Coming soon: An official PayPal bank account.
Although PayPal used to require that you already have a bank account or card with another financial institution, that won’t be necessary with new offerings debuting this summer.
The company will be going from only offering payment products to having actual deposit-holding accounts backed by the Federal Deposit Insurance Corp. and are specifically intended for people who don’t already have bank accounts.
The Unbanked
PayPal’s market for these products include the 30 million Americans don’t yet have bank accounts — and potentially more than a billion outside of the country don’t either.
The fees that these people have to pay for access to alternative financial services accounts for 9.5% of their income, according to Bill Ready, executive vice president and chief operating officer of PayPal.
Apparently, the company intends to undercut the fees that this target market is paying to so-called non-bank providers of banking services.
Testing New Services
PayPal is already testing these offerings are already with a limited number of consumers, according to PayPal spokespeople.
Meanwhile, PayPal already offers at least half a dozen different banking-related products — online money transfers, a digital line of credit, and four different Mastercards spanning credit with rewards, debit and prepaid value.
You may have received marketing offers for the different credit and debit products if you already use PayPal for money transfers — but they’re distinct from the plans to offer bank accounts to those who lack them.
PayPal Bank Account, Anyone?
Although the company’s assortment of payment products has already made it a pretty close competitor to a bank — in fact, people with PayPal merchant accounts could effectively use them like checking accounts — now the company is officially going there.
The company plans to offer prepaid cards connected to the deposit accounts intended for those who are currently unbanked.
If you’re confused about the difference between all of these products — let alone the future PayPal bank account — here’s a breakdown of how each of them functions and what they cost.
- Money Transfers: PayPal got started in online payments, which have no fee if you’re the buyer or you’re sending money to friends and family. Otherwise, sellers and people who generate invoices on the site pay fees of 2.9% of the value of the transaction plus 30 cents apiece for domestic transactions. Internationally, it goes up to 4.4% plus a fixed fee based on the currency in question.
- PayPal Here Card Reader: This account for merchants competes with the Square card reader and charges a fee of 2.7% when a buyer swipes a card or 3.5% plus 15 cents for manually entered transactions.
- PayPal Credit: This digital line of credit actually doesn’t require a plastic card; purchases of $99 or more have no interest if you repay it in its entirety within six months — take longer to pay and late fees apply.
- PayPal Cashback Mastercard: Earn 2% back on all transactions, a rate that comes in a bit higher than what other rewards cards tend to offer — and they’re redeemable toward your balance at any time, without any minimums required. The card has no annual fees, but interest applies once you start carrying a balance.
- PayPal Extras Mastercard: Earn three points per $1 spent on gas and restaurants, two points per $1 spent on PayPal and eBay one point per $1 spent on all other purchases; the points are redeemable for gift cards, travel vouchers, or cash back.
- PayPal Cash Mastercard: This connects a debit card to your PayPal balance, allows you to set up direct deposit for free and withdraw cash from ATMs, with no annual account fees nor minimum balances required.
- PayPal Business Debit Mastercard: The business version of the PayPal Cash MasterCard, it combines the debit card features described above with the ability to earn 1% back on all purchases.
- PayPal Prepaid Mastercard: This connects a prepaid card to your PayPal balance so that you can load more money onto the card at select locations; plus you can opt into a tiered-rate savings account with up to a 5% annual yield depending on how much of a balance you carry.
Outbanking the Banks</h2
In many cases, PayPal offers better pricing on banking products than you might get from more traditional financial institutions.
PayPal accounts can also serve as a platform for people who need to set up dedicated business or merchant accounts without having to pay typical merchant fees.
Although the company has lots of products and plans to offer some new ones, one thing that isn’t entering the mix involves paper: PayPal doesn’t sound like it’s going to enable check writing on the new bank accounts.
But it might not need to. The company already has over 227 million accounts around the world and seems likely to keep growing beyond that.
Readers, which features do you require in a bank provider? And what kinds of PayPal features do you make use of — and which ones are you considering adopting? Would you want to open an official PayPal bank account.
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Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.
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