PayPal Makes a Move Toward Traditional Banking by partnering with small banks to offer debit cards, direct deposit to withdraw cash at ATMs and the ability to add funds to accounts by taking a photo of a paper check or by having employers direct-deposit earnings there.
PayPal Holdings Inc. is nudging its customers closer to mainstream banking services. 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, a debit card that can be used er could be a better option for certain consumers with smaller balances who are largely ignored by banks and 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.
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.
A number of other technology firms with large user bases are looking at providing banking functions. Square Inc. gives out bank cards to users of its Cash App who want one, and Amazon.com Inc. has been in discussions to build a checking-account-like product for its customers.
Circumventing regulatory constraints: PayPal and other tech firms don’t have a U.S. banking license. The FDIC doesn’t backstop funds stored at nonbanks, and Visa Inc. and Mastercard Inc. only permit cards that run on their network to be issued by banks.
In PayPal’s case, the company turned to a hodgepodge of small banks that stay anonymous and behind the scenes. It cut deals with a Delaware bank to issue debit cards, a Georgia bank to deposit checks instantly after users take a photo of them and banks in Utah to make loans to consumers and small businesses.
Source: Wall Street Journal