PayPal is building a ‘super app.’ Should banks be worried?
For years, bankers agonized over the day when Big Tech firms would finally set their sights squarely on financial services. Mainly they worried about four companies: Amazon, Apple, Facebook and Google.
Meanwhile, a fifth tech powerhouse, somewhat smaller but growing fast, was adding products traditionally offered by retail banks. This company built a huge customer base, but it didn’t position itself as a head-on competitor to the nation’s largest banks. Instead, it sought to partner with insured depositories. By early this year, it had a bigger market capitalization than all but two American banks.
The company in question, PayPal Holdings, recently sketched out strategic plans that summon the industry’s long-held fears about the tech giants. At the firm’s investor day in February, PayPal executives promised to build a mobile app that will allow consumers to shop at millions of merchants, while also accomplishing most of what they currently do at banks. Already, the app’s users can transact with debit cards, borrow to make purchases, pay their bills, get paid by their employers, cash checks, make investments, send money to relatives overseas and more.
PayPal wants to weave consumer financial services into an ecosystem that draws strength from its existing relationships with merchants. Consumers will come to PayPal to make purchases, either in physical stores or, more likely, online; they’ll receive personalized offers and rewards based on their purchase history, which will encourage them to return more frequently; and eventually, they may treat their PayPal digital wallet like it’s their primary bank account.
“Basic financial services are just going to be a part of any platform that has hundreds of millions of consumers, because it’s all tied in to the everyday transactions that we’re going to see,” PayPal President and CEO Dan Schulman said in a Feb. 11 presentation. “Our digital wallet can bring together previously disparate capabilities that range from payments, to shopping, to financial services, and even new forms of digital identification into one super app.”
San Jose, Calif.-based PayPal is not the only U.S. company that is positioned to pursue this vision. Apple, Google and Walmart could all go down a similar path, which was blazed in China by Alipay and WeChat.
But among the companies eyeing the massive American market, PayPal is the first to articulate publicly a comprehensive vision of its banking plans. PayPal’s roadmap — especially when considered in the context of its recent growth — shows that Big Tech firms are capable of disrupting retail banking even without banking charters.
Banks are taking notice. In January, JPMorgan Chase Chairman CEO Jamie Dimon declared that banks “absolutely should be scared shitless” about competition from Big Tech and payments firms. PayPal was one of the firms he cited.
Daniela Hawkins, a consultant at Capco, said that banks tend to move more slowly than their new competitors from the tech industry, and they have good reason to be wary of PayPal in particular.
“I think PayPal is the threat,” she said. “They’re in the catbird’s seat.”
‘The pandemic has accelerated everything’
After PayPal split off from eBay and became an independent company in 2015, it faced a choice about how to pursue growth. It could either compete with Visa and Mastercard, and by extension the banks that issued cards in conjunction with the two big payment networks, or it could partner with them.
PayPal chose the collaborative path, agreeing in 2016 not to steer shoppers away from paying with cards bearing the Visa and Mastercard logos. Those deals, which included certain economic incentives for PayPal, aligned the company’s interests more closely with those of large incumbent firms. As digital payments soared in popularity, a bigger pie meant a bigger piece for everyone.
“It’s…
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