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PayPal Considering a Foray into the Stock Market
Reports that PayPal is considering a foray into the stock market have been making headlines today. After a successful rollout of its cryptocurrency trading last year, PayPal is now looking at ways to offer its clients equity trading.
The California-based fintech giant has started up a new division at PayPal called the Invest at PayPal. Richard Hagen, former president of Ally Invest and founder of online broker TradeKing, will head the new division.
PayPal will either acquire an existing brokerage or partner with one to pursue its goal of offering retail stock trading. Reportedly, the company has already held talks with potential investment partners. When the news broke out, the company’s stock was trading roughly 3.4% higher at $287.82.
Capitalizing on the Retail Trading Renaissance
PayPal moves to acquire a share of the growing retail trading market. Reportedly, over 10 million new retail traders have entered the market in the first half of this year. Naturally, this has resulted in a huge boost for the companies that offer retail trading services.
The CFO of PayPal’s competitor Square, which also offers stock and cryptocurrency trading, said the app has helped attract and grow revenue per user. Robinhood, which went public this summer, saw explosive growth with over 22.5 million clients and doubled its revenue in the last quarter compared to the previous year.
If PayPal pursued independent authorization to offer brokerage services, it would have to complete registration procedures through the industry regulator, FINRA. That process could take longer than eight months.
A Piece of the Market Share
The launch of PayPal’s new service would put it in direct competition with other fintech industry companies. Square, PayPal, Robinhood, and SoFi all offer a list of competing products. Not to mention that each of these companies is on a mission to become a one-stop shop for finance. Cryptocurrency and stock trading are seen as ways to attract consumers to these payment platforms.
While the industry is booming, on the one hand, the regulators are getting more nervous on the other hand. The Securities and Exchange Commission (SEC) announced last week that it would intensify its probe into what is known as “gamification”. In other words, the attractive features that brokers use to interact with their customers.
SEC Chair Gary Gensler explained, “While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice […] In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy.”
The agency cited behavioural cues used by online brokers and investment advisers that can encourage investors to trade more stocks and other securities and take more risks.
Final Thoughts
PayPal is a global and reputable company with over 400 million users. The successful launch of its cryptocurrency services in the US has led it to expand and offer the same services in the UK. Based on their track record, it’s hard to imagine that PayPal wouldn’t succeed at this new venture as well.
On the other hand, regulatory slaps on the wrist don’t seem to cut it anymore. The regulators are exploring a variety of rules to rein the brokerages in and make trading more transparent.
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