PayPal Inc., which has long positioned itself as a direct competitor to banks, has begun to work with them.

The San Jose company announced deals with two banking technology vendors Tuesday that will enable financial companies to use its network to offer their customers several new payments services.

Observers said that PayPal's well-known brand could be reassuring and thus appealing to consumers, but warned that financial companies may be reluctant to collaborate with a company that many perceive as a rival rather than an ally.

"We are basically looking to partner with the financial services industry and ecosystem as a whole," Dan Schatt, PayPal's senior director and head of financial innovations, said in an interview. "We think this will be valuable for financial institutions both large and small."

Through a deal with Fidelity National Information Services Inc., PayPal will link its network to the Jacksonville, Fla., vendor's bill-pay system; payments to merchants and individuals who cannot accept electronic transfers are currently sent as paper checks, but the agreement will enable people to send the funds electronically to recipients' e-mail addresses.

The payments unit of eBay Inc. has also connected its system to S1 Corp.'s mobile banking software to create a person-to-person transfer service that can be offered through phones.

Both are important capabilities, according to Aaron McPherson, a research manager for payments at the Framingham, Mass., research firm Financial Insights, which is owned by International Data Group Inc. But he said PayPal will likely face resistance from banks, many of which consider it "a pretty big threat, more than the telcos and more than retailers like Wal-Mart."

However, he said, financial companies may be willing to work with PayPal because its technology offers potential solutions to real problems. "Banks don't want to play with PayPal, but sort of have to because they don't have a good alternative," he said, and this level of cooperation with the banking industry is "definitely a step in the right direction for PayPal."

Banks may also want to piggyback on PayPal's name.

Mercantile Bank of Michigan, an S1 customer, is planning to introduce in the first quarter of next year a "Powered by PayPal" mobile payment system that enables customers to send money to people using either an e-mail address or a cell phone number. John Schulte, a senior vice president at the Grand Rapids banking company and its chief information officer, said that PayPal's enormous success in online commerce has become an asset to banks.

PayPal "is a pretty established brand," Schulte said. "To be honest, more people know who PayPal is than know who Mercantile is."

He said that level of brand awareness means people are likely to trust the person-to-person transfer service. Mercantile customers do not need a PayPal account to send funds directly from their bank accounts; receivers are notified by e-mail or text message, and must have a PayPal account to claim the money (if they do not have one, they can open one to access the transfer).

Making PayPal's brand visible at this point is crucial, Schulte said, because "we didn't want the recipient of the funds being fearful" because the transfer message is coming from an unrecognized source.

Jeff Lewis, the president of Fidelity's e-payment solutions division, said that working with PayPal gives his company's bill-pay service an important new capability.

Most financial companies now offer a "pay anyone" function, to deliver paper checks to people and billers that cannot receive bill payments electronically. By next year, Fidelity's bank clients will be able to send these payments through PayPal as well.

Lewis said this is an improvement for senders and receivers. Like other PayPal transactions, senders need only a recipient's e-mail address to initiate a payment. "I don't have to write down your entire home address, and therefore I don't have to worry about getting that wrong," he said.

And electronic payments also offer advantages for receivers. Sending paper checks is troublesome, he said, because many recipients never open the checks that come by mail. "Consumers can't tell if it's junk mail," he said, "A number of those items … come in as claims because the end consumer has thrown that check away."

Banks have been demanding a service like this, Lewis said, "a ubiquitous [person-to-person] service, something that's easy for consumers."

PayPal also announced Tuesday a pact with Carlson Marketing that would let consumers redeem reward points as funds into a PayPal account. The person redeeming the reward points does not have to be an existing PayPal user.

"There are lots of people out here that … may only know PayPal through their experience with eBay," Schatt said. Deals like the ones it announced Tuesday "open up the possibilities to expose people to a side of PayPal they may never have seen," he said.