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Emerging Payments

To Spur Card Spending, PayPal Pushes Cash

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SAN FRANCISCO–Cash isn't just some crude means used by the unbanked; affluent bank customers use it as well. To encourage spending among banked consumers, PayPal Inc. is expanding the ways consumers can fund their accounts with bills and coins.

Today, there are two ways to do it. The newest method relies on Coinstar Inc.'s kiosks to allow consumers to deposit coins directly into a PayPal account. Though this feature was announced just last month, there already are clear trends emerging in how Coinstar machines lead to more spending.

After depositing, for example, $100 in coins, "we're seeing people then spend $150 immediately online; … the additional $50 is coming off your credit card or your debit card [linked to] your PayPal account," Dan Schatt, who heads financial innovations at PayPal, said during a June 12 panel discussion at SourceMedia's Mobile Banking and Commerce Summit (SourceMedia publishes PaymentsSource).

The other way to load cash into a PayPal account is through Green Dot Corp.'s MoneyPaks, which are sold at the point of sale and are used primarily to fund Green Dot's prepaid card accounts. PayPal, a unit of eBay Inc. based in San Jose, Calif., has supported MoneyPaks since 2009.

There's a substantial difference in how each funding method influences users' spending, Schatt says.

With MoneyPaks, "people are spending, but it's not necessarily so instant," he said in an interview after the panel discussion.

With Coinstar, "we're reaching a different set of users, … [from the] unbanked all the way up to banked people that want to get rid of their coins," he says.

These banked users spend their Coinstar deposits almost immediately, often by using a mobile device, Schatt says.

"It's not a way to gather deposits," he says. "It's a way to get people transacting."

Since consumers often fund those transactions in part through bank-issued cards, the Coinstar feature makes PayPal a more valuable ally to banks, Schatt says.

"Pretty much everyone who has a PayPal account has a credit card or banking account," he said during the panel discussion. "Really, PayPal is a velocity accelerator in terms of generating a lot more volume for the banking industry."

The software development tools PayPal provides through its X.commerce program enabled the Coinstar feature, Schatt says (see story).

Separately, PayPal on June 13 announced a partnership with Comcast and TiVo to enable consumers to shop while they’re watching TV (see story).

American Express also supports Green Dot's MoneyPak products as a way to load cash to its digital wallet, Serve. (see story)

"Our only cash inflow [method] is actually enabled by what we used to think of as a competitor," Stefan Happ, Amex's general manger of online and mobile for North America, said during the panel discussion.

"We were amazed how many people use cash as an inflow mechanism–straight cash," he said.

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