Digital Transactions Authoritative, insightful and timely information for payments professionals
By Rick Oglesby
@DTPaymentNews
PayPal Holdings Inc. has always been an enigma. It’s not really a payment network, not really an independent sales organization or merchant acquirer, not really a wallet or a prepaid card issuer, not really a person-to-person payments solution, and not really a payment gateway. Yet, it has elements of all of these. So what, exactly, is PayPal?
With the acquisition of TIO Networks Corp., PayPal chief executive Dan Schulman has demonstrated clearly that his vision for the future of PayPal is not much different from the vision he was working to complete at his former employer, American Express Co. In that future, PayPal is not really a bank, but is almost one.
Consider the history.
In March 2011, Schulman was the executive sponsor behind the launch of American Express’s Serve Wallet, a product that was quite similar to PayPal’s core wallet product and dubbed at the time as “a new type of payment platform that isn’t tied to a single card or mobile operating system.”
In early 2012, Schulman sponsored a $125 million (U.S.) investment in Lianlian Group, and entered into an agreement for Lianlian to license the Serve Wallet to support in-store and online payments for mobile minutes at its 300,000 mobile-topup, airline, video-gaming, and utility-bill payment locations across China. Through the acquisition of the Serve platform, Lianlian hoped to attract deposits from its previously cash- and transaction-based customers, which would enable it to expand into a variety of new financial services directed towards cash-preferring and/or unbanked consumers.
In late 2012, AmEx partnered with Wal-Mart Stores Inc. to re-launch Serve under a new brand (Bluebird) and a new vision, to be an “alternative to debit and checking accounts.” It’s a prepaid card account infused with checking-account features like direct deposit, mobile check deposits, ATM cash access, and online bill pay. The wallet became the underlying solution behind Bluebird, a prepaid account offered in partnership with Walmart. It was an immediate success, attracting more than half a million customers in just three months. Schulman seemed to have struck gold, launching AmEx into the business of providing financial services to the unbanked, a global population of approximately 2 billion.
Schulman continued this mission for two more years at AmEx, including launching a Bluebird-like product with Target Stores Inc., establishing an investment fund for startups focusing on financial inclusion, and setting up a financial innovation lab conducting research and developing technologies to better serve the unbanked. In other words, Schulman’s objectives since at least 2012 have revolved around enabling unbanked consumers to transact electronically.
In September 2014, Schulman joined PayPal. Shortly thereafter, he spelled out his vision for the company, calling PayPal an open platform that would be the operating system for digital commerce. The vision was even broader than that, though. He quickly added that he wanted “to move from being a transactional relationship with consumers to having a full engaged model with them where they work with us day-in and day-out, to manage and move their money.”
PayPal’s vision statement has since shifted to align with this latter objective. PayPal’s most recent 10-K states: “Our vision is to democratize financial services, as we believe that managing and moving money is a right for all people, not just the affluent.”
Since Schulman joined PayPal, the company has acquired Xoom, a business that enables U.S. consumers, many of them immigrants, to easily send money and/or pay bills abroad. It has done deals with Visa Inc. and Mastercard Inc. that enable PayPal to be more readily used at the point of sale, and that take PayPal out of the payment-network business.
And now it has acquired TIO Networks, a walk-up bill-pay solution provider whose vision statement is to “dramatically improve how underbanked customers are treated when they need access to consumer financial services.” PayPal intends to integrate its wallet into the TIO Networks product, enabling these cash-based consumers to pay online from the PayPal Wallet.
The common element around all of these efforts is that they all focus on three key objectives:
1. Attract consumer deposits to expand PayPal’s utility;
2. Enable consumers to transact wherever they wish to do so;
3. Focus on the unbanked and/or less affluent.
It’s time to stop looking at PayPal as a digital-commerce enabler or as a competitor to Visa and Mastercard. It’s now time to consider PayPal for what PayPal intends to be: a global, digital, consumer-based financial institution focused on the unbanked, the underbanked, and the less affluent, and whose primary competitor is American Express.
