Banks can't compete with PayPal - Gartner

Banks can't compete with PayPal - Gartner

Banks and credit card companies should consider reselling PayPal payments to merchant customers, instead of devising ways to compete with the online payments platform, according to research group Gartner.

Gartner says banks should adjust plans to encompass PayPal rather than hold fast and attempt to compete in the online payments market with their own outdated payment methods.

PayPal can beat credit card pricing because it blends credit card, bank account transfer and stored account value funding on the payer side, lowering its overall cost of funding any payment. The company also encourages repeat payer customers to keep money in their PayPal accounts - the company's lowest-cost funding method - and to use credit cards which are the most expensive funding option.

Gartner says PayPal's recently introduced micropayments initiative could also lead to market domination. Although PayPal has long had the capability for micropayments, it has waited until it had amassed enough customers - it claims 78 million accounts - and enough opportunity to earn profits from merchants who sell goods and services priced under $3.

Although card companies could enter the micropayments market simply by lowering merchant transaction fees, these companies don't have PayPal's advantage of funding payments from PayPal stored accounts, as well as traditional bank accounts.

In order to compete with PayPal, Gartner says players in the micropayments market should offer value beyond payment processing. For example, a vending machine company could also offer maintenance and inventory services.

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