PayPal announced this morning a plan to speed up money transfers between its service, Venmo and users’ bank accounts for those with supported MasterCard and Visa debit cards. This new “instant transfers” service will be available at a rate of $0.25 per transaction, and will deliver funds in a matter of minutes, instead of the day or so it typically takes when using PayPal or Venmo.
PayPal has been operating in the peer-to-peer payments business for nearly two decades, but the company has been more recently challenged by a number of newcomers, like Square Cash, for example, whose key advantage has been the ability to “cash out” to your bank account instantly.
Now PayPal and Venmo will offer a similar option for debit card holders with supported cards from Visa and MasterCard. The company says the feature will be available to the vast majority of cardholders, save for a handful of very small institutions.
The feature arrives at a time when PayPal is shifting its focus from being a competitor to Visa and MasterCard, to being more of a partner. For years, PayPal encouraged users to link their bank accounts to its service, as a means of routing around the large payment networks. But last year, things changed.
The company announced it was teaming up with Visa last July, and then unveiled a nearly identical partnership with MasterCard in the fall. In both cases, the idea was largely focused on helping PayPal better establish itself as a checkout option at point-of-sale – a response to the threat of Apple Pay. But the deals netted the company other benefits as well.
For example, PayPal said last year the expanded partnerships would also mean that users could instantly cash out their funds from their PayPal accounts to their supported MasterCard or Visa accounts, and the companies would no longer charge PayPal the digital wallet operator fee. PayPal would also make adding cards from Visa or MasterCard a clearer option on par with adding a bank account.
The instant transfer service is now launching into beta with select PayPal users, as a result of these deals, as well.
While Square Cash now charges a 1 percent fee for instant transfers, PayPal’s instant service will charge $0.25 per transaction – something that could help users save when performing larger transfers.
The launch of instant transfers is also arriving at a time when PayPal is facing new competition from the banks themselves. Zelle, a real-time Venmo competitor backed by over 30 U.S. banks, is going live this month, promising instant transfers through the banks’ own websites and apps, and soon, in a standalone Zelle app.
Zelle, which is built on the clearXchange Network, is already being used by some banks today. That network saw over 51 million transactions in Q1 2017, totalling over $16 billion – far larger than Venmo, which reported $6.8 billion in total payments volume in its last quarter.
However, PayPal’s combined services of PayPal, Venmo and Xoom processed $64 billion in 2016, and Venmo is the fastest-growing of PayPal’s products. Venmo’s service increased transactions 135% last year to reach $17.6 billion in 2016.
In other words, PayPal is making a smart move to address the Zelle threat by launching an instant option in its app already used by over 200 million users, along with the quickly growing Venmo, which App Annie last year estimated has 9 million users.
The new service is also arriving ahead of iMessage’s support for peer-to-peer payments which hits this fall with iOS 11’s public launch.
According to PayPal COO Bill Ready, the company believes that – even with the fee – PayPal’s service is competitive due to PayPal’s other advantages.
“What our customers value is that they know that not only can they use us as a pay anyone service, so – no matter what bank someone banks with or what operating system they’re on – they can easily exchange money with the person on the other end,” Ready explains. “But along with ubiquity that PayPal provides, we’re offering great protections – the buyer and seller protections are things that have been differentiated in the market for years,” he says.
“Even when others enter the space, it’s much harder to play in a way where you’re offering those levels of protections and guarantees,” Ready adds.
There’s not a way to opt into the beta, PayPal tells TechCrunch, but if you’ve been let in you’ll see the option to instantly cash out in the PayPal app on web and mobile. Venmo’s beta will follow.
The company expects the service to reach all U.S. PayPal and Venmo users in the “coming weeks and months.”