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    Home»Growth Stocks»PayPal Goes After RobinHood and Square with Stockbroking Service
    Growth Stocks

    PayPal Goes After RobinHood and Square with Stockbroking Service

    This payments giant is looking to expand its ecosystem of financial services.
    Herman NgBy Herman NgSeptember 9, 20215 Mins Read
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    PayPal (NASDAQ: PYPL) needs no introduction.

    The payments giant has been a mainstay of the financial industry for online payments and money transfers ever since its initial public offering (IPO) in 2002.

    As of July 2021, the company boasted a massive user base of 403 million active accounts and processed over USD 1.1 trillion worth of payments in the last 12 months.

    PayPal’s growth story has been no fluke.

    Over the years, the company has kept itself relevant to consumers by using financial technology to adapt to changing demands for financial services.

    Back in 2013, PayPal acquired Venmo, a mobile wallet that enables mobile and peer-to-peer transactions.

    Venmo later added capabilities that allowed users to buy, sell and hold cryptocurrencies, a popular asset class with the younger generation.

    Most recently, news has emerged that PayPal is looking to introduce stockbroking to its array of services.

    Invest at PayPal

    PayPal’s latest venture, Invest at PayPal, is set to capitalize on a boom in retail investor interest in the stock market.

    According to Credit Suisse (SWX: CSGN), retail trading volume nearly doubled between January 2020 and January 2021, forming over 30% of overall trades.

    This rising trend shows no sign of slowing down.

    In the first half of 2021 alone, over 10 million new individuals have invested in the stock market, matching the total figure in the whole of 2020.

    PayPal has already started putting together its team to launch Invest at PayPal.

    The payments giant recently hired brokerage industry veteran Richard J. Hagen Jr., who will be the CEO of this new venture.

    Hagen has over 20 years of experience in this space, and was most recently President at Ally Invest, the brokerage unit of Ally Financial (NYSE: ALLY).

    Financial super app

    Invest at PayPal adds to PayPal’s growing ecosystem of services as the company ramps up its efforts to launch a financial “super app”.

    Dan Schulman, PayPal’s Chief Executive Officer, has a vision for the PayPal app to become a one-stop shop for all things shopping and finance, akin to Tencent’s (SEHK: 0700) WeChat or Alibaba’s (SEHK: 9988) AliPay.

    In PayPal’s latest quarterly earnings call, Schulman shared that the app is already “code complete” and will soon launch in the USA.

    Schulman also name-dropped other features that are in the works.

    These include high-yield savings, early access to direct deposit funds, improved bill payment tools, messaging capabilities and customized deals and offers.

    These features will be powered by advanced artificial intelligence (AI) and machine learning.

    Competitive landscape

    Invest at PayPal will be entering a competitive industry, with retail investors in the US already having a plethora of brokerages to choose from.

    PayPal will have to contend with incumbents like Interactive Brokers (NASDAQ: IBKR) and TD Ameritrade, who have been operating since the 1970s and are established names with investors worldwide.

    Newer upstarts have also burst onto the scene in recent years.

    Robinhood (NASDAQ: HOOD) completed its spectacular IPO in 2021, while Square’s (NYSE: SQ) Cash App launched stock trading capabilities in 2019.

    Both Robinhood and Cash App allow investors to trade commission-free.

    This proposition was extremely attractive to customers, who signed up for these services in droves.

    Robinhood is able to offer customers this service due to a controversial practice known as payment for order flow (PFOF), which the company is heavily reliant on.

    However, this practice may soon be declared illegal as regulators are reportedly considering a ban on PFOF.

    If PayPal is to be successful in capturing market share, it needs to find the right balance between establishing trust with customers and offering attractive pricing alongside a sustainable business model.

    Get Smart: An inherent advantage

    Stockbroking for retail investors is a notoriously difficult business to break into.

    PayPal also faces a tricky situation as companies such as Square and Alphabet (NASDAQ: GOOGL) are also participating in the arms race to create a financial super app.

    Thankfully, for PayPal, it possesses an inherent advantage.

    The company’s gigantic base of over 400 million active users dwarves that of Square’s Cash App, which reported 40 million monthly transacting customers in June 2021.

    PayPal will be aiming to convince existing users to invest via the PayPal app, having already established a relationship with these customers.

    There could also be a powerful network effect at play here as users interact more with PayPal and increasingly rely on PayPal to carry out their financial transactions.

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    Disclosure: Herman Ng owns shares of Alibaba.

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