offer customers traditional retail banking services with debit cards linked to customer accounts.
According to the Wall Street Journal, the services, aimed at people currently without a bank, will launch in the first half of this year.
It has long been predicted that the tech giants will move into banking and offer user-friendly services that are in line with what consumers demand of their banks. Google Bank is the often-used term for big tech players entering the banking sector.
The Wall Street Journal reported that PayPal will work with smaller banks to provide services.
This echoes Amazon’s approach to banking. The internet giant recently began talks with US banks about opening current accounts in the US in partnership with them. It is talking to banks including JPMorgan about setting up checking accounts – the US equivalent of current accounts – for younger people or those without a bank.
According to a TechCrunch report, Bill Ready, executive vice-president and COO at PayPal, said the bank is trying to bring more people into the digital economy. “For folks who don’t have bank accounts, for folks who don’t have credit and debit cards, we want to give them something so they’re not turning to prepaid cards, check cashiers and payday lenders,” he said.
The move is not a huge surprise. When PayPal and eBay split into two separate companies in 2015, it paved the way for PayPal to invest in particular growth opportunities. The same year, PayPal acquired digital money transfer firm Xoom for nearly $900m and mobile payment software supplier Paydiant for $280m.
PayPal’s strategy mirrors an industry trend in which banks are partnering with fintech suppliers to offer certain services. One source in the UK banking sector said there could be scope for the banks to become suppliers of banking services to tech firms.
Read more about tech giants and banking services
- Consumers in Europe increasingly consider companies such as Facebook and Google as potential financial services providers.
- The search for the Holy Grail that is Google Bank has been going on ever since digital banking took hold. It makes sense: a company that processes millions of transactions on a daily basis whose bread and butter is making online services user-friendly.
- This week Google put services including Android Pay and Google Play under a single Google Pay brand.
While the tech firms would be the brand and make decisions on products and interest rates, banks could provide them with a “white label” service in the back end. This might include all the regulatory compliance required, as well as financial expertise.
“Banks might become suppliers to the big internet companies,” said the source. “This would enable them to get into banking without going through the pain of becoming a bank – tech companies would be the public face and make decisions on products, with the banks behind the scenes.
“It makes sense for PayPal to get into banking products, as per the white label banking model. It has a big customer base, so all they have to do is offer more products to existing users. The banks in the background pick up more business, albeit with PayPal fronting the brand. PayPal can then optimise the amount of regulation it has to deal with.”
Collaboration seems the order of the day for these companies. Different companies offer different expertise, regulatory compliance or tech. All combined add up to a banking service.
At the recent Innovate Finance Global Summit in London, Anne Boden, CEO at challenger bank Starling Bank, said her company is all about regulation, technology and access to payment systems. “We are providing a platform for other people in this marketplace,” she added.
Boden described how Starling’s membership of payment schemes such as BACS, SEPA and Faster Payments means it can provide infrastructure to the industry. “This allows fintechs, other banks and even governments to connect to payment infrastructure in a low-cost way with high availability,” she said.