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

Why Apple Pay won’t (and doesn’t need to) be a Venmo-killer

Apple revealed Monday that users of its iPhone devices can now pay their friends (or whoever) through a money transfer service that operates over the iMessage app. It’s obviously a competitor to Venmo, the popular peer-to-peer payments app, but a killer? Probably not, according to analysts in the space.

Firstly, the value proposition is for users of Apple devices, and Venmo users are more diverse than that. Industry observers say people lose sight of the reality that the story of financial technology has a lot to do with creating customer-centric offerings — and customers aren’t all on Apple devices. Android took the majority (82 percent) of the market in the fourth quarter of 2016; Apple captured 18 percent.

“It’s not the p-to-p that gets me so excited, it’s where they’re enabling commerce that’s not happening today: web and app,” said David Sica, a principal at venture capital firm Nyca Partners. “Once you win that consumer it’s very easy to start building other types of payment functionalities. People aren’t using PayPal proper as much as they’re using Venmo, but Venmo doesn’t have the offerings.”

PayPal recently announced that it would soon open Venmo to businesses, so while it’s expanding its one functionality to others, Apple is improving its current value proposition for the customer and solving for real pain points, like the checkout process in mobile shopping experiences. (Shopping cart abandonment rate on mobile devices is about 78 percent — that’s more than three out of every four sales that retailers lose because of friction at the point of sale.)

Venmo may be the dominant force in p-to-p payments, but it’s not alone. Traditional banks are going after it too, worried (at least they should be) that Apple, Venmo, Square Cash or any of the messenger app-based payments offerings like Facebook Messenger, WhatsApp or WeChat Pay will “take a debit card that they spend $7 million a year to market and bury it in someone else’s wallet,” Sica said. The banks in the Zelle Network, the other “Venmo-killer,” processed just $55 billion in p-to-p transactions across more than 170 million transactions in 2016.

“They’re looking to steer you back to their app to send money, which is great, but it’s not a very customer centric approach,” Sica said.

As part of the announcement, Apple also introduced its own digital debit card, Apple Pay Cash, which lets users receive money through the new p-to-p transaction and use it to make Apple Pay purchases wherever and however they’re accepted. That offering could ostensibly be a gateway to mobile payments for younger customers who may not already own traditional credit and debit cards.

But the heart of the actual peer-to-peer service is so similar to all the other wannabe Venmo-killers out there, said Zilvinas Bareisis, a senior analyst at Celent. The real question is which one will be best integrated into where the customer already is.

“To some extent this is a user interface, user experience proposition,” he said. “A lot of these solutions are backed by card-to-card transfers — you’re sending from one debit card to another. If you look at Facebook Messenger and messenger payment, its basically that service integrated into Messenger. With Venmo it’s that service integrated into that app; with Zelle it’s bank-to-bank, account-to-account transfers integrated within from a mobile banking app solution. The underlying service is very similar.”

Despite being named one of the most innovative companies year after year, there’s been an ongoing discussion among the tech industry about how Apple has lost its innovation mojo, or that it’s in an innovation slump, or how innovation left with Steve Jobs.

Now, Apple is saying it’s going to have its own service within its own operating system, integrated tightly into its own process solutions, like iMessage. It’s unlikely to divert people to other messenger apps to send money.

“Folks don’t want to download more apps,” Sica said. “App download is minimal, it’s hard to win that real estate now… There’s room for companies to offer more options. For some people that’ll be perfect for them.”

Venmo rising: Why PayPal wants you to pay for purchases using the app

The act of posting payment details on an emoji-rich social feed is about to move to payments for purchases.  Venmo, the peer-to-peer payments service said to be most popular with millennials, is expanding its reach so users will be able to have that same experience when buying things.

PayPal CEO Dan Schulman announced this week that the option to pay with Venmo for purchases will be available for any merchant that accepts PayPal by the end of the year. To use the feature, users will need to enable it from within the app. It’s remarkably similar to PayPal One Touch, with the ability to split payments with friends and share what it calls the “excitement for each purchase” on the social feed.

“We think that’s powerful in the long run to think about Venmo being your most intimate social network,” said spokesman Josh Criscoe. “On Venmo it’s people you’re doing most of your activities with.”

But beyond offering users a back-up payment method, what’s really driving the move is a bigger strategy to connect Venmo to brands and generate revenue. While Venmo processed $6.8 billion in payments in the first quarter of this year and $17.6 billion in payments last year, Criscoe acknowledged that the peer-to-peer payments aspect of Venmo is not a money maker for the company. Venmo subsidizes the costs of the transactions, he said, keeping it free for users. But for ‘pay with Venmo,’ merchants will pay 2.9 percent plus 30 cents per transaction — the same price as PayPal.

“In the long term, it’s a way for merchants and brands to get exposure and connect with more users,” said Criscoe. “There’s a lot of powerful stuff here than just the buy button. We hope that Venmo is something that you can use to pay anywhere and everywhere.”

While ‘pay with Venmo’ was first rolled out in 2014 with selected merchants using the Braintree platform (e.g. Uber, Airbnb), the ability to use it with the millions of brands, including Target and Walmart, is significant, especially as the peer-to-peer payments space gets more competitive with the launch of bank-backed Zelle and rumors about an Apple rival to Venmo in the works.

Despite more competition in the peer-to-peer payments space, Criscoe said connecting the Venmo experience with brands has long been part of its vision.

“Venmo has always been on this path,” he said. “We have a really strong base of customers that are really loyal to Venmo and evangelize about it every day — it’s spread by word of mouth with little or no marketing spend.”

 

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.”

The 2016 Tradestreaming Awards winners: Best payments apps and technology

Payments is arguably the most exciting — and mature — part of fintech. There’s a lot of activity by both incumbent and startup payment technology providers.

The Tradestreaming Awards recognize the talent, energy, and vision that are required to create great digital financial products. The following are our inaugural winners in the payments category.

Best Consumer Payments Platform

Awarding the firm with a great consumer payments product, achieving traction and engagement and growing its user base.

venmo wins Tradestreaming award

WINNER: Venmo

People just enjoy using Venmo. PayPal’s crown jewel, the P2P payment app has recently branched out commercially with merchant integrations. The app is being hotly pursued by many of the largest banks who would love to tap into the same audience that is attracted to the app’s habit-forming UX.

Best B2B Payments Platform

Awarding the top payments platform used by businesses to transact with customers or move money between other businesses.

viewpost wins Tradestreaming award

WINNER: Viewpost

Viewpost was cited for its holistic approach to eliminating billing and payment friction for all businesses, regardless of size or where they bank. They were also commended for providing visibility of data and access to on-demand dynamic discounting for both buyers and suppliers within a single, secure network.

Best New Payments Player

Awarding the best new payment platform with a seamless user experience and advanced tools.

worldfirst wins Tradestreaming award

WINNER: World First

International money transfer is still so surprisingly hard. World First has been helping move money globally since 2004 and services businesses, individuals, and online sellers. Users have cited the ease of use of the company’s website and mobile app, as well as the customer service associated with the functionality. WorldFirst has a 98% service rating from Feefo, a feedback site from genuine customers.

Best Employee Payments Platform

Awarding the top expense solutions platform with advanced reporting and management tools.

PEX wins Tradestreaming award

WINNER: PEX

PEX has an elegant solution for employee reimbursements and expensing. Instead of turning to managers for help with payments, PEX gives individuals prepaid expense cards. Enrolling takes only five minutes while PEX provides tools and analytics to the enterprise, saving money and time for busy businesses.

 

Come join these award winners at our first Tradestreaming Money Conference as we explore the impact technology is having on big finance.

 

What Hurricane Matthew taught us about banks and fintechs

When Hurricane Matthew swept through Haiti, the Bermudas, and finally up the East Coast, the results were devastating: at least 900 people died in Haiti, and another 33 people lost their lives to the storm in the U.S. Alongside the tragic certainty of these deaths lies the economic uncertainties churned up in the storm’s wake. Haiti is expected to face up to a decade of economic recovery, while Matthew may have cost North Carolina billions in losses.

Unlike other natural disasters, however, the U.S. knew about Hurricane Matthew well in advance, so it provided the perfect opportunity for banks and fintechs to prove their customer care mettle. “An approaching storm puts people in a position of vulnerability,” said Jon Picoult, founder & principal of Watermark Consulting, a U.S.-based customer experience advisory firm. “As such, it affords a great opportunity for companies to proactively communicate with their customers and demonstrate advocacy – be it by sharing relevant information, providing reassurance, or offering some other type of assistance during the customer’s time of need.”

Some national banks grasped the importance of connecting with their frightened customers, and did so (community banks in the affected areas aren’t being counted for the purpose of this article, although, as community banks do, they were very communicative and supportive regarding all things Matthew).

Witness USAA’s epistle to customers in Matthew’s path (full disclosure: I bank with USAA):
screen-shot-2016-10-19-at-11-26-28-am

With this message, the insurance, banking, and investment company serving military personnel, veterans, and their families effectively ticked off everything on Picoult’s list. It shared relevant information to help customers protect their property, it provided reassurance, and it offered three different paths of assistance: online, digital, and phone.

The company also sent out three tweets about hurricane safety precautions:

Obviously, the more customers took steps to protect their property, the less USAA would have to pay out in claims. Yet the fact remains that the way in which the company communicated with customers in need was timely and on the mark. Not to mention that USAA followed up, by email

screen-shot-2016-10-19-at-11-24-59-am

and front and center on its website:

screen-shot-2016-10-19-at-11-37-47-am

Like USAA, JPMorgan Chase also understood the importance of connecting with customers as Hurricane Matthew fast approached. “On Wednesday afternoon, we posted a Weather Update ad (see bottom right) on the front page of chase.com that was visible only to people with IP addresses in Florida,” said Chase’s Tom Kelly. “That took them directly to the Branch Locator, which the bank updates in real time.”

Chase kept the severe weather ad up for 6 days.
Chase kept the severe weather ad up for 6 days.

The JPMC’s retail arm also tweeted about branch openings after Matthew passed through, showing not just its customers but the world that Chase was concerned about its customers on the east coast.

 

What of fintechs? At the time of publication, Credit Karma, Wealthfront, Square, and Quicken Loan’s Rocket Mortgage had not responded to Tradestreaming’s request for a comment. But PayPal did. “We aren’t doing anything specific on Venmo,” said Andy Lutzky, vp at Edelman. However, “in an effort to support relief efforts, Xoom is waiving fees for all services through October 15.”

So although PayPal graciously eased remittances for storm-struck Haitians, it didn’t treat the hurricane as a customer care issue. The fact that one of the more popular P2P money transfer apps didn’t see the need to address Hurricane Matthew suggests that fintechs might not be quite caught up with banks when it comes to customer care.

Of course, to be fair to fintechs, part of the reason that national banks seem to have outperformed fintechs in the emergency customer care category during the hurricane is because banks have been at the business longer. “As we’re in early days of our on-demand insurance product, and currently only available in Australia, we don’t do any proactive messaging around natural disasters,” Jeff Berezny, vp of marketing and communications at online insurer Trov.

The company is at least thinking about how natural disasters and customer care intersect. “A broader, proactive plan related to prevention is in the works that could include content-related to natural disasters, but it has not yet been activated,” Berezny said.

This is not to say that every national bank was on top of their customer care game as Hurricane Matthew stampeded towards Florida and North Carolina, nor that every fintech company was oblivious of the storm. But the above examples suggest that fintech companies, whether they want to go it solo, partner with banks, or become banks, could take a page or two from banks’ trusty customer care books.

 

Hi 5! The five fintech stories we’re following this week

top fintech stories

Insurtech’s rising star

Insurtech continues to shine on with the hope and possibility of youth. Tradestreaming’s Gidon Belmaker examines how insurers are increasingly offering IoT-enabled policies for different lines of insurance that calculate the risk for each person, digitally. In a world where a house is smart enough to know what room temperature its owners prefer, IoT-enabled policies make a lot of sense. The challenge for insurers looking to get into the IoT game will be filtering, processing, and reacting to really big data in real time.

In the spirit of being hopeful, insurtech’s top women execs spoke with Tradestreaming to share their career advice for women looking to enter this fast-growing field.

Fintech’s murky waters

It’s been a hard couple of weeks at Wells Fargo. After the firm’s pamphlet for Teen Day 2016 angered the theater community by implying that the arts were merely a childhood pastime, scandal struck one of America’s biggest banks yet again, on a much larger scale. After discovering that over 2 million fake bank and credit card accounts had been opened at the bank, Wells Fargo fired 5,300 employees.

Twitter did not approve. Analysts lambasted the bank for trying to shift a top-tier management problem onto hapless employees facing unrealistic sales goals. And while Wells Fargo has since eliminated product sales goals, Carrie Tolstedt, the unit leader in charge of those 5,300 ex-WF employees, walked away with about $125 million in stock and options.

Speaking of crime and payment, Tradestreaming’s Josh Liggett’s in-depth reporting on the shady world of prison payments showed that justice – and fintech – are not always accessible to inmates.

While the financial industry is experiencing a surge in growing transparency and lower fees thanks to growing competition, the prison payment industry isn’t undergoing a similar renaissance. Instead, inmates are held prisoner to high fees and limited services within an old system masquerading as innovative fintech.

Fintech real-estate companies are getting creative

Ok, yes. A fraudulent mortgage market did cause the Great Recession of 2008. But the mortgage market is getting innovative with online offerings that seem to have the consumer – not just profit – in mind. Digital lender Point, which enables homeowners to sell a percentage of their home to investors, is putting borrowers and lenders on more even turf by better aligning incentives between them. Last week, the company raised $8.4 million, bringing total fundraising to $15.4 million.

Real-estate crowdfunding platform Roofstock is also out to change the digital real-estate market, by simplifying the process of buying or investing fractionally in occupied singly family housing. According to Roofstock’s chairman and co-founder, Gregor Watson, Roofstock recently signed a deal with an Asian group that wants to invest a whopping $250 million on the platform.

Work and play

The fintech interview process can be daunting for interviewees. Potential candidates can take solace and solid tips from Tradestreaming’s interview advice from top fintech execs. Keyword takeaways: passion, motivation, openness. Oh, and don’t ask about salary.

Of course, young fintech wannabes might have other things on their minds. Like beer. On last week’s ESPN College Gameday show, a student put up a sign with his Venmo number and a request that his mother send beer money. Instead, over two thousand complete strangers donated to his beer fund. Here’s a selection of what fintech companies’ signs might look like come next College Gameday.

Prophets of Wall Street

No one knows exactly what the future has in store – but people are making some educated guesses. Aon estimates that self-driving cars will cut U.S. insurance premiums by 40%, though automation will carry its own unique risks. Chinese ecommerce giant Alibaba thinks the future of identify verification lies in the red veins of your eyeballs.

And because your week wouldn’t be complete without a blockchain update, Goldman Sachs filed a patent for blockchain-enabled forex, in the hope of speeding up and reducing cost of trading currencies.

‘Mom, send money for fintech’: Other Venmo signs you might see this weekend on College Gameday

College Gameday is one of ESPN’s most popular shows. The hit show takes place at a different college campus every week, choosing the location based on the most interesting match up. In typical I want to become a TV star fashion, co-eds flock to the set with creative signs and outfits, hoping to get their 15 minutes of fame.

On last week’s show, a student put up a sign with his Venmo account number, imploring his mother for beer money. The sign went viral, and over two thousand users sent him cash for beer. Fintech companies love copying just about anything, and we’ve heard from our inside sources that large and small finance companies are opening up Venmo accounts, looking to piggyback on the finance a stranger for stuff because why the hell not trend.

Below are exclusive photos of prospective fundraisers on their way to Louisville to take part in this weeks College Football GameDay festivities.

Digital Bank

Digital Bank Sign

This clever entrepreneur is trying to grow his digital bank. Hiring sales rockstars and making a few bucks in the process is an innovative way to recruit both talent and finances. Maybe I<3AmericanBanking will one day grow into a financial powerhouse, and we’ll see the founder fulfill his dream and walk away with a nice payout after juicing his stats.

Crowdfunding

Crowdfunding Sign

Why waste your time with Shark Tank when you can invest directly into startups shown on TV with this crowdfunding platform?  I’m sure they do sufficient due diligence and educate their investors like all other crowdfunding platforms…right?

Marijuana Banking

Marijuana Bitcoin Sign

Fear not marijuana purchasers in Colorado, there’s another app for you! Companies have utilized the bitcoin isn’t money and doesn’t really exist loophole to provide payment opportunities for dispensaries, but this clever startup somehow exchanges cash to BTC through Venmo. Who cares how it works anyways after you’re knee deep in some Purple Urkle or Skywalker OG!

DAO 2.0

New DAO Sign

Ah, another brave soul trying to start a DAO. In the wake (bad word usage?) of the DAO’s death, investors now have a bunch of newly-dispersed Ether burning a hole in their digital pockets. This entrepreneur is looking to capitalize on timing. Hopefully this one won’t end with hard forks and the financial equivalent of a do over.

Lending Club?

lendingclub

Oh how the mighty have fallen…

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

The Startups: Who’s shaking things up (Week ending February 21, 2016)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming newsletters.[/alert]

Startups raising/Investors investing

East Coast credit fund puts $250m to work on Patch of Land platform (Finovate)
An East Coast credit fund will invest $250 million across the Patch of Land platform.

Dallas-based StoneEagle raises $76m for payments system (Xconomy)
StoneEagle Services sells virtual “credit cards” for business-to-business payments to the healthcare and automotive industries, among others, digitizing traditional B2B payment processes.

Financial wellness firm, PayActiv raises $9m (Finovate)
Financial wellness specialist, PayActiv raised $9.2 million (lead by SoftBank). Read more.

Modo Payments closes on $2m in funding (Finovate)
Modo is a “shipping container for intermodal payments”. Read more.

Victory Park Capital taps Goldman exec for CIO role (FINalternatives)
Behind many of the $100m+ investment rounds sits Victory Park Capital (VPC), a provider of lending facilities for many of today’s top online lending startups. Former Goldman Sachs managing director Upacala Mapatuna has joined Victory Park as chief investment officer.

Visa reveals major stake in Square (Finextra)
Shares in Jack Dorsey’s Square received a much needed boost on Friday on news that Visa has a 9.99% stake of shares in the payments firm.

The Startups: Who’s shaking things up

$1 Billion Served: Venmo circa 2016 (Venmo)
Big milestone: In the month of January, over $1 billion in mobile payments were made via Venmo (2.5x year over year). Paypal’s P2P mobile/social payment provider has its sights set on B2C payments, too.

Citibank: Google should buy AIG and turn it into a fintech lab (BusinessInsider)
So why exactly does Citi think Google should buy this basket case? Could be really interesting, actually.

New app will help you manage all your credit cards (and plans to manage more of your financial life) (TechCrunch)
Curve, which has some notable investors, combines all your credit cards onto one physical card (similar to Coin). Curve’s been designed to plug into any payments system under the hood (today this is cards, but could be bank accounts or an online payment provider like PayPal) and has big plans for the future.

B of A’s Head of Tech Strategy joins tech startup (AmericanBanker)
Thomas had been B of A’s head of architecture and technology strategy and last week apparently joined Apprenda.

Insurance Disrupted: An insider guide to who’s doing the disrupting and how (Insurance Thought Leadership)
An inside look at the visions, culture and disruptive innovation accelerating the digital tipping point for insurance and the opportunities that creates for companies bold enough to become part of it.