Why mobile wallet companies are pushing plastic cards

This year, three U.S. mobile payments companies have released consumer “debit cards,” a tacit admission of how behind the industry is on mobile payments — and a smart marketing ploy that extends payment providers’ own brands.

In May Square revealed the Square Cash Card, which links to users’ Square Cash app accounts and lets them use the funds they hold there, but doesn’t link to their bank accounts. The following month, Apple introduced Apple Pay Cash, its card that people can use to make Apple Pay purchases online or in physical stores with the funds they receive through Apple’s new money-transfer service. That month Venmo said it was also testing a debit card, which became available last week. The money users spend is debited from their Venmo balance.

It’s ironic, and the offerings sound complex (consumers really just want quick and painless transactions). For the immediate business, this is just a way to extend their initial, virtual value propositions and give customers more flexibility in how they use their apps. But it’s also an acknowledgement that mobile payments are still a pretty futuristic concept for consumers, and an opportunity to challenge how those consumers think about financial services.

“The play is: how does a consumer think about who they bank with?” said Mike Landau, payments research lead at PwC. “I would say the bank where I have my account, where my money sits. When you challenge the idea of where your money should sit so it’s most convenient for consumers — the thesis here is that that answer can evolve based on habit.”

Square Cash, Apple Pay and Venmo currently all have a peer-to-peer payments solution that come back to a bank account for each transaction.

“At a certain point the service becomes habitual to consumers to the point that they really start to move money from that funded account and it makes more sense to run their financial lives out of a digital service as opposed to a traditional bank,” Landau said.

In just the month after Square Cash launched its card it shipped as many units as it did in the first eight months of the original Square Reader, CEO Jack Dorsey and CFO Sarah Friar wrote in their second quarter shareholder letter this year. In the second quarter, more than a third of active Square Cash customers conducted fee-based transactions, which they identify as including Cash Card, credit card, Instant Deposit and Square Cash for Business transactions. The company has not disclosed its number of active users, a spokesman said.

The shift is similar to PayPal’s experience five years ago, Mike Moeser, Javelin Strategy’s payments director, recalled. At the time, PayPal began issuing plastic cards as part of an effort to get merchant customers to adopt POS devices and thereby extend their initial e-commerce offering into brick-and-mortar stores. Today still, despite the digital overhaul across industries, a physical store presence is still a huge priority for companies trying to capture transactions, he said.

“The reason e-commerce oriented companies such as Square, Venmo and Apple are issuing plastic is the reality that only 10 percent of total retail sales reside in the e-commerce,” Moeser said. “The remaining 90 percent of purchases are still made at physical stores. While e-commerce takes 50 to 75 basis points of share every year, it’s not fast enough for some of these e-commerce players.”

PayPal found success with just a handful of merchants. Its cards didn’t have a Visa or Mastercard logo, which meant they had to adopt another network to accept the cards. Most retailers weren’t willing.

To drive hyper-growth in purchase volume, companies have two options, Moeser said: fight with their competitors for customer transactions, or bring their digital offerings into the physical world and bring the functionality of point-of-sale retail to digital wallets.

“What’s different this time around is that folks like Venmo,” which is owned by PayPal, “are using traditional card networks such as Visa to extend their wallets into the physical world,” he said. “This means the $20 someone sends you by Venmo for a dinner can be used at a later time in a physical store – you don’t need to go to their website.

Image: A Sneak Peek Into The Unreleased #CASHCARD

Amazon is a threat to banks — just not in the way you think

For Amazon, it’s more about disrupting banks, not necessarily displacing them.

To date, the Seattle-based e-commerce giant has a foot in payments, cash, small business lending, consumer credit and an initiative to get people to shop with Amazon using their debit cards. Research also shows millennials have no love for traditional banks and would rather manage their money with a more reliable and “fun” brand like Amazon or even Facebook or WeChat, but that’s just 23 percent.

Still, observers agree that trend is a little sensationalized; that although we’re seeing an Amazonification of financial services — whereby the incumbent banks are platforms for all other non-bank providers of financial services to plug into — legacy firms aren’t actually losing accounts to Amazon. But, they are losing direct interactions with customers. For example, USAA and Capital One are both experimenting with Amazon’s digital assistant Alexa as a new consumer banking channel.

“The threat is not about [technology companies] taking market share, it’s that they become the customer interface and the banks become the ingredient brand,” said Alyson Clarke, a principal analyst at Forrester. “When you lose that connection with your end customer, you’re simply a no-name product manufacturer. And when you no longer have brand, the only things you have left to compete on are price and features.”

Further, large technology firms are becoming more and more operationally important to the financial system, particularly as companies move their data to cloud storage and increase opportunities for consumer facing artificial intelligence, according to Jesse McWaters, the World Economic Forum’s project lead on disruptive innovation in financial services.

“Three or four years ago it was common for senior banking executives to fairly declaratively say they would never move systems off premises, and now it’s becoming increasingly important for data to be processed in the cloud,” he said.

The real threat of Amazon
Banks these days look like technology companies — one impetus is companies like Amazon and Facebook raising the bar for digital customer experiences; another is that legacy financial firms are embracing an open API banking system, as they realize their customers like using third-party fintech apps.

These shifts have led them to realize the importance of data security features — encrypting, monitoring and tracking access points. As a result, financial institutions of all sizes are becoming more dependent on cloud‐based infrastructure provided by companies like Amazon, Oracle and IBM to scale and deploy processes, according to a report published by the World Economic Forum (WEF) and Deloitte. Ultimately, that could force them to relinquish some of their control over costs — and data.

“The rise of digital interfaces and data in financial institutions means that those institutions increasingly focus on developing large tech capabilities, which is accompanied by an increased reliance on large tech firms,” the WEF says, which leads to “tough choices for all firms: become dependent on large techs or risk falling behind.”

Amazon has the cloud computing advantage today. The WEF report says AWS is forming the backbone of the financial services ecosystem and Gartner ranks it as the leader in cloud infrastructure, followed by Microsoft Azure and Google Cloud. AWS sales increased 42 percent on a year-over-year basis to $4.1 billion for the second quarter, Amazon reported last month.

The WEF report cites JPMorgan Chase as an AWS customer, though the bank itself avoided naming vendors. In 2016, JPM spent 16 percent ($9.5 billion) of its budget on technology. Then-chief operating officer Matt Zames, who left JPM in June, said in the company’s annual report in April that it has been pursuing a hybrid private-public cloud strategy. Last year it launched Gaia, its private cloud platform; this spring it began running applications in the public cloud.

“Working collaboratively with public cloud providers, we have made significant progress developing a set of solutions that meets our rigorous risk and security standards,” Zames wrote. “The public cloud reduces our peak infrastructure requirements by providing compute services during temporary fluctuations in demand. The public cloud also helps reduce long-term storage costs and accelerates developer access to new cloud services.”

Capital One has employed AWS as part of its strategy to reduce its data center footprint from eight (in 2015) to three by 2018. Stripe, which powers payments for companies like Lyft, Postmates and Kickstarter, is also an AWS customer.

Reality check
There is a tiny bit of a halo effect around Amazon today in that it seems it can do anything. But it seems like Amazon has better things to do than try to legally become a bank — or even try to steal business away from banks — if only because of how much regulation it would fight both in obtaining a banking license and then in its day-to-day operations.

Longtime Amazon rival Walmart has tried becoming a bank a number of times: in 1999 it tried to buy Federal BankCentre, a one-branch thrift in Oklahoma; in 2006 it applied for a banking license to establish an industrial loan company in Utah. Eventually lawmakers and banking groups blocked future banking efforts by Walmart and tried to prohibit commercial companies from obtaining new ILC licenses.

For Amazon, providing financial services is just a means to an end: making more money by selling more things. Other retailers are still its main competition — not banks.

“They’ve already got the cards and payments going on — and they’re not making money off that, they’re doing that because it enables people to get their goods faster,” Clarke said. “Small business lending to businesses on the platform helps them get up and running faster, it’s about supporting Amazon’s existing business model.”

PayPal is arguably the more immediate “threat” to the banking industry than Amazon. It is the dominant third-party online payment platform in the U.S. and directly serves consumers, small businesses and merchants. Beyond owning the popular Zelle-rival Venmo, its growing PayPal’s mobile offerings. It’s extending its reach into brick-and-mortar through mobile wallets and through recent collaborations with Visa and Mastercard — it’s even bringing Venmo to in-store merchants. It has consumer credit and small business loan offerings. Giving financial access to people without financial access is sort of its M.O.

PayPal isn’t seen as a hazard to the banking industry, which makes Amazon’s potential threat  even less convincing. Incidentally, the top four U.S. banks as well as Apple, Google and Facebook are all PayPal’s partners.

“I don’t think Amazon is necessarily a threat to banks at all,” said Thad Peterson, a senior analyst at Aite Group. “Banks and fintechs or tech companies are in very, very different niches and a significant percentage of people understand that banks are to be trusted and that their money is safe. That’s not going to go away, it’s part of their role as a fiduciary.”

The Amazon Pay threat
While Amazon is definitely not a bank or even a payments company, it does have high-quality payments offerings (again, though, it’s just a means to an end). But since it’s in the retail business, and particularly with its recent Whole Foods acquisition, it could make some payments companies a little uncomfortable. Amazon accounted for 53 percent of U.S. e-commerce growth in 2016, according to receipt mining company Slice.

“We’re definitely going to see more from Amazon Pay,” but how that looks remains to be seen, said Thad Peterson, a senior analyst at Aite Group. “The more the brand is out there, the greater utilization and awareness it gets. I guarantee you’ll be able to use Amazon Pay at Whole Foods, and as Amazon moves into other parts of the retail space I expect Amazon Pay will follow right along with them.”

According to Liz Elder, a senior research associate at digital think tank L2, instead of trying to disrupt banks or even payments companies like PayPal, it is far more likely it will focus on what it’s already got: affluent millennials.

“Amazon’s access to customers who spend more money has been further reinforced through the acquisition of Whole Foods, which by nature serves a higher-end clientele,” she said. “PayPal is much more geared to the underbanked population and people that don’t necessarily have bank accounts or credit cards.”

‘Driving force’: Inside PayPal’s partnership strategy

PayPal seems to be going full Alipay, scooping up partners to create what looks like a comprehensive ecosystem of financial services.

Last week, the payments processing giant announced customers could use their PayPal accounts as a form of payment in the App Store, Apple Music, iTunes and iBooks. Customers can’t add PayPal to their Apple wallets, but they may be able to one day — that partnership would benefit both companies and PayPal probably doesn’t want to compete with cards because they need them to fund customer accounts. The payments processing giant did partner with Google though, in April, allowing Android Pay users to add their PayPal accounts as a payment form.

In October, PayPal also partnered with Facebook to allow users to send buy things through Facebook Messenger; and earlier this year it was reportedly in talks with Amazon about a payments partnership. And these are just the biggest companies. PayPal has forged several partnerships and acquisitions that allow it to extend its reach to small businesses and the underbanked as well as its core customer base of consumers and merchants.

“We had a lot [of partnerships] in the second half of 2016,” said Joe Gallo, a senior communications manager at PayPal. “In 2017, we’ve seen Google and Apple and I think that’ll continue. This is a driving force for us… we plan to continue to assign deals at that pace.”

PayPal has 16 million merchant accounts and 203 million consumer accounts. This year alone, PayPal has announced that customers will soon be able to buy things at physical shops with their PayPal balances through Android Pay, that it will extend a pay-with-Venmo option to PayPal accepting merchants by the end of the year and closed a huge deal with TIO that will bring 10,000 billers into the PayPal network. Its latest offering is a partnership with e-commerce platform WooCommerce and accounting software company Xero.

“PayPal’s strategy has been to partner, partner, partner promiscuously — and in this space, that’s the right thing to do,” said Brendan Miller, a senior analyst at Forrester. “They’re less concerned about their competition and are more about enabling great experiences for the entire ecosystem, and they know it’s going to bring them business when it comes to enabling PayPal at all these different touch points.”

Customer choice 
The key to customers’ hearts (and business) is choice. The industry is beginning to better understand the idea that there won’t necessarily be a winner in digital payments or that each new product doesn’t need to be a Venmo-killer to provide value and do well. Like credit and debit cards, customers will use multiple services when and where they best suit them.

“Consumers are using a lot of different methods so we want to offer them choice,” Gallo said. “We don’t want to say you have to use tap-and-pay because that becomes a barrier to entry. By offering to a series of others and partnering with credit card companies and issuers, we’re able to provide to Citi or Chase or Wells Fargo cardholders and have that breadth of portfolio that we can integrate.”

While most companies focus on either the consumer or the merchant side, PayPal’s customer spectrum includes them both. Apple Pay, for example, is very much a consumer proposition, meant to bring convenience to the Apple device owner. Until now, Apple has only supported credit or debit cards as a payment form. By implementing alternatives like PayPal would give Apple customers even more choice and freedom to pay how they like.

Until then, Apple will remain a significant merchant customer to PayPal.

“If a consumer can’t use a PayPal account in Android Pay and that’s their choice of in store payment, that’s a missed opportunity for us,” Gallo said of the Google agreement.

Building products with empathy
For a long time PayPal took a combative stance toward Visa and MasterCard, said Zilvinas Bareisis, a senior analyst at Celent. It tried to use bank accounts as funding sources as the card networks threatened to apply special charges and fees to services like PayPal.

“Six to nine months ago they buried the hatchet and said, let’s start working together,” Bareisis said.

Now PayPal is of the mindset that it needs to be ubiquitous, wherever the customer is. That’s very close to banks’ mantra these days. Also like banks, it’s also playing to the reality that money is an emotional topic for many people and when they need their financial institution, PayPal will give them the support they need.

“[Choice] is part of the strategy, but it’s also about helping consumers better manage their money over the long term and how that drive emotional loyalty,” Miller said. “If they can help consumers better spend, save and manage their money, which is emotional…Everyone is realizing now it’s not just the banks that’ll do that, try to drive that emotional connection with the consumer.”

Is PayPal the U.S. answer to Alipay?

The U.S. may not have an exact answer to Alibaba Group’s Alipay, China’s dominant third-party online payment platform, but PayPal is certainly starting to look like it.

Both provide online payment capabilities to merchants and consumers. Both are using data from their existing customers to offer consumer credit and small business loan options. Now, PayPal is catching up to Alipay in that it’s starting to get into consumer-to-business mobile payments and working to become more than the yellow button on your business’ website, as Amit Mathradas, general manager of small business at PayPal, puts it. It wants its products, partners and consumer and merchant clients to come together in a more comprehensive way.

“PayPal is growing with the merchant and taking a lot of direct input and feedback from our businesses,” Mathradas said. “We’re working hand in hand to help develop solutions so they can focus on running their business while we handle the fintech.”

So far this year, PayPal has announced that customers will soon be able to buy things at physical shops with their PayPal balances through Android Pay, that it will extend a pay-with-Venmo option to PayPal accepting merchants by the end of the year and closed a huge deal with TIO that will bring 10,000 billers into the PayPal network. Last week, it revealed its latest offering, PayPal Business in a Box, in partnership with e-commerce platform WooCommerce and accounting software company Xero.

That’s a lot of new data to be working with on top of what PayPal already has: 16 million merchant and 203 million consumer accounts. And with all these new agreements bringing even more customers into the network, PayPal can, like Alipay (now officially Ant Financial) use the customer data from those transactions to give consumers and merchants access to other financial services that look a lot like typical core banking products.

“The transaction volume you take part in using your PayPal account helps qualifying you towards our Working Capital product,” which offers small business loans backed by WebBank, Mathradas said.

PayPal Working Capital has provided $3 billion in loans and cash advances to 115,000 businesses since its 2013 launch.

Mathradas said while PayPal’s merchants had long considered it an important payments partner, they had been asking for things like access to cash and consumer credit to help drive increase in online store conversion. When merchants sign up for Business in a Box, they’re automatically registered for a PayPal business account that integrates into its WooCommerce store and Xero account with application programming interfaces.

There are 28 million small businesses in the U.S. that account for 54 percent of all of U.S. sales, according to the 2016 U.S. Small Business Profile by the SBA Office of Advocacy, and Xero has those in its sights.

“We’re going to change the game for small businesses because they make our economy go round and round, said Herman Man, Xero’s head of product for the Americas. “When it comes to their ability to monitor financial performance, real time is crucial to their survival.”

Mathradas declined to comment on PayPal’s threat to traditional banks.

“The one thing we do offer is an end to end solution. We can serve merchants or consumers that want be paid online, at a trade store, at a store, that need working capital, that need credit. One-stop shop is what separates us from anyone else out there. We’re going to continue using these assets to grow.”

How PayPal is moving into retail payments

PayPal finally has what it has wanted for almost a decade: to expand its user base beyond e-commerce.

A partnership with Google announced Tuesday allows Android users to add their PayPal accounts to their mobile wallets, giving them the ability to spend from their PayPal balances with the tap of a phone. PayPal is extending its reach while Google now has access to PayPal’s nearly 200 million active accounts.

“PayPal has been granted its first real opportunity to play a role in brick and mortar commerce,” Jordan McKee, an analyst at 451 research, wrote in a client briefing shared with Tearsheet. “The collaboration offers PayPal the prospect of extracting net-new payment volumes from a channel it has lacked exposure to, while potentially opening up Android Pay to millions of new users.”

The partnership means customers can pay with PayPal wherever they can pay with Android Pay – that includes major retailers like Walgreens and Dunkin’ Donuts.

The big problem remains how it will compete against Apple Pay, which is poised to maintain its dominance in the mobile payments market by hitting 86 million users this year, according to forecasts by research firm Juniper. By contrast, Android Pay ended 2016 with 12 million users.

But PayPal probably isn’t even trying to compete Apple’s mobile payments product, according to David True, a partner at PayGility Advisors. PayPal’s goal is to give its users as many payment options as it can and would probably strike similar deals with Apple Pay, Samsung Pay and other payments platforms if it could.

PayPal declined to comment on the potential for future mobile payments partnerships.

“We are focused on testing various [near field communication] experiences on mobile devices right now and we value the existing partnerships we have with a number of our global technology partners,” said Grace Nasri, PayPal’s communications manager for global product and partnerships.

PayPal and Google have an existing working relationship; PayPal’s Braintree platform enables Android Pay and PayPal has been a payment method for Google’s Play app and digital content store for nearly three years.

If anything, the agreement underscores the competition between Android Pay and Samsung Pay, given they compete directly with each other for users on the same operating system. Neither of them are truly interested in the payment part either, True said, but rather what it helps them achieve: sales of mobile phones and other connected devices (which has historically been Samsung’s modus operandi).

However, Android Pay through its recent partnerships has “wisely acknowledging that collaboration is the basis of broadening wallet value for users and stakeholders alike,” McKee said. Last week it announced partnerships with Bank of America, USAA, Bank of New Zealand, Discover, and mBank to integrate the Pay service into their apps – providing direct access to new users while giving more control to issuers over mobile wallet onboarding.

“At core, the issue in the U.S. is what is always has been: paying with plastic cards works well, pretty much every time, so there’s little reason to change that habit,” True said. “It is a long game, and the real mobile payment future is where one doesn’t need a physical point of sale.”

PayPal-TIO deal could increase Venmo revenue, utility

PayPal’s merger strategy has long been focused on digital offerings. Reaching the physical world, however, has been a real challenge for the payments giant.

Now PayPal is trying to change that. The recently announced acquisition of Canadian bill pay service TIO Networks for $233 million would not just give them greater reach but a greater opportunity to work more with people who are excluded from the banking system.

“It’s been clear for a while that PayPal has a vision to democratize financial services,” said Anuj Nayar, head of global initiatives at PayPal. “A lot of this stuff we’re doing specifically to hit the underserved. People are being disenfranchised … it’s incredible how high a proportion of the U.S. population couldn’t raise $400 in an emergency.”

About 15 percent of U.S. consumers don’t have a bank account, according to Pew Charitable Trusts. For many of them, digital financial services seem ill-suited to their needs since they deal mostly in paper checks or cash. And while targeting people off the financial grid is laudable, the deal, which is scheduled to close in the second half of 2017, is as much about the transaction volumes PayPal would acquire, if not more, as servicing the unbanked.

When the company announced its quarterly earnings at the end of January it highlighted the successful growth of PayPal-owned Venmo, which processed $5.6 billion over the quarter, up 126 percent from the previous quarter. But Venmo transfers are free for users and PayPal doesn’t make much from them. Similarly, people making cash payments to billers are probably doing so through a kiosk or 7Eleven, Family Dollar or other retailer, said Michael Moeser, Javelin Strategy & Research’s director of payments.

“PayPal makes [revenue] when you use its wallet at a merchant,” he said. So by bringing billers into its network PayPal argues that it’s creating more opportunities to generate fee revenue.

If PayPal can get data on people who are outside the mainstream financial system, and as a result, aren’t on the radars of credit bureaus, it could potentially help build and maintain records of the volumes of data that show people’s financial integrity and responsibility, said Ramesh Siromani, a partner in the financial institutions practice of A.T. Kearney, a global strategy and management consulting firm.

As important as it is to bring attention to and target these customers, this deal, for PayPal, is still all about adding more ways to get volume into its business that wasn’t previously there. TIO processed $7 billion in bill payments in 2016. It boasts 14 million customers, 10,000 biller partners and 65,000 retail locations.

In the long term, PayPal could use the TIO network to bring more utility to the Venmo app, Moeser suggested. PayPal declined to comment.

“Say you and your three roommates get a collective utility bill, and one person is getting the funds from the other roommates so he or she can pay that utility bill,” he said. “When you get money from your roommates you don’t have to go to a separate function or log into your mobile or online banking, you could do it all from your Venmo wallet and there’s an opportunity for Venmo to get some sort of interchange [fee] from that biller.”

Nayar did not comment on the company’s future plans beyond the deal, which has still not been completed. For now, he said, PayPal is focused on serving customer needs, and finding a way to bring people with limited financial access into its business and into the mainstream financial system is on deck.

“Across the board we’re focusing on needs of customers,” Nayar said. “PayPal’s are two fold: merchants and consumers. For both of them there is a massive unmet need and PayPal is sort of the only global third party payments network that does it all at scale — we have three digital wallets in total,” he added, referring to the PayPal digital wallet, Venmo and Xoom.

For the last five to 10 years, the conversation around financial inclusion has drawn attention to the exorbitant fees people end up paying just to cash a check or send money to family in a different country. In that time, technology developers have built software that allows them to perform these basic functions for little to no fee, and more quickly.

Adopting these technologies aren’t as easy as it sounds though, said David Sica, a principal at venture capital firm Nyca partners. There’s a huge financial literacy component that could be addressed through great marketing and product design.

“What often gets missed is the consumers trust that check casher, they trust the service that for the last 20 times they’ve used it does what it’s supposed to do,” he said. “If I’m a check cashing customer, I’m not going to rock the boat. I’m going to go where I know I can cash the check and remit and I’m fine paying the fees because it’s more important to get it done. It’s unrealistic to think the unbanked, underserved population will start acting and behaving like a Venmo customer on day one.”

Does PayPal’s remittance solution stand up to competitors?

An argument that’s used against new remittance companies is that consumers don’t trust fintech startups to move real money. Companies like Western Union may be more expensive, but customers feel more secure with them. Remittance is a big deal for those who send money back home to families, and customers don’t want to run the risk of having their cash lost by new digital solutions.

But a payments pioneer just released a digital remittance service that may provide more consumer confidence. The new integration of Xoom is PayPal’s answer to digital remittance. Xoom isn’t new to remittance (it was founded in 2001 and bought by PayPal in 2015), but gets an upgrade with “Powered by PayPal” under its logo.

“PayPal can offer more services to its global customer base, which we believe will increase customer engagement,” said Julian King, PayPal’s vice president, chief marketing officer, and business development, Xoom. “We’re very excited to announce that Xoom is now integrated into PayPal.com, which will cross-sell Xoom’s services to PayPal users in the U.S.”

In conjunction with the new integration, PayPal released a white paper on the costs of remittance. In its marketing, Xoom emphasizes its contribution to the UN Sustainable Development Goal and its work towards lowering remittance fees. Using data from the World Bank, the firm found the average remittance transfer through brick-and-mortar firms like Western Union cost seven and a half percent of the money in motion. Xoom costs users less than four percent. With 2016 remittances set to hit $600 billion, the difference in fees could reduce fees by $21 billion.

“Those savings have the potential of lifting nearly 30 million people out of poverty, according to the UN Center for Trade and Development findings,” remarked King. “We’re starting to see the impact in savings from digital technology and are on our way towards achieving the UN Sustainable Development.”

Xoom stresses lower fees, but looking closer at the numbers, something doesn’t compute. Compared to companies like Western Union and Ria, Xoom is cheaper. But when looking at other digital solutions like TransferWise and WorldRemit, Xoom doesn’t hold up well.

Remittance fees can be placed into two categories: how good of a forex rate you get and how much the transfer of funds costs. Xoom gives a better forex rate than traditional remittance companies, but worse than other digital solutions. Additionally, Xoom’s transfer fees are comparable to other digital remittance companies. But when sending funds from a debit or credit card, users have to pay nearly $25, an astronomical amount for this type of transaction.

King claims consumers have responded to Xoom that they are happy with fees, but points to other factors when determining the true value of remittance transfers.

“We’re trying to match cost to the value that we’re delivering…You can’t solely differentiate on pricing in this industry because it depends on so many different factors. Because of the emotional significance of these transactions, consumers choose a service based on overall value and convenience that they get for a service,” he concluded.

Value, in the case of Xoom, seems to be transferring funds via an established payments company versus a fintech upstart. Even though fees and forex rates aren’t as bad as banks and remittance incumbents, customers will continue to pay a premium for a more established remittance service.

Paypal adds another mobile wallet to its arsenal

PayPal is bringing mobile payments to Europe with its newest partnership.

The eBay spinoff just announced an agreement that connects PayPal to telecom giant Vodafone’s Wallet app, including capabilities to make contactless payments at over 400,000 retailers in Europe via PayPal.

“Money is going digital, and the smartphone is at the center of this transformation.” said Rob Harper, director of mobile commerce, PayPal UK. “Mobile payments have long been at the heart of what we do. As mobile technology continues to evolve, we will continue to look at new ways to make it easier and faster for our customers to pay.”

The alliance marks the third agreement PayPal has made with a mobile wallet in the past four months. Visa and PayPal got over their beef and agreed to bring PayPal to Visa Checkout in July. PayPal then cut a deal with MasterCard, opening up MC tokenization to PayPal customers.

Now that PayPal has agreements with the two biggest credit cards and a European telecom company, look for more agreements with mobile wallets. But perhaps a Venmo integration to help solve the lingering monitization question is on the horizon.

Hi Five! The five fintech stories we’re following this week

5 trends we're tracking in finance

Forget DIY banking. Build your own bank.

More banks are creating interfaces for startups and other fintech partners so they can connect directly into their plumbing. Rather than weaken the role of the incumbent financial institution, this platformification of banking re-entrenches the bank at the center of financial services. In this setup, the bank manages the UI and customer experience, plugging in partners’ technology and services via APIs.

Alas, this type of model means that banks can afford to get slimmer – Radius Bank recently closed its branches. The industry is already on an employee diet, shedding branches and people with them. With up to 50% of the global financial services workforce at risk of losing their jobs, it begs the question. What should the industry do with all these people?

PayPal, powered by Visa, coming soon to a store near you.

A new deal with Visa paves the way for PayPal to enter into retail. PayPal will no longer discourage customers from funding accounts with a credit card. Interesting move by Visa, for sure, but it brings PayPal closer to being a true competitor in the digital wallet space, according to Tradestreaming’s Josh Liggett.

For PayPal users, that could mean more time spent fumbling with the new-fangled credit card reader in a store. Go ahead and spend with wild abandon, though. The CFPB wants to shield consumers better from creditor calls with new regulations it’s working on. All’s good — the agency really just wants consumers to pay what’s rightfully theirs to pay.

Those wacky hedge funds.

Hedge funds are interesting beasts. In a way, despite their antics, they provide windows into understanding our own humanity. That’s why this story, about sex, fear, and video surveillance at Ray Dalio’s shop, the massive Bridgewater Associates, is particularly scintillating. Beyond the he-said, he-said, Dalio likes to emphasize his firm’s radical transparency. But one employee said in a complaint earlier this year that the hedge fund was like a “cauldron of fear and intimidation”.

Across Connecticut, Steven A Cohen’s hedge fund family office, Point72 made a bet on a startup fintech firm, Quantopian. For its part, Quantopian lets people build their own quantitative investing strategies and make money by licensing these algorithms back to the firm, which invests in them. The equity investment for Cohen was relatively modest, but his firm pledged up to $250 million to be invested in Quantopian strategies in a move that illustrates a growing interest in quant strategies for some of the largest asset managers.

As Goldman Sachs enters online lending, peer to peer lending is dead.

“The little guy’s opportunity to earn yield like a Wall Street bank has been replaced with actual Wall Street banks,” wrote deBanked’s Sean Murray. GS is set to enter the online lending space and with that, the excited, democratic ethos behind peer to peer lending is all but gone. In its stead are traditional financial services moving into this new online domain. Distributed, personalized capital sources have been replaced with large lines of credit and lending facilities.

Prosper is said to be pitching a fund that would invest in its loans. Executives are meeting with potential clients this week to pitch the Prosper Capital Consumer Credit Fund, according to a person familiar with the matter who asked not to be identified discussing confidential talks. The fund’s managers are targeting returns of 6 percent to 8 percent. Not sure of those returns? Here’s why marketplace lending fund returns don’t look good.

Everyone’s getting in, online

Not everyone has gone whole hog over fintech. Some firms have taken their time, dallied in a partnership or two, before launching a full-fledged online offering. Fidelity fits that bill, launching its own retail robo offering, Fidelity Go, after breaking up with standalone roboadvisor, Betterment.

The mortgage industry is also finally finding a way to really embrace the web and not just for lead generation. A whole slew of firms are finally working on improving the home buying process –  75 percent of home buyers would use online mortgages if they knew they could speak with someone when needed. “I was frustrated by how offline, opaque and inefficient the mortgage application experience was,” said Rajesh Bhat of Roostify, one of the new upstarts.


Powered by Visa, PayPal comes to a store near you

Late last week, Visa and PayPal announced a new partnership, granting the former eBay subsidiary easier account funding options and a foothold into retail payments. The alliance ends the long-standing fight between PayPal and Visa, curtailing PayPal’s previous tactic of discouraging customers from funding their accounts with a credit card.

PayPal had a habit of pushing users to fund accounts via bank accounts, known as ACH, instead of credit cards, in an effort to avoid higher transaction fees that come with credit card processing. Visa hasn’t appreciated PayPal pushing customers away from credit cards. At JP Morgans’s Technology, Media, and Telecom Conference in May, Visa CEO Charlie Scharf called PayPal a “foe”, challenging PayPal to change tactics, or face the consequences.

“We’d love to figure out a different model with them where it’s consumer choice first where they are not disintermediating,” said Scharf. “If we can figure that out with them great we’ll think of them more as a partner they need to do things differently in order to do that. The other door is where we go full steam and compete with them in ways that people have never seen before because you’ve never seen us go target PayPal in the marketplace in any meaningful way.”

The partnership with Visa introduces new mobile payments capabilities for PayPal. Customers with Visa debit cards can now deposit and withdraw funds between their accounts. Previously, it took around a business day to transfer funds in and out of Venmo and PayPal, but with the new agreement, users with Visa debit cards will have instant money transfers.

The deal also paves the way for PayPal’s entry into the Visa Digital Enablement Program. By entering into VDEP, PayPal can use the Visa Token service, making it a viable payment option at all retailers using the Visa contactless payment.

“Giving consumers choice in how and where they pay is essential to our goal of being a customer champion and we welcome the opportunity to work with more partners like Visa who share our vision,” said Dan Schulman, PayPal president and chief executive officer in a recent press release.

The mobile payment war for a share of the retail payments market is being waged between Apple, Google, and Samsung, but with its new partnership with Visa, PayPal becomes another formidable mobile payment competitor. A more seamless Venmo integration also sets PayPal up nicely in mobile payments.

“The value proposition for brick and mortar merchants is pretty exciting, since customers will now have the ability to pay with via PayPal seamlessly.” said David Datny, fintech consultant and former product and growth manager at Fundbox. “Customers who had once used PayPal simply as a payment option once in a while when they transacted on online sites which offered PayPal will be able to pay with PayPal daily almost anywhere where Visa is accepted.”

It remains to be seen, though, if  users will chose PayPal over other payment options. “Time will tell if customers will want to use their PayPal or Venmo accounts to pay for goods and services in the offline world, but if they do, it will surely be a big win for PayPal,” he concluded.

The partnership also benefits Visa in a few ways. First, it may encourage more users to use Visa debit cards to take advantage of the integration. Second, PayPal will no longer encourage Visa cardholders to use ACH over Visa credit and debit cards. Finally, the integration should bring more credit card transaction volume to Visa and help Visa gain market share.

Analysts have come out on both sides as to who benefits most from the deal, as well as the short and long term financial implications of the partnership. Patricia Hewitt, CEO of PG Research & Advisory Services, feels that while the short term benefits may swing Visa’s way, PayPal may be the long term winner. “While on the face of it, Visa has tipped the scales to increase market share of net new transactions and financial institutions have the opportunity to shift transactions from the expense-side (ACH) to the income-side (debit), the long-term benefit may be for PayPal,” Hewitt said.

PayPal’s intention is to build out a financial hub and will have to make more deals like this one to stabilize its financial services platform.  “That’s not possible without network transactions in the mix, solving for real-time clearing, smoothing out their POS experience, and overcoming barriers to depository accounts in other countries,” explained Hewitt. “This deal, and perhaps those to follow with other networks, is one of the critical channels to make this strategy a reality.”

Photo credit: Janitors via Visualhunt / CC BY