As the "unbanked" become an increasingly attractive target for payment giants, PayPal is placing its bets on mobile to reach that segment as well as users seeking better financial services.
This strategy is important for the company particularly in emerging markets like Brazil. According to the World Bank, close to 2.5 billion people globally do not have a bank account – and in Brazil, the figure is close to 55 million, according to the country's Central Bank.
As traditional banks come under pressure to provide better offerings to customers and reach out to the financially excluded, PayPal is positioning itself as a better alternative than incumbent institutions, according to the company's director general in Brazil, Paula Paschoal:
Companies such as PayPal have many responsibilities in the current financial scenario, since we represent a more democratic alternative than traditional banks. One of its key missions, across over 200 countries where it operates, is precisely this: democratizing financial services.
Paschoal argues that mobile technology holds the key to offering better banking services. According to the executive, when reimagined for mobile-first customers, financial services and products can be more affordable, accessible and easier to use.
Also seeing fast growth in Brazil of late is m-commerce. In 2017, the channel represented 27.3% of all online purchases - that should increase to 37% this year, according to local research firm Ebit. In addition, PayPal's own research from March suggests that over 80% of services in Brazil are now purchased via smartphones.
PayPal wants to capitalize on that trend and since 2016 it has been investing in hooking up its online payment service to Brazilian brands that have strong mobile presences. Examples include the partnership with one of the four local mobile operators, Claro, where users can make in-app purchases using PayPal and Shell, who enables customers to pay for goods with the service via its mobile tool.
Another key pillar of PayPal's strategy in Brazil is to become an omni-present online payment solution in all the best-known websites. Paschoal says the work is "relentless" on that front: since launching in Brazil in 2010, the firm has fought the competition of local equivalents and set up partnerships with all of the country's largest retailers as well as all the major airlines. In more recent years, it partnered with transportation apps such as Uber and Cabify and several beauty and fashion e-commerce firms.
As mobile-based commerce and banking grows in Brazil, security and the related financial risks become much greater concerns. According to a report by Symantec, Brazil is among the countries that suffered the most from cybercrime last year, with 62 million people being affected last year, so 61 percent of the adult connected population, who spent an average of 34 hours dealing with the consequences of the attacks and generating a $22 billion loss.
According to Paschoal, PayPal acknowledges the issue and its investment on security is one of the features that makes it more attractive than other merchant branded mobile wallets. She says:
Security is part of PayPal’s DNA and that can be confirmed by our fraud tax, which varies between 0.28% and 0.32% These numbers are extremely low and are only possible due to the data intelligence used to identify fraud attempts in real time.
When asked whether the current nervousness around data privacy will hurt the uptake of digital payments, Paschoal played concerns down regarding PayPal, but concedes that the recent events around customer data mismanagement are not helpful to the entire financial services industry. She says:
We invest heavily in our anti-fraud system. What really helps is that we do not share the information of our clients with anyone, not even with our retailers. All the personal and financial data of our clients are restricted to our servers, and PayPal is the global leader when it comes to [payment] security.
But she adds:
The leakage of information - regardless of the explanation that was given - ends up affecting the market as a whole. Because of that, we work intensely to show how secure our platform is.
In terms of reducing friction in payments, Paschoal believes that the most promising technology going forward is Internet of Things. The technology is particularly interesting to PayPal given its projected increase - Gartner expects there will be 20 billion connected to the web globally by 2020 - which is consequently expected to boost e-commerce considerably.
Based on those predictions, the executive also expects that the digital token will gain more traction in the foreseeable future since it can provide a secure payment "bridge" between connected devices.
As competition grows in the financial services marketplace, both across online and on mobile, from established institutions and startups, PayPal remains upbeat about the possibilities created by the overall market evolution. Paschoal says:
With the entire industry focusing on disruption, it gets very competitive, which benefits consumers since they have more options to choose from. In general, we believe that competition is good for the companies and for the consumers - and we respect all our competitors.
But I can guarantee that we are prepared to face the challenges the market offers us. One of the best aspects of being a part of this universe is seeing the future shaping up right in front of our eyes. And that can change anytime.
Nearly two decades after PayPal disrupted the financial services industry, there are now several companies operating in the same space - from Square and Venmo to Simple and Chime, there are plenty of new firms targeting those underserved by mainstream banks - particularly millennials.
While PayPal is not completely ignoring that new audience, it is using its firepower to, as its EVP and Chief Operating Officer Bill Ready says, give the unbanked a pathway to the digital economy. Earlier this month, the company shared the news with the Wall Street Journal that it plans to expand into traditional financial services by partnering with smaller US banks to offer debit cards connected to PayPal accounts.
This approach is also important in emerging markets such as Brazil, where despite economic instability, smartphone use continues to increase as well as mobile banking uptake - and as Paschoal says, the company is following those developments closely. While many new entrants seem to be chasing young consumers who want money management and investment apps, PayPal will likely continue to expand by offering more basic - and essential - services for the customers that fintechs might be leaving behind.