PayPal's 'super app' escalates battle against banks, fintechs

PayPal's latest attempt to compete with banks and other large technology companies through a bundle of financial services will likely come in several parts, spread out over time, rather than one dramatic move.

The payment company on Tuesday launched its long-awaited "super app," designed for customers to manage financial relationships and payments in a single location. At launch, PayPal's app includes a centralized bundling of existing features such as bill payment, peer-to-peer transfers, messaging, buy now/pay later, charitable giving and buying, selling and holding cryptocurrency.

"This will rival the best traditional banking apps," said Sarah Grotta, director of the debit and alternative advisory service at Mercator Advisory Group.

But competing with traditional banking isn't enough, when competitors such as Square, Robinhood and the challenger bank Revolut are courting consumers through fractional investing.

PayPal has been working on an investment service, which is a major play for technology companies that are seeking to compete with banks. But fintech experts say PayPal's app has plenty for banks to worry about as is — and PayPal contends its app is structured like a living document, capable of receiving nearly constant updates, so it can add investment tools at any time.

PayPal recently hired Rich Hagen, a founder of online brokerage TradeKing, as part of an effort at PayPal to build an investment division that builds on PayPal's existing support for crypto trading.

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Offering Robinhood or Acorn-style online investments has become important for digital payment companies because it provides a way for consumers to build their account balances while providing a way to spend the funds at merchants. It's also an additional service that companies such as PayPal and Square can offer to prevent their customers from going elsewhere to invest. Square already offers investing though its Cash App.

Adding investments later will be a way to increase engagement, according to Daniel Keyes, an analyst in the payments practice at Javelin Strategy & Research, adding active investors check their apps more frequently.

"If PayPal adds investing to their app sooner rather than later it will be good," he said. By centralizing all of its services in a single app, PayPal is combating the commoditization of traditional credit and debit while creating a venue for expansion into value-added areas such as investing, said Keyes' colleague, Marco Salazar, director of payments at Javelin Strategy & Research.

There's also new features such as a pending high-yield savings account through PayPal's existing partnership with Synchrony. PayPal's new app has additionally added in-app shopping tools linked to incentive marketing, a direct deposit function that allows consumers to get paid two days early and the ability to shop at merchants for the best offer — a capability enabled through PayPal's 2019 acquisition of e-commerce firm Honey.

PayPal Savings, which is scheduled to launch in the U.S. in the coming months, will offer a route for consumers to build balances. PayPal Savings will enable access to a savings account with a 0.4% annual percentage yield and no minimum balance. Savings enables consumers to set goals and track progress and also powers automatic transfers from other accounts.

"If you look at the overall offering it has pretty much anything that a Gen Z or a younger millennial could need in a banking offering, even including crypto," said Thad Peterson, a senior analyst at Aite-Novarica. "The app is definitely a strong competitor with non-bank wallets and service provider entrants into the digital FI space and it’s also a strong competitor with neo-banks."

PayPal did not make an executive available for an interview, but its PR office said in the coming quarters, PayPal plans to add investment capabilities beyond crypto support and more ways to pay with the app in on-line and brick-and-mortar settings. At an investor presentation earlier in 2021, PayPal President and CEO Dan Schulman signaled the company's super app would be built over several years and would include concurrent development of new use cases for blockchain and cryptocurrency.

"This is a platform that PayPal can continue to embellish and expand with budgeting, savings and investing features and advice," Grotta said.

In addition to banks, PayPal is competing with other large technology companies that are adding services designed to make user accounts larger and more closely tied to other products.

Apple, which issues a card through its partnership with Goldman Sachs, is planning a foray into buy now/pay later through that relationship. Facebook is developing a digital wallet called Novi to support the Facebook-affiliated Diem stablecoin. Among cryptocurrency wallets, Circle has said it will apply for a bank charter to offer added financial services that consumers can access through the balances in their Circle accounts; and Coinbase has gone public to raise funds for a financial services expansion.

"The ‘super app’ concept came out of WeChat in China, and that app is much more than financial services and commerce," Peterson said. "It’s essentially the internet in an app, supporting just about anything a user would need to do online. PayPal isn’t a super app in that context. Instead, it’s a very comprehensive, very competitive financial services offering for PayPal’s 380 million active users, and it’s going to change the playing field and possibly the players in the space."