Quick thoughts on today’s announcement
This is a solid product.. Not a “super app” but perhaps the best mobile first bank in the US (and beyond). What is NEW?
- Mobile UI to integrate all those heterogeneous apps (and acquisitions)
- High yield savings account (0.4% APR) powered by synchrony
- Integration of Honey offers/rebates/loyalty programs
- Better Direct Deposit/Bill Pay integration (ex faster clearing/availability of direct deposits)
As predicted.. This is less of a “super app” than a MUCH NEEDED rebundling of services. This is a consumer branding effort. This could work for PayPal.. As there is a tremendous “gap” in mobile banking, banking “products” and servicing for mass market (50% of US consumers).
“We know that about half of customers in the United States don’t even have a savings account, much less one with a very competitive rate,” PayPal SVP of Consumer, Julian King
There is a reason that this 50% is underserved. Banking regulations like Durbin, and regulators like the CPFB, have made profitability in this segment very difficult (for Banks). As I noted in Walmart – Banking and Fintech, others WANT these customers, and have constructed new bundles. PayPal should be able to make a play here…. with significant advantages over any NeoBank.
My view is that a consumer branded focus is a lower margin use of PayPal’s substantial assets. Stripe, Shopify, Adyen have taken a software platform focus to power “embedded” payments and services. PayPal had the core of this in Braintree. The enterprise software approach of their competitors may be too big of a change for a consumer brand. “Owning” the consumer is a powerful position.. but financial services themselves are becoming embedded. People don’t think about their “bank” but rather the stuff they want.
As a stand alone, banking the mass market is not a high margin business. The real question for investors is how this will increase MAUs and cross product adoption. Key indicators for next 2-3 yrs:
- Payroll direct deposit
- Savings Account Opening + Balances
- Time in App
- Cross product usage
- Honey usage/revenue (across the industry there is opp to fix rewards)
The next logical step here is certainly a “robinhood” like functionality..
What will Banks think?
As discussed in my Walmart blog, the bottom 4 deciles of consumers (mass market) are unprofitable for banks. If PayPal successfully serves this demographic I don’t see much of a near term issue, however broad penetration into millennials will impact bank earnings long term.
Google’s approach to Plex is much more thoughtful. Google has opened its platform to “any bank” that wants to participate (vs the combination of Synchrony and the various partnerships for DD/Bill Pay).
With 90% certainty I can tell you what a retail bank head’s first reaction will be: how will PayPal service this base of customers? There is a much greater expectation of on phone support when your paycheck doesn’t appear or your electric bill isn’t paid.