PayPal Moves towards Traditional Banking

PayPal started exploring ways to provide mainstream banking services in addition to its money transfer service.

The San Jose, Calif.-based payments company has been reaching out to groups of customers in recent months with an offer to add basic banking features to their PayPal digital wallet.

The features include Federal Deposit Insurance Corp. insurance for balances up to government-set limits. Debit cards that can be used to withdraw cash at ATMs. Lastly, the ability to add funds to accounts by taking a photo of a paper check or by direct-deposit earnings.

Traditional Banking

PayPal Chief Operating Officer Bill Ready said the company wants to provide those services to users who do not have bank accounts. But it has no intention of becoming a bank.

The problem is that PayPal does not have a license to conduct traditional banking. So, it goes to some community and regional banks to provide the services.

PayPal users already served by traditional banks may not be tempted to get rid of their existing checking accounts. The company isn’t paying interest on balances Also, it’s not charging a fee of 1% on any check a customer deposits via a photo, in addition to fees for taking money out from ATMs other than the 25,000 inside PayPal’s network.

However, it could be a better option for certain consumers with smaller balances who banks mostly ignored. Instead, banks have to rely on check-cashing centers and other alternative providers of financial services. PayPal isn’t charging a monthly fee and isn’t requiring customers to keep a minimum balance.

Mr. Ready said the company’s goal was to give those excluded from the banking system access to the digital economy.

“If you don’t have a bank account, you can’t take an Uber ride, can’t stay in a room on Airbnb,” Ready said.

PayPal has been adding other financial functions to its website and smartphone apps that go beyond its original business of offering a checkout button that enabled shoppers to buy goods and services online.

Through a series of partnerships and acquisitions, PayPal now offers consumer loans, cross-border remittances and automated savings and investment services.

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