PayPal reaches for fintech’s final frontier — the cash under your mattress

PayPal recently announced a number of new banking features — including FDIC-insured accounts and ATM-ready debit cards — to target people who don’t keep their money in banks.

Now, in the standing-room-only fintech industry, PayPal and others are looking past affluent, tech-savvy demographics and turning to the unbanked in a desperate bid to find new customers.

Back up a second, who are the unbanked?

Nearly 70m Americans are unbanked or underbanked — meaning they rely on payday lenders or thinly disguised loan sharks to cash their paychecks. Typically, they make purchases with cash or prepaid debit cards.

The unbanked pay 15x as much as bank users to access their own money, and they often have trouble accessing the digital economy — after all, you can’t pay for a Lyft to the doctor in cash.

But while the unbanked don’t have bank accounts or credit, 40% of them do have smartphones.

So, PayPal and friends want to become the new payday lenders…

But in a less evil, kick-em-while-they’re-down kinda way. PayPal’s service shares drawbacks with existing “alternative financial services” — it charges deposit fees and doesn’t pay interest — but it offers non-stifling fees (1% vs up to 10%) and, crucially, access to digital services.

As some traditional banks eliminate free checking accounts, competitive digital banking services like Chime, Simple, and Varo Money are moving into the void left behind — by offering bank accounts, debit cards, and financial services that prioritize smartphones over bank tellers.

Un-banking is the nu banking 

Fintech companies first expanded into banking to capitalize on young, wealthy, mobile-first users who preferred apps to physical banks. But when they got there, they realized there were also millions of smartphone-using, unbanked customers — a global market worth $380B.

PayPal is the first company to directly target the unbanked — not just bank-averse hipsters. But last week, a finance app called Stash rolled out a partnership with banks to appeal to bank-less customers including “those who have been systematically left behind.”