PayPal, a longtime alternative to the direct use of cards, cash and bank transfers to make payments for goods online and in stores, is today adding a new feature to help it tap into a wider range of customers, such as gig economy workers and use cases — in competition not just against banks (and Zelle, a service that they back), but also younger upstarts like Stripe, Square and others chasing the same business. PayPal is launching Instant Transfer to bank, which will let those receiving money via PayPal instantly move that into their bank accounts to access as cash or however else they would like to use it.
The service is now being rolled out to consumers in the U.S., and will be extended to businesses in the country in coming weeks. Bill Ready, PayPal’s EVP and COO, said in an interview that the company is working on how to extend it to other countries (where banks and others are getting their ducks in a line to compete with it).
Instant transfers to a bank account is coming to PayPal by way of a partnership in the U.S. it has with JPMorgan Chase, which has access to the real-time payments network built by The Clearing House, a platform established by the major banks to work on creating faster payment networks. PayPal is the first company to implement this feature, Ready told me.
PayPal, like other purveyors of digital wallets, may ideally wish for you to keep your funds in its own wallet to continue making transactions on its network (because this is how it makes money). But realistically, the company — like others in the payments space — has been working on bringing in more choice and flexibility for customers, to improve its wider usefulness as a service.
In that vein, transferring money out of PayPal has actually been a big area of development for the company in recent years to better compete with the likes of Square and Stripe, and it has proved to be a popular hit with customers.
Last year, it launched “Funds Now,” aimed at sellers that wanted to instantly access money from transactions without waiting the days it would normally take for a payment to properly clear and get deposited into their account. This was, however, mainly aimed at sellers on the platform.
Another instant transfer service was launched even earlier, in 2017, which allowed PayPal and Venmo users to transfer to debit cards. That has seen billions of transactions to date, Ready told me. The catch, however, is that not everyone has a Visa or MasterCard debit card, or wants that to be where their money is cashed out.
“For small businesses and individuals, this really matters,” he said. “It’s a significant expansion of our addressable customer base since many don’t have debit cards. Now they can withdraw the funds from their bank accounts.”
Instant transfer to bank accounts will cost the same as transferring to a debit card: one percent of the transaction amount, up to a maximum fee of $10.
Before the launch of today’s service, PayPal’s 267 million individual account users and 21 million merchant account users could transfer funds to bank accounts, but it would take days or even longer to complete the transactions, Ready said. That’s because the service relied on using the legacy ACH network, which batched up transactions and simply worked on slower rails.
Ready highlighted one specific segment that he thinks will be especially helped by today’s news, so-called gig economy workers, who get paid for the work that they do in delivery or other areas by the job, rather than by a weekly, fixed salary, and may be in more need of accessing and organising those funds in a better way. Having an effective way of transferring the money out of PayPal and into one’s bank account makes it much more likely that those workers will use PayPal to accept payments for work in the first place, which long term will benefit PayPal’s wider transaction scale.
“This is part of a broader initiative to increase the speed of access for funds on our platform, but it’s also an acknowledgement of the changing nature of global workforce,” Ready said. “Ninety percent of all new job growth is in alternative workforce. It’s a big and growing segment of the population. The gig economy really depends on speed of access to funds,” he said of the company’s efforts.
The plan will be to add more features to cater to this demographic of individuals-as-businesses in the future. “The is part of the broader effort we’re making,” he said. “We want to set a new expectation in the industry that matches the aspirational profile of these workers.”
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