I can’t decide how I feel about this latest move by PayPal. They have been quietly rolling out basic banking services to some of their U.S customers. The “basic” banking services include a debit card, the ability to deposit checks and even the possibility of taking out a loan. There is a part of me that thinks this might be good news for people who aren’t able to get an account through a traditional bank. Thus, giving them the assistance they need in order to actually become financially stable. But at the same time, there’s something strange about this.
To start, PayPal doesn’t actually have a banking license in the United States. According to The Wall Street Journal, the company is getting around that by quietly partnering with several small banks that can provide those services. So behind the scenes, it’s not PayPal running these services, but a Delaware bank handles debit cards, a bank in Georgia deposits checks that users take pictures of, and banks in Utah offer loans to customers and small businesses. So yes – there is something strange about this.
To date, PayPal has only been offering this feature to a small group of their customers. There is no monthly fee or even a minimum balance to use the service. But if you want to use an ATM you will have to pay fees, if the machine isn’t in PayPal’s network. Like I said, I can see this as a way to help people who haven’t been able to get an account through a traditional bank, but I’m not exactly convinced that this is the way to go, to begin with.
Bill Ready, EVP, and Chief Operating Officer had this to say:
“We’re trying to bring more of those 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”.
What does PayPal stand to gain with this new banking option? According to Ready, there are billions of people around the world without bank accounts, including some 30 million in the United States. I’m not sure how accurate that “billions” number is considering there are only 7 billion people on the planet. If you take out children, you’ve greatly reduced that number. That said, you can see how PayPal could stand to benefit. Even if it were able to get half of the people in the United States to start using its banking service, it would be doing well. PayPal also estimates that these people spend 9.5% of their income on interest and fees from alternative financial services.
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. I’m not sure that those people will be these “unbankable” people, but I look forward to hearing who are prime candidates for the service.