PayPal's new product targets the underbanked

BI Intelligence

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PayPal will launch a new prepaid product, called the PayPal Cash Mastercard, according to a company blog post. The new offering, which is funded by a customers' PayPal balance, can be used online or in-store anywhere that accepts Mastercard payments.

Customers will be able to load their balances using free direct deposit, mobile check deposit (which comes with a 1% fee), or through an existing program that allows cash-based top-ups at 20,000 CVS, Rite Aid, and 7-Eleven locations. The card will also enable free withdrawals from 25,000 in-network MoneyPass ATMs. PayPal's new offering, which expands upon an existing prepaid product that the firm has offered since 2013, is offered in partnership with various, unnamed small banks, according to the Wall Street Journal.

PayPal's new initiatives are targeted squarely at un- and underbanked customers, which could allow it to quickly scale among a new, underserved customer base.

The un- and underbanked population in the US is massive.About 27% of the population is un- or underbanked, — a figure that equates to over 30 million customers, according to PayPal. As the payments ecosystem becomes increasingly digitized, these users become more disintermediated from popular services, like e-commerce, digital P2P, or the sharing economy, according to PayPal. And there's likely pent-up demand for access to affordable prepaid offerings, or checking substitutes in this community, since many prepaid cards come with high or unpredictable fees, and because banks offer few, if any low-cost accounts — Bank of America recently discontinued a free checking account for lower-income customers.

This presents PayPal with a vast opportunity.PayPal VP of Global Consumer Products John Kunze told Business Insider Intelligence that most PayPal customers are banked, and so this offering is aimed to be a customer acquisition tool. The firm plans to market it to this base, even looking towards what it calls "banking deserts," or areas with few or no branches. If PayPal can effectively capture even a small share of these users — the 30 million US underbanked users are equivalent to 13% of PayPal's total customer base, so onboarding even 10% of that group could be a big boost — it could mark a big opportunity to build up a new user base that might then engage with its other offerings via PayPal's app or website.

PayPal isn't interested in targeting banks' customers or in becoming a traditional bank — something the firm made clear both in its own blog post and to the Wall Street Journal. But banks, which are a critical partner for PayPal, may view the move as competitive in the long run. Most banks aren't prioritizing the underbanked right now. However, this may change as digital technology makes this segment more accessible. Further, the technology and experience PayPal gains in onboarding and building loyalty among underbanked customers could be transferable to other segments if the company decided to change course