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Future of Banking: How PayPal and Square are Disrupting the Banking Industry

The rise of PayPal and other digital payment services has transformed the face of the payment landscape, and it is likely that this revolution will only intensify over the next few years.

The COVID-19 pandemic has driven digitalisation and has contributed to an increase in e-commerce revenues and online purchases. According to PayPal, in the first half of 2020, the growth of e-commerce as a proportion of retail revenue surpassed existing external projections by 3 to 5 years. Digital payments are rapidly being accepted by both customers and retailers as contactless transactions have become highly essential in the midst of the current pandemic.

PayPal and Square have eased Crypto Currency purchase

Fintech firms are continuing to feed demand for crypto currency – such as bitcoin as they unlock the pandora box for millions of individuals to exchange it.

The bulk of the fresh bitcoin supply entering the market every day has been purchased by PayPal and Square customers. Hedge Fund Pantera Capital reports that in the two years after the product was launched, Square consumers accounted for 40% of bitcoin entering the market. Meanwhile, Pantera estimated that within three weeks, PayPal clients were already buying roughly 70% of the new supply of bitcoin.

Fintech companies’ moves into crypto makes it easier for new investors to casually buy, versus opening up a dedicated crypto currency exchange account.

A Threat to Banks!

PayPal and Square operate as an online payment systems provider and conducts all business transactions digitally. PayPal and Square do not have brick and mortar banks and they are certainly not planning to become one.

According to a research from S&P Global Market Intelligence, the two company’s customer account balance would actually make them the 21st largest bank in the US if they were ever classified as a bank. When compared to the deposit accounts of major U.S. banks, the high volume of money in PayPal's systems suggests that nonbank financial services providers will keep providing strong competition to legacy banks.

Non-bank firms such as PayPal and Square provide conventional financial institutions with comparable services, but customers usually use them differently. PayPal customers can store money in their wallets and then use the app to move money and purchase items either in-store or online. Through affiliate banks, PayPal also offers loans and credit cards services.

Why PayPal and Square are becoming Payment Giants

PayPal and Square strive to aspire to become central to the daily lives of consumers, which may become something of a challenge to banks. PayPal recently unveiled an ad campaign and a fresh slogan focused on how 24 hours a day their platform will make money more available. All of this is an attempt to increase recognition of the brand and persuade clients to test new offerings.

In an attempt to get consumers to try these services, PayPal has upgraded the mobile app to highlight particular aspects, such as mobile order-ahead and peer-to-peer transfers. If people continue using PayPal and related platforms to administer more of their funds, the growing selection of PayPal features may challenge legacy institutions or at least force them to change their strategies.

Major Win Over Banks

  • Easy Account Setup

  • No Reserve Required

  • Brand Familiarity

  • Ease of Use by Business

  • Ease of Use by Customers

  • Quick Invoicing and Transaction Details

  • Low Fees Compared to Merchant Banks

  • Debit Card and ATM Access

  • Cash-Back Rewards

Moving from Bank to PayPal and Square

Alternatively, moving from conventional banking to futuristic digital banking might not be an easy transition for most customers. But advancements in technology suggests otherwise. It all comes down to simplicity and comfort, going to a bank branch several times a week and taking appointments with financial advisors versus ease of accessibility of a digitally powered online transaction system seems like time well utilised.

More so, traditional banking executives have expressed concerns about the increasing competition from Fintech firms.

The Promontory Inter-financial Network recently published a survey that revealed that 76% of 543 senior management professionals, working at traditional banks, noted that they fear new financial platforms being offered by PayPal, Square and Venmo a lot more than services being offered by other challengers.

In brief, traditional banks fear Fintechs and Big Tech as they attempt to survive in a digitalised financial services sector.

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