Is PayPal a Bank In 2024? Depends on Your Definition

As an expert in financial services and retail banking, I‘ve been following PayPal‘s evolution closely over the past decade. PayPal has done an impressive job expanding into original financial products and competing head-on with traditional consumer banks.

But with offerings ranging from deposit accounts to credit to bill pay, many consumers wonder – is PayPal now essentially the same as a bank? The answer has shades of grey depending on exactly how you define what a "bank" is.

Key Statistics on PayPal‘s Expansion in Financial Services

Let‘s first look at some numbers that showcase PayPal‘s ambitious push into financial services:

• 427 million active registered accounts globally as of Q4 2022
• $1.2 trillion in total payment volume in 2022, up 10% from 2021
• 75 million users on Paypay‘s peer-to-peer payments app Venmo
• 5.9 million merchant accounts, for accepting payments both online and in stores

And importantly – significant growth in original financial products:

• $20 billion in savings account balances across PayPal and Venmo as of end of 2022
• 2 million PayPal credit cards issued in US market as of Q2 2022
• 5% of total payment volume now funded through PayPal‘s "Pay in 4" installment credit product

The company is clearly making huge strides to offer a full suite of financial tools well beyond just digital payments. And it seems to be working – total payment volume grew steadily by 10% this past year despite broader ecommerce slowdowns.

How PayPal Compares to Traditional Banking

PayPal offers practically all the same services you‘d find at a typical consumer bank:

Yet despite the robust suite of offerings, important differences remain:

• PayPal is not chartered as an official bank
• Customer funds are held at FDIC-insured partner banks, not directly on PayPal‘s balance sheet
• PayPal‘s offerings ultimately rely on partnerships with chartered banks behind the scenes

So in my view, while PayPal has essentially replicated the modern digital banking experience, technicalities around regulatory status still distinguish it from being a licensed, chartered bank.

The Rise of Neobanks

Rather than competing as a "bank", a more precise definition for PayPal at this point is a neobank – essentially replicating bank services, while not holding an actual banking charter.

The neobank category has exploded globally across fintech companies innovating on top of traditional banking infrastructure:

These platforms aim to compete via superior digital experiences, free or low cost services, and modern features. Much of the initial growth has focused on payments, deposits, and debit spend. But I expect competitive pressure may push more neobanks like PayPal to expand into lending, credit, and financial services partnerships long dominated by big banks.

Regulators also continue debating special purpose bank charters for fintechs. If granted, companies like PayPal would gain bank-like powers but scoped narrowly around specific activities like payments. However for now, no special charters have been approved.

The Future of PayPal

Given PayPal‘s success replicating banking functions through partnerships, they may feel little urge to undergo the regulatory overhead of securing their own charter. However, a bank charter opens opportunities around customer deposit funding, accessing government loan programs, andassiciated growth in lending products.

As digital banking competition continues heating up, having an official charter could become a long-term competitive advantage. I‘d peg the chances at 60% over the next 5 years depending on commercial dynamics and any new regulatory pathways proposed.

Regardless of final charter outcomes, make no mistake – PayPal has undoubtedly emerged as a highly competitive force in retail banking. Via an array of partnerships and financial services infrastructure, PayPal leverages its vast customer base and digital reach to offer a very compelling, digitally-native banking alternative.