PayPal should re-position itself as challenger bank, says ex-VP

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This week, PayPal announced that it was cutting the apron strings with parent company EBay, leaving many scrambling to work out what the next steps will be for the payments giant. Daniela Mielke, the company’s former vice president for global strategy, has some ideas.

They are in a little bit of a strategic void, and the new leadership will have to decide which strategy to pursue,” Mielke told Bloomberg’s Businessweek. She believes that the route to success should involve three steps:

1. New partnerships with merchants

One of the biggest benefits of being part of EBay was that PayPal is its default payment method. Now that the companies are separating, it’s unclear how that relationship will be structured – and for PayPal, having to split revenue with EBay will be a big hit to profits. To balance this, says Mielke, the company should be looking to develop agreements with big retail hitters like Wal-Mart and Amazon, with whom it has never worked.

2. Create a challenger to Apple Pay

Although Apple’s mobile payments venture doesn’t directly threaten PayPal’s core business, it has succeeded in getting a much-publicised head start in areas like in-person and in-app purchases, which have enormous untapped potential for PayPal. What’s more, if the high-profile Apple-based mobile wallet takes off, it will create a huge gap in the market for an Android equivalent. This, hints Mielke, could even lead to an acquisition by a mobile competitor like Samsung.

3. Become a bank

Securing a banking charter would allow PayPal to underwrite its own credit products, set up its own accounts and capitalise on its good reputation among younger generations by leading the way in a brand new approach to financial services. “Right now, PayPal is working with banks that are renting their charters to them,” says Mielke, who was frustrated the failure of the company to pursue a bank licence during her time there. “It’s not a scalable way to do things.”

Although PayPal may previously have been put off by the barriers and complexities involved in being part of an e-commerce company, these have now lifted. This means that now could be the perfect time for PayPal to begin seriously exploring a banking charter option.

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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