PayPal Blankets Banking with New Services

PayPal Inc. is putting itself at nearly every possible point of a consumer's banking relationship – from account-opening to payments and even reward-redemption – through a series of new partnerships.

The San Jose payments company, once seen by banks as a rival for e-commerce spending, is working with multiple bank technology providers to make it easier for banks to add PayPal even if their existing vendor relationships would not normally allow them to do so.

"In general, most banks have basically opted for a mobile [or online] banking partner to work with to deploy new functionality … [and] they really didn't have any other options" besides what those providers support, says Dan Schatt, PayPal's head of financial innovations.

This week, PayPal is announcing a series of partnerships with prominent bank vendors: mFoundry Inc. for mobile banking, BancVue Ltd. for online banking, NCR Corp. and S1 Corp. for ATM payments and MeridianLink Inc. for funding new accounts.

PayPal, a unit of eBay Inc., is also continuing to work directly with any large banks that want to integrate its payments system into custom software. USAA Federal Savings Bank has launched a system for sending money to other bank accounts via PayPal, and it is working with PayPal on allowing payments from the bank's Android smartphone app.

The NCR deal is a strong opportunity for PayPal, Schatt says, because it gives PayPal access to consumers who may not be as comfortable with newer self-service channels. "You've got a whole segment of users that are very comfortable with the ATM," and that's a much larger group than that which banks from mobile phones, he says.

Perhaps PayPal's most unconventional partnership is with ezRez Software Inc., which manages miles redemption for airlines. Consumers can allow PayPal to convert their accrued airline miles into cash to spend anywhere on the Web – even to fund new bank accounts through PayPal's MeridianLink partnership, Schatt says.

Next year, PayPal will display within its account view how many miles a customer has and how much cash that converts to, he says.

Issuers of airline cards can promote this system as a way to keep their cards top-of-wallet, he says, but they do not need to have any kind of partnership with PayPal for their customers to link their miles balances to PayPal accounts.

PayPal is not alone in working to treat miles as cash, Schatt says. Discover Financial Services announced this week that users of its miles cards can spend their miles on Amazon.com purchases. The miles are converted to a cash value during the checkout process. (PayPal is not involved in the Discover/Amazon.com arrangement.)

Consumers generally have few options for redeeming miles for rewards other than travel, Schatt says. Some airlines provide limited catalogs for customers to order from using their miles, but linking their accounts to PayPal "makes the whole Internet your catalog," he says.

"There is demand to spend your miles on other things," says Adil Moussa, a senior analyst at Aite Group. "Some people who have miles would have to travel every day the rest of their life to use them. Eventually, people start to see their miles as a currency to buy things."

The process of spending accrued miles is a genuine pain point, he says. "Any time that you can electronically simplify an operation, I think you're doing your customers a great deal of good," he says.

For reprint and licensing requests for this article, click here.
Bank technology Community banking Consumer banking
MORE FROM AMERICAN BANKER