By Patti Murphy
The Takoma Group
I must admit I'm a bit of a banking industry snob. Call me old-fashioned, even quaint, but I believe banks play a crucial role in the economy as keepers of the gates to the payments system.
And I've never been keen on the idea of nonbanks acting like banks, for a variety of reasons, not the least of which is federal deposit insurance protection.
So it may come as a surprise that I recently added a MasterCard U.S.A.-branded PayPal debit card to my wallet. PayPal, after all, is owned by eBay.
I've been using PayPal for a few years, in much the same way my mother would use the not-so-secret stash of cash she called her "mad money."
She'd use that to buy something extravagant when she was mad about something. It would generally cheer her. I use my PayPal account as though it's cash, for extravagances like downloading music from iTunes.
In my mind's eye, PayPal is a 21st century version of cash, especially when you add a debit card feature to the account.
As a young teenager in the late 1960s, I enjoyed buying vinyl records. We called them "45s" or "singles." They cost $0.99, and I would pay using the cash I earned doing odd jobs.
Now I'm a considerably older adult, but I still enjoy buying music at $0.99 a pop, only today it's online rather than at the local record store.
I like using PayPal for these purchases because it's convenient. I set up an account with PayPal, which is tied to my checking account, but I usually keep some money in the account at PayPal.
Then, when I set up an account with an online merchant (like iTunes), I provide my PayPal account information; from then on I can add a tune to my collection with the ease of a mouse click.
The downside to having a PayPal account, and keeping mad money stashed there, is that accessing that cash in a pinch is not quite as easy.
That's where the PayPal debit card comes into play: I can use it at the POS just like cash. And if I really need the "green stuff" I can spring for the ATM fee.
Recently, PayPal offered me backup funding for my MasterCard debit card. The options are to link the card directly to my checking account or apply for a PayPal credit card. I don't need that; it's too much like borrowing. But then, people do sometimes need to borrow cash.
I had an opportunity during the NACHA – The Electronic Payments Association's 2007 conference to meet with René Pelegero, Senior Director for Industry Relations, Strategy and Compliance at PayPal.
He likened the PayPal debit card to a stored-value or prepaid debit card; the value to PayPal comes from transaction interchange.
Pelegero stopped short of describing PayPal as a bank. "We complement banks," he said, explaining that PayPal "rides the rails of the bankcard and ACH [automated clearing house] networks."
Less than a month later, however, PayPal announced it had been granted a bank charter through the European Union.
That bank, based in Luxemburg, will open in July. But don't expect the Federal Deposit Insurance Corp. or the Fed to follow soon. A PayPal bank isn't likely here.
In an era when the handshake on a sale is as likely to be electronic as it is a pressing of the flesh, there needs to be an electronic equivalent to cash and coin. PayPal is becoming the electronic standard for transactions that just 10 years ago were handled using cash, coins or personal checks.
There are alternatives to PayPal. Google Checkout comes to mind, but it's not nearly as fast and cash-like as PayPal. And I've not yet had any of my Internet-savvy friends offer to "Google that over to you in the morning" after asking me to pick up the tab at a group outing.
"What PayPal brings to the equation is a level of trust," Pelegero said. "To move money between two parties that otherwise may not know each other, and to do that with an increased level of security."
He added that PayPal has invested in a multiyear strategy to enhance fraud detection.
To further insinuate itself into the consciousness of the 21st century shopper, meanwhile, there's PayPal Mobile. It uses a text-messaging based transaction initiation process. Users tender cash with the ease of text messaging.
Next time you're with a group, ask folks to quick pull out their cell phones. Then ask them to pull out their debit cards. In a race, cell phones will win every time.
Or, ask parents of teenagers how frequently they use cell phones to text message, and the image of cell phones as wallets begins to emerge.
A 2006 survey by Visa U.S.A. brings that image into clearer focus. In a survey of 800 American consumers, 77% said they would find it difficult to get through a day without their mobile phones.
Even more telling, consumers in that survey were twice as likely to carry mobile phones as cash.
Eighteen to 34 year olds were four times as likely to carry phones instead of cash. And more than half of those between the ages of 18 and 44 worry about not carrying enough change to make small purchases.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.
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