PayPal Holdings Inc. (PYPL) has long worked to increase digital access to people who already have bank accounts in partnerships with card networks and existing banks. But now, it's pivoting to help increase financial access to the unbanked.
PayPal announced Monday that it will roll out new products in the coming weeks targeting the unbanked with financial services that are less expensive and easier to use.
Among those products is the PayPal Cash Mastercard, a card with no sign up fee, no monthly fee and no minimum balance requirement. The card allows users to access money in their PayPal account to shop anywhere Mastercard Inc. (MA) is accepted. They can also use the card to withdraw cash from free ATMs across the country. PayPal's Chief Operating Officer Bill Ready tells TheStreet the program will roll out more products to more people in the coming weeks and months.
"It really does give them first class citizenship into the digital economy and into the world of financial services," Ready says.
In the U.S. alone, there are more than 30 million people considered financially under-served. They spend about 9.5% of their income on interest fees for alternative financial services, Ready explains.
Instead of cashing a check into a bank account or entering a credit card number to shop online, the unbanked are forced to turn to prepaid cards on convenience store shelves or payday lenders to access a growing digital economy -- and that can get expensive.
"They're paying high fees for things like loading money into an account or cashing a check and not only are they paying high fees...they're not getting access to the digital economy," Ready says.
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Accessing the digital economy for the unbanked means more than avoiding exorbitant fees, it means taking an Uber when it's cheaper than a taxi, or shopping online for your kids' school clothes when you don't live close enough to a retailer to shop in-store. Ready notes that these new services are not meant for people who have bank accounts, but rather the millions living without them or in what he calls "banking deserts."
"It's hard for most folks who have traditional banking services to understand just how hard it is for them," says Chris Brendler of Buckingham Research.
PayPal is also expanding the ways users can put money in their accounts, adding on the option for direct paycheck deposit for free. Customers who use that feature will be eligible for FDIC pass-through insurance on the funds.
While a relationship with the FDIC may sound to some investors like the beginning of the Bank of PayPal, Ready was quick to point out that becoming a bank isn't in PayPal's plans.
"We are not a bank and we have no aspirations to become a bank. We're not looking to move into banking at all," Ready says. "What we are doing is democratizing access to financial services."
"I don't think PayPal wants to become a bank, but they do want to offer banking services," Brendler thinks. That's why PayPal is partnering with smaller banks that don't mind remaining in the shadows some.
Brendler also notes that PayPal "planted its flag in the ground" as a non-bank when it sold its $5.8 billion in consumer loans to Synchrony Financial (SYF) late last year. They made it clear they didn't want debt on their balance sheet, selling it instead to Synchrony for them to manage. That makes it clear, Brendler says, that PayPal isn't becoming a bank in any traditional sense.
Get to know PayPal's top-flight CEO Dan Schulman, watch below.