What Should a Liberated PayPal Do? Become a Bank and Go to War With Apple

Photograph by Imaginechina via AP Photo

PayPal’s break from EBay is all about buzzwords: eliminating dis-synergies, applying strategic focus, and seizing the moment. But what does that even mean?

Daniela Mielke, a former vice president for global strategy at PayPal, spoke to Bloomberg Businessweek about what she thinks her former employer should do now that it’s no longer saddled with its connection to EBay. And she didn’t resort to business jargon: “They are in a little bit of a strategic void, and the new leadership will have to decide which strategy to pursue,” says Mielke, who now works for payment-processing company Vantiv. Here are three concrete ideas from the former PayPal exec:

1. Get new merchants to work with PayPal. Being a part of EBay brought a big advantage, allowing PayPal to become tightly integrated as the online market’s default payment method. A big question now is the shape of the agreements the companies end up structuring when they split. If PayPal is required to start sharing payment revenue with EBay, its core business won’t be as profitable. Of course, EBay is expected to soon make up only 15 percent of PayPal’s revenue, so ending the companies’ special relationship will come with potential advantages, too.

PayPal doesn’t work with the two biggest names in retail: Wal-Mart Stores and Amazon.com. Mielke believes it should go back to them and push hard to make a deal. An agreement won’t be a foregone conclusion, since both companies already have ways for people to pay for things on their websites and won’t necessarily feel the need to change. But perhaps enough people like using PayPal to put the company in a decent position for these negotiations.

2. Build an Apple Pay alternative. As it stands, Apple’s new mobile payment platform isn’t a huge threat to PayPal’s core business. But Apple is moving into areas where PayPal could stand to grow: in-person and in-app purchases. PayPal’s inability to figure these things out so far is regularly cited as evidence that its innovative drive has been hindered by its relationship with EBay.

The company apparently lost its chance to become part of Apple Pay when it cozied up to Samsung Electronics. So maybe it should just keep going. There will clearly be a demand for an Android alternative to Apple’s mobile wallet. Building such a thing is best done by a company that controls the hardware, says Mielke, because the security measures need the device and the software to work together. PayPal could bring its 150 million customer relationships to Samsung and have a pretty good start.

Taking such a partnership to its logical conclusion could lead to something the company currently says is not on the table: an acquisition. If Samsung did want to build a mobile wallet based on PayPal’s network, it could simply purchase the company and keep it from working with its competitors as well.

3. Become a bank. Mielke says that one consistently frustrating dynamic at PayPal during her time there was the company’s inability to pursue a bank license. “Right now, PayPal is working with banks that are renting their charters to them,” she says. “It’s not a scalable way to do things.” Getting a bank charter isn’t easy, though, and PayPal was precluded from seriously pursuing the idea when it was part of an e-commerce company.

If PayPal were to get a charter, it could underwrite its own credit products, hold its own accounts, and do other bank-like activities. This would make the company something much different than it is now, but that’s the point of setting out on a bold new path. PayPal has a strong reputation with younger people, who make up an attractive market to tech companies looking to edge in on financial services.

“They could actually position themselves as a 21st century bank for those who are sick of the traditional banks,” says Mielke. “This is a big opportunity for someone to grab.”

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