PayPal: A Bank Alternative?

As I’ve mentioned in the past, one of the blogs that I follow regularly is "Bankervision: Opinions on retail banking and banking technology."  You can find a link to the blog in the blogroll to the right of this post (assuming you aren’t reading just the feed).

James Gardner, the author, posted today regarding Social Lending and it’s impact on retail lending and financial advice services.  In brief, Gartner is forecasting that, in two years, 10% of all the above services will be taken by social banking applications.  However interesting the prediction, another line in the blog made me stand up and stalk about the office in deep thought.  (Yes, my office mate has a fair amount of patience…yes, I tend to think aloud.)

In the meantime, however, this is somewhere we’ve been before. Who ever thought, just a few years ago, that PayPal would be so important? Now, they’re so big (and with a banking licence!) that competitive responses are somewhat limited.

I mentioned previously that I sat through a presentation given by Chris Anderson at BAI TransPay.  One of his points addressed the quote above. 

For those who don’t know, one of Chris’ side ventures is a company called BookTour.  BookTour is a "networking" site targeted to book aficionados, authors, publishers, etc.  An author can signup for the site and create a biography including their books and speaking engagements.  Simultaneously, a reader is able to dig through the listings, by author or by geo-location, to find events of interest.  It also includes some invite functionality for those trying to bring a particular author to town.

A relatively straightforward idea, eh?  And, for those of us who are bibliophiles, quite interesting.  In perusing BookTour, there are several ways in which I feel they are likely to now, or in the future, monetize the interaction in the community that they are building.  One of the most obvious, and ignoring my own speculation in favour of clear information, is the limited advertisement they allow to a "featured author."  The details about this program are available via the FAQ.

So, it is a vibrant community that has revenue…what is so interesting?

According to Chris, BookTour does not have a traditional bank account.  They use PayPal for all financial functions (i.e. payroll, payment acceptance, payment initiation, etc). 

You heard correctly, PayPal is their bank.

PayPal as a bank alternative.  Would this be applicable for most businesses?  No.  But there is an entire range of the SMB sector (particularly online business) that could, in fact, benefit from this sort of banking alternative. 

(NOTE:  As stated above, PayPal actually has acquired a banking license in Luxembourg.)

What does this mean to me?

The prediction of technology adoption, particularly by those in an established business, is often wrong.  Small business uses PayPal because it minimizes the time that they spend focusing on finances instead of core business.  At the time that PayPal was still gaining traction, it didn’t seem a likely scenario to impact a bank…it was more of a credit-card threat.  Individuals utilize social lending scenarios for a variety of reasons including interest rate concerns, backlash at banks, etc.  I wonder whether, in 2010 we will find that social lending has not, in fact, taken a large percentage of the market and has, instead, been adopted in new and unique ways that have more impact on core business.

That’s part of the reason I continue to read what James has to say…innovation, and thoughts about it, require flexible thinking and a fair measure of aggression in adopting new technologies.  As James says:

So we’ll need to be certain that our natural tendency to be cautious is balanced with ensuring that we have the right experiences for customers in time.

It does seem to me, though, that banks are becoming less slow in their adoption of new things. Perhaps thats a reflection of being involved in bank innovation, but it’s a good thing, because it is pretty obvious that emergence rate of the new is speeding up.

What’s your perspective? Agree? Disagree? Anything to add? Critiques?
The comment form is below. . .

February 21, 2008

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