The Wall Street Journal reports that PayPal is prepping to become somewhat of a real bank. The digital e-payment giant will soon roll out new services that will include ATM-compatible debit cards, direct deposit paychecks, and FDIC insurance among other traditional banking services.
Did PayPal get the license to operate as a bank?
PayPal remains an online digital wallet where one can send and receive payments electronically as well as store their money in digital form. It is not recognized as a traditional bank by any government around the world; the U.S. financial market regulator(s) have certainly not issued PayPal a license to operate as a bank.
To get around that legal bureaucracy, PayPal has partnered with several small banks to provide those services. That is to say, behind the PayPal interface, are some traditional banks running things except in this instance it is online on one of the most popular digital payment platforms.
For instance, it is the Delaware bank that will be handling issues related to debit cards; there will be another bank in Georgia that will be depositing checks users snap using their smartphone’ camera, while another bank in Utah will be offering loans to customers and small businesses.
This service is not entirely new on PayPal; it has been available for a small selected group of customers. However, PayPal has just made it possible for all users. There will be no monthly fee or minimum balance requirement to use the service; though you will have to pay the ATM fees whenever you use an ATM outside the PayPal’s network. You will also pay a 1% service fee for any check you deposit using your smartphone camera.
Is PayPal going after the Traditional Bank’s market?
Bill Ready, PayPal’s COO says PayPal is not out to replace traditional banking services; at least not yet. They are looking to offer banking services to people in the economy who have historically not been considered as a potential client by banking institutions. In other words, PayPal wants to bank the unbanked people in this digital economy.
Ready says, if you have a bank account already connected to your PayPal account, then the new account service “isn’t an account for you.”