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PayPal is expanding into traditional banking through partnership with smaller banks to offer consumers debit cards connected to their PayPal accounts, along with direct deposit for paychecks and other services, according to news the company shared with The Wall St. Journal. The company says its new products are targeted specifically at the unbanked, and will launch in the first half of 2018, following consumer testing.
As PayPal itself is not a bank, it’s been working with other banking partners behind the scenes to offer these new services. For example, a Delaware bank issues the debit cards and a Georgia bank helps with photo deposits of checks.
There are some small fees involved with using PayPal’s banking services, including ATM fees for withdrawals from those not in PayPal’s MoneyPass network, and 1 percent of any check deposited via a photo from a smartphone. However, it won’t charge monthly fees or require minimum balances.
Traditional banking customers may not want to pay for things like check deposits, but the lower fees will appeal to those who usually go to payday lenders, and don’t have regular bank accounts, the company tells us.
“We’re trying to bring more of those people into the digital economy,” Bill Ready, EVP and Chief Operating Officer at PayPal, tells TechCrunch. “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 says there are billions of people in the world without bank accounts, including some 30 million in the U.S. These people spend nine-and-half percent of their income on interest and fees from alternative financial services, he notes.
PayPal today already offers consumers a debit card (PayPal’s Cash card) for loading accounts with cash at retailers, as one way of serving the underbanked or unbanked user base. There’s also the PayPal prepaid MasterCard linked to PayPal customer accounts and other credit products.
The new banking products won’t be tied to a yet another debit card, but will be offered to existing prepaid card holders – something that wasn’t detailed in the original report.
The banking services have quietly been in testing with select consumers over the past several months, Ready says, and will begin rolling out publicly in the “weeks and months” ahead. They will certainly be live in the first half of 2018, he confirms.
PayPal will determine the best candidates for the new banking products, based on how customers are already using its services.
“For the consumers already in our base that we see using things like loading cash directly onto a PayPal account in retail locations…we’ll reach out directly,” he says. In some “banking deserts,” it may also invest in out-of-home advertising to reach those people without as many options.
The company is not alone in targeting those underserved by mainstream banks.
Amazon was recently cited as having discussions with banks regarding its own possible launch of consumer-facing banking services. Meanwhile, Square’s Cash app has been doling out bank cards to its users, as has its rival, the PayPal-owned Venmo. There are also digital banking services like Simple, Chime, and Varo Money, for example, which take advantage of new technology to address consumer needs, while having accounts backed by traditional banking partners. (Or in the case of Simple, owners – given BBVA’s acquisition of the service years ago.)
However, many of these existing digital banking efforts are targeting younger consumers, including millennials, who prefer to use apps to manage their money, save, and even invest. And if they get a card at all, they opt for debit over credit, studies have found.
But PayPal says it’s not going after millennials with its new products, just the “unbanked” population in general.
“The [banked and unbanked] divide isn’t necessarily along generational lines…those that are unbanked don’t have access to traditional financial services. We’re giving them a pathway to the digital economy,” Ready says.