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PayPal expands into banking services, but won’t become a bank

The US payments giant is edging towards traditional banking with its new product line up, seeking to serve the underbanked without a banking licence.

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Announced in a statement today, PayPal’s COO Bill Ready has said that the payments firm is looking to roll out some new features that, all in all, are really more traditional than innovative. On the cards for 2018 is a PayPal Mastercard debit card, attached to a FDIC-insured banking account with the ability to accept direct cheque deposits.

But PayPal itself has no plans to pursue a banking licence any time soon, not least because it is notoriously hard to do so in the United States. Instead it will offer all of these things through partner banks, the names of which are currently unconfirmed. 

According to a report from the Wall Street Journal, a Delaware bank will handle the debit cards, a Georgia bank will handle the cheque deposits via photographs from users, and banks in Utah will be offering loans to customers and small businesses; all on PayPal’s behalf.

In an effort to serve those who currently have limited access to banking services across the US, there will be no monthly fee or minimum deposit required to use the account. However as is traditional in the States, users will have to pay fees to use ATMs not housed within PayPal’s network, and pay 1 per cent of any cheque deposited via the digital system.

According to Fortune, the decision to keep the names of these partner banks behind closed doors is in fact a strategic move: the bilateral agreements between PayPal and anonymous banks help it to “avoid FDIC regulations on whose deposits it will insure”, and “Visa and MasterCard rules about what kinds of institutions the credit card companies will run cards for”.

Ready commented that an estimated 30m Americans are currently spending around 9.5 per cent of their income on interest and fees from alterative finance providers, as a result of being “financially underserved” by traditional institutions. Today’s announcement is designed to target these people, as he went on to say: “If you already have a bank account, [this] is not for you.”

“We are not a bank and we have no aspirations to become a bank. We’re not looking to move into banking at all. What we are doing is democratizing access to financial services.”

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