In September, San Francisco-based PayPal unveiled "The Future of Shopping," a set of payments technologies designed to service the modern state of commerce, in which a purchase can be made online or offline, via smartphones and even through social media. Since then, the eBay subsidiary has announced several new products aimed at the payments space, including it's own mag-stripe card, a service for e-commerce authentication and partnerships with several bank technology vendors.
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It's all part of the company's efforts to ramp up its presence in the payments space and to be a part of financial institutions' transitions to electronic payments, says Dan Schatt, head of financial innovations for PayPal. "We are seeing a lot of progress with ... P2P -- and we are really starting to work with financial institutions on this."
For banks, PayPal's most intriguing effort in the space may be a partnership with NCR (Duluth, Ga.) and S1 (Atlanta) to enable real-time P2P payments from bank ATMs to anyone with a mobile phone or email address via a PayPal account. According to Schatt, ATM-based P2P payments can help banks regain revenue lost to wire transfer services. "Over the years, banks have seen their share of the remittance market decrease to the point where they have 3 percent of the market," he says. "Now a customer can have money go out instantly through their PayPal account through a local ATM."
PayPal also is working with banks that want to integrate the the firm's payments system into custom software, Schatt reports. San Antonio-based USAA Federal Savings Bank ($48 billion in assets), for example, has launched a P2P system leveraging PayPal and also is working with PayPal to enable payments from the bank's Android smartphone app.
In addition, PayPal partnered with Larkspur, Calif.-based mobile banking vendor mFoundry to make it easier for banks to incorporate PayPal services in their mobile banking offerings. "What we're doing is building upon the last couple of years of opening up our platform," Schatt explains, referring to the Paypal X service, a set of open application programming interfaces (APIs). "We are letting banks build and customize these any way they want."
The company also launched an e-commerce identity system, PayPal Access, designed to reduce shopping cart abandonment by allowing users to sign in to participating websites using their PayPal credentials. According to PayPal, nearly one in four consumers abandon their shopping carts when asked to register an account.
Friends, Not Foes
Though PayPal has been viewed as a bank competitor in the payments space, Schatt says the company's products complement bank offerings. "We have a different value proposition [than banks]," he says. "We basically facilitate between the merchant channel and banking channel. We are always looking to collaborate in any way we can with the banking industry."
PayPal, Schatt adds, is helping banks "cannibalize cash" in favor of higher-value electronic transactions. "Everything we have done in the history of this company has increased revenue for the banking industry," he insists. "Everything we are doing with banks is giving them ways to make money and save money." n