Brief:

• PayPal, the digital payments company with 227 million active accounts worldwide, plans to move into traditional banking services such as direct deposit, debit cards and mobile check processing, per a report in The Wall Street Journal. The company is working with small banks and has been quietly testing the services to groups of customers in recent months.
• The company plans to roll out the service in the coming weeks and expects them to be live in the first half of 2018, TechCrunch confirmed. It may also invest in out-of-home ads to promote the new mobile features to consumers in "banking deserts."
• The services don't require monthly fees or minimum balances, but will charge a 1% fee on any check deposited by smartphone and issue ATM fees for those not among the 25,000 in PayPal's MoneyPass network.

Insight:

PayPal's main goal with the new services is to reach the millions of people without traditional bank accounts or those who have no access to digital payments as it looks to retain its foothold in digital payments amid growing competition. Apple, Amazon, Google and traditional banks are among the companies that already offer or are testing peer-to-peer payment features that take aim at a core feature of PayPal. Additionally, e-commerce giant Amazon is flirting with adding financial services. In the past month, Amazon has reportedly been in talks with banks surrounding branded checking accounts and the addition of a credit card for small businesses.

While the U.S. hasn't become a cashless society yet, services like Uber or Airbnb require digital payments, making it increasingly challenging for those without digital wallets or bank accounts to access some products and services. The mobile economy's growth depends on non-cash transactions that PayPal has worked to develop for years, and with its new features, PayPal is seeking to give the "unbanked" a pathway to contribute to the digital economy.

PayPal got its start as a way to make payments easier for consumers who wanted to securely shop at e-commerce websites or transfer money from person to person. Now, it's testing out banking services, but the company doesn't appear to intend to become a traditional bank that's licensed and regulated by central banks or other government authorities. Instead, it's working with smaller established banks to do some of the heavy lifting, such as deals with a Delaware bank to issue debit cards, a Georgia bank to deposit checks by smartphone and Utah banks to issue loans. 

PayPal's fee structure likely won't win over many customers of traditional banks who maintain deposit minimums and actually earn interest on their accounts. Its services are more directed at customers with smaller balances who are often ignored by traditional banks and may depend on check-cashing centers or other non-bank service providers to process transactions.