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Can banks compete with PayPal?

Yesterday I listened to a talk from PayPal at one of Europe’s largest online innovation and developer conferences, LeWeb. The company was incredibly bullish about the online ecommerce market and explained that its business was now not only derived from online retailers and merchants but also offline, brick and mortar organisations that are seeking to profit from the increasing amount of money being spent online. According to PayPal, $1bn of transactions will go through its developer platform PayPal X in 2010.

As online payments gather momentum and PayPal spreads its reach, financial institutions are starting to take this seriously as a threat but do not yet know how to prevent PayPal’s seemingly unstoppable capture of the online payments world. There is a valuable revenue stream to be capitalised on by facilitating open access to developers to the mainstream payments networks such as Visa and MasterCard, to encourage more innovative uses and tailored payments experiences.

In 2011, I expect to see many more partnerships between financial institutions and payment platform developers to bring new payment services to market.


Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 December, 2010, 14:01Be the first to give this comment the thumbs up 0 likes

I'm not sure if it's widely known that PayPal not only plays the role of a payment service provider but also that of an acquirer of card transactions. In its former role, the payer and payee must both have PayPal accounts, no bank is involved in the payment transaction, so PayPal is surely in a competing position with banks. However, I for one learned only recently that it's not necessary for the payer to have a PayPal account in order to make payments using PayPal to the PayPal account of the payee. In this role, payers pay with their credit cards, the payer's credit card issuing bank is very much in the loop, and it would appear as though PayPal is not in a competing position with banks.  

A Finextra member
A Finextra member 08 January, 2011, 08:57Be the first to give this comment the thumbs up 0 likes

This is interesting - The problem with Paypal is in its credibility as something greater than a low end retail provider of small transaction high volume. Now while that is a viable business model for internet junkies buying trinkets online, the process is not that versatile for the more serious transaction further up the economic value chain, why?

Well in short, the remittance party and the beneficiary have to be part of the paypal network or use credit/debit cards which is perhaps the largest retail remittance channel in the market. Let's take a look at our local PayPal "branch" and for me that is in Singapore, Singapore PayPal; where do I find Remit Funds into any bank account in the world?

If paypal moves up the pyramid away from online and into the supply chain realm of business-to-business, this model will need to change. In reality the marketing, support and fiduciary perception of this whole operation is going to need to change but let's stay transactional here. Funds transfer needs some functional requirements to be successful at all layers of the economy. These requirements come down to three things:

  1. Transactionally Secure, 
  2. Fit within standard terms of trade and 
  3. The transaction must be Indiscriminate or Fiat Money like


Fiat Money Is Fully Fungible

Paypal does the first two but is weaker on the third, what it does provide is payer-to-payee facilitated via the credit and debit card networks. What it doesn't do is open account functionality which if it did, would make it a good channel for legal tender anywhere.

I applied a longer response here


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