Paypal has my eBay payments funds in their deposit accounts for approx 5-7 days before it moves on to my bank account. Conceptually I imagine there is “pool” of this moving money in Paypal deposits that is the sum of numerous accounts like mine, probably totaling from tens to hundreds of millions of dollars at any given point in time.
I imagine some bank (or perhaps they are doing it internally) is paying Paypal deposit interest on this money. How can money that is moving so quickly be put to work or relied on by the bank since this money “pool” is so volatile.
It is not volatile - as you said here may be hundreds of millions of dollars at any time. Itis not like there is a “run on the bank” every 3rd day. The reserve levels are predictable, even if some is going in or coming out all the time. Computers can handle tracking the ins and outs of it, no big deal.
With huge amounts of money overnight investments reap huge dividends. I work at the Treasury and the folks who do all our money handling provide the government with an overnight estimate of our banking before the banks close so that they know how much to invest. We calculate the lost opportunity cost of say a mail stike delaying cheques by a day or two. Having 100,000,000 on deposit reaps the same interest whether it is the same 100,000,000 or not.
I met with a Sr. manager at Paypal not long after ebay acquired them. He had been with them since very early days. He intimated to me that they felt and intended to be the VISA of our generation - they saw VISA as some 1960s era dinosaur, and that in the future they want a piece of every transaction the way VISA does now, and then some using modern technology. Since then, it seems like they have met those marks even if they never publicly stated that vision AFIK.
Not everyone wants to get their money out of PayPal quickly.
When clients pay me by PayPal, I let the money sit there until I need it for something else. For a while, they were my best “savings” account in terms of interest yield on the money and my balance was usually a couple hundred dollars
Some of my clients like using their PayPal debit cards, and routinely keep balances of more than $1,000 - they’re using PayPal as a replacement for their regular checking account and transfer money over to checking only when they have to pay something with a physical check.
But… in terms of making money work over short periods of time, you should know that banks literally have an overnight rate for money that is loaned between banks for just a few hours. The US Treasury offers T-Bills that mature in as little as 3 days. There are tons of short-term investments available to banks that the average person never even hears about.
Really? you think the Visa business model as it existed about 1998-ish was airtight and forever full of weaknesses and was able to fend off competitive pressures? You know that VISA is just a consortium of some banks (I forget the exact structure at the moment) and that alone limits their nimbleness.
Who cares if Paypal users use Visa or other CC? Paypal now gets their hand in each transaction as well I suppose. Pus their brand is associated with each transaction and they get the “customer touch”. That’s not a bad deal for Paypal.
I’d say Paypal has grown many many fold since that meeting. Don’t know exactly how much, but it was probably 7-8 years ago now. What was laid out was a 30+ year vision, and I haven’t seen them miss any marks yet.
yes, there are zillions of “donate via Paypal” buttons on blogs and what not.
How much flows through them no one knows, but the point is the accounts are there and active. It is a meme at this point - it is the default way to do such a thing. CC’s don’t really offer the service.
Google/Amazon would like to be bigger players in this space, perhaps one day they will be. But I think eBay has done a good job balancing the need to have paypal as an auction payment method and letting Paypal do stuff on its own. ebay has stumbled in other ways I think, but they have done a good job on this.
PS - offtopic a bit, but we had Meg Whitman, then CEO of eBay give a keynote speech at a sales conference around 1999 or 2000 - shit can it be 10 years already - I know it was a “rally the troops” speech, but still, she laid out a vision for eBay as a driver of online and offline economies that is worth keeping in mind as she jockeys for the California governor nomination of the Republican party. I think she built a company that lost its steam and did not reach the goals she laid out, not even close although it still thrives more or less. Not all her fault of course, but it does matter when she says what she can do as governor. I don’t recall her injecting any steam back into ebay once it lost some, and that is significant to me.
not my point. He sits there an bemoans VISA as some arcane, out-of-touch payment model when VISA is basically what allows paypal to exist. Which I find funny in a not-really-funny way.
No way in hell do I give them access to my bank accounts, and I would bet that most consumers who use them as a payment service feel the same way and opt for paypal to receive funds via their credit or debit card.
they’re typical middle men, no more, no less. They should go and see how Discover/Novus is faring if they are contemplating replacing Visa/MC as a first-level payment processor.
I use Paypal regularly with zero interaction to Visa. Paypal is a perfectly legitimate bank. Giving them access to your accounts is no different than the access you give anyone you write a check to. I drive by their HQ every day - its a huge building. They are not a fly-by-night scam operation of any kind
Who said there was any bemoaning? I assure you there wasn’t. If anything, there was a sense that the early business planning had turned out so far to be spot on regarding opportunities in the internet economy.
I don’t think they are aiming to put VISA or anyone else out of business. Not in the short term anyway, 30 years out, who knows, but that is speculative anyway.
And I don’t have any statistics, but I doubt that the bank account links go unused. You have a choice, and that has value to them and to their users. The business or entire industry is competitive and evolving, not a monolithic monopoly.
I would also guess (although I don’t know in detail) that Paypal, Google payment, any similar thing from Amazon, etc. are subject to different regulatory schemes then Visa, and VISA may be different than MC and/or Amex, etc.
Difference in regulatory schemes can make a ton of difference in competitive advantage - witness old telecom vs. VOIP for one example. There are lots of regulatory mismatches in telecom actually.
Why do you dismiss paypal as “typical middlemen”? Is VISA any different in that regard? or are they atypical middlemen?
I don’t think paypal was presented as replacing anyone as a payment processor. They want to be as ubiquitous visa is now (or visa + MC + …) when the internet economy matures (which is a long way from happening).
I worked at Intuit for a while in the early dot-com era. They have similar designs on touching as many aspects of managing finances for individuals and small businesses.
I predict at some point those two companies will partner in a big way. Only thing preventing it is Intuit’s fanatical devotion at the time (and probably still) to small business of 5 or less employees. Their exec background was from Proctor and Gamble - market segmenting was everything to them, and they didn’t/don’t care about segments beyond their strength. Paypal has a broader focus I think. But I can imagine some serious pairing up there someday.
I’m not saying they are. Thanks for mischaracterizing.
I won’t dignify your inane comment about how written negotiable instruments are identical in terms of security to a comprehensive linking-up of a bank account to an on-line service.
Nor am I claiming that all people go through Visa/MC. But I would be surprised if less than 3/4 of their consumer accounts (i.e. not one who receives money, rather one who pays it out to others) are linked to a bank account.
In the same way I didn’t dignify your inane comments about a discussion I had at lunch 7-8 years ago with a response?
Are you alleging btw that Paypal is not legitimate, or that checks are more secure or more universally accepted or something? Why the dismissive “on line service”? Care to share your demographics a bit? Maybe your use of them falls squarely in what can be expected from your demo group today and they are fine with hat, while they plan for the longer term future of which you (and all of us) will not really be part of.
Even if that is so, so what? Everytime there is a transaction, they have captured it. They get a piece of it and someone real or potentially competitive does not. That is the business of transactions. But that is not all they do nor is that all they plan to do. I think “online services” are here to stay, and for better or worse, there was a window of opportunity for Paypal to jump in fresh in 1997 or whenever and they nailed it.
Now if you want to play in that game, you need the resources of google or amazon to even think about it. And btw, those companies are just “online services” too, that did or are displacing comparable and related prior businesses. The rest of the world does not need to stop for them to be successful, nor does VISA need to go away for Paypal to be successful. Their services are not drop-in replacements for each other for the most part.