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PayPal is building a ‘super app’ and attacking banks

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For years, bankers have been permanently afflicted by the fact that when big tech companies are finally going to focus on financial services. They were mainly concerned with four companies: Amazon, Apple, Facebook and Google. Meanwhile, a fifth technological power, slightly smaller, but growing rapidly, was adding products traditionally offered by retail banking.

This company has built a huge customer base, but has not positioned itself as a frontal competitor for the largest banks. Instead, it sought to partner with safe depositories. Earlier this year, it had greater market capitalization than all American banks. The company in question, PayPal Holdings, recently outlined strategic plans that invoke the industry’s long-standing fears about technology giants.

On the company’s “investor day” in February, PayPal executives promised to build a mobile application that will allow consumers to make purchases from millions of merchants, while allowing most of what they currently do in banks.

PayPal is building a super app and attacking banks

Now, users of the application can transact with debit cards, take out loans to make purchases, pay their bills, be paid by their employers, cash checks, make investments, send money to relatives abroad and much more. PayPal then wants to ‘weave’ financial services with consumers in an ecosystem that draws strength from its existing relationships with merchants.

Consumers will access PayPal to make purchases, either in physical stores or, more likely, online; they will receive personalized offers and rewards based on their purchase history, which will encourage them to return more often; and, eventually, they can treat their Paypal digital wallet as if it were their primary bank account.

One of the challenges that companies building super applications face is changing consumer behavior.

In China, the adoption of WeChat closely followed Internet penetration, so the online habits of Chinese consumers were not as well established as it is now in the USA, according to the KBW report. “We think the fundamental question is whether or not it is too late to change consumer behavior in developed markets,” wrote some analysts, “given that most have already decided how and where they will consume their favorite products and services.”

1618139157 831 PayPal is building a super app and attacking banks

KBW analysts have argued that Apple and Google are well placed to change consumer behavior in wealthy nations, as these technological giants will control operating systems on most mobile phones. But PayPal is also in an enviable location due to its strength in the payments business.

“This may give PayPal an advantage in some ways, given its leadership position in both adopting customers and merchants, which we believe is the head and shoulders of the next largest digital wallet,” wrote the analysts.

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