PayPal Branches Out into Robo-Investing

Summary

WSJ Your Money Briefing

Episode Summary: PayPal Branches Out into Robo-Investing

Date: November 21, 2017
Host: JR Whalen
Guest: Peter Rudiger, Wall Street Journal Reporter

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Episode Overview

This episode explores PayPal’s new partnership with Acorns Grow, a leading micro-investing platform, allowing PayPal users to seamlessly invest their balances via robo-advisory technology. Reporter Peter Rudiger breaks down the implications for users and PayPal’s broader strategy to expand into new financial services beyond payments, especially those that target underserved consumers.

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Key Discussion Points & Insights

1. PayPal’s Partnership with Acorns Grow

• Announcement & Rollout:
  • PayPal is rolling out a new feature that lets users invest through Acorns. An initial group gets access immediately, with all U.S. users expected to have access by Q1 2018.

    "With the expectation that all of PayPal's users in the US will be able to invest through PayPal into Acorns by probably first quarter of 2018."
    — Peter Rudiger [00:53]

• Potential Scale:
  • PayPal has ~218 million active users.
  • Acorns currently has about 1.6 million investing accounts—partnership could dramatically increase reach.
• How It Works:
  • Users’ transactions through PayPal, or credit cards, are rounded up and that spare change is automatically invested—core to “micro-investing.”

2. Micro-Investing and Robo-Advising Explained

• How It Transforms Investing:

  • Micro-investing allows people to save and invest seamlessly, turning small change into investments within exchange-traded funds (ETFs).
  • Robo-advisors automate the process, requiring minimal user action.

    "Acorns has popularized this idea called micro-investing or robo advisory [...] trying to get people to save and invest more automatically so you don't have to really do anything."
    — Peter Rudiger [01:13]

• Target Audience:

  • Especially suited for new or young investors, or those who haven’t traditionally saved.

    "Acorns is really focused on folks that haven't saved before. They call them the up and coming savers. The average account size is only a few hundred dollars and it's about savings as much as investing."
    — Peter Rudiger [03:38]

• How Robo-Advising Works:

  • Users answer a few questions; an algorithm tailors investments based on risk tolerance, all managed automatically.

    "Robo investors or robo advisors kind of take out that human layer. A lot of the times you can give them a pot of money. They might, based on a few questions, gauge your risk tolerance and automatically invest that into different funds without you having to do anything."
    — Peter Rudiger [03:38]

3. Strategic Importance for PayPal

• Diversifying Beyond Payments:

  • Under CEO Dan Shulman, PayPal has moved beyond its initial focus as a simple web payment solution to more robust financial services.

    "Now under Dan Shulman...he's really tried to diversify the company into other businesses. Dan has really been interested in serving customers that really don't have access to mainstream financial products."
    — Peter Rudiger [02:06]

• Previous Moves Devoted to the Underserved:

  • Acquisitions: Xoom (remittances), Venmo (money transfers).
  • Investments in startups like LendUp (online lending) and Raise (gift card marketplace).

• Venmo Ownership Clarified:

  "The CEO has often faced questions about how he's going to compete with the likes of Venmo, given that it's very popular with younger users...a lot of people don't realize that Venmo is actually a unit of PayPal."
  — Peter Rudiger [03:03]

• Engagement Play:

  • Incorporating investing aims to increase user engagement with PayPal's app beyond payments.

    "I think one of the reasons PayPal wants to introduce a service like this for its users is that it really wants to get people to engage with its app more."
    — Peter Rudiger [05:06]

4. User Experience and App Integration

• PayPal users will be able to:
  • Link their accounts with Acorns.
  • Manage balances, returns, and set up recurring investments directly in the PayPal app.

  "You can look at your balances, look at your returns, set up additional recurring investments if you want to do that, and really try to bring the whole narrative around financial wellness into inside the PayPal app."
  — Peter Rudiger [04:17]

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Notable Quotes & Memorable Moments

• On PayPal’s User Scale

  "PayPal has roughly 218 million active users. That's a lot of money that could be coming Acorn Grow’s way."
  — JR Whalen [01:03]

• Micro-Investing Impact

  "It’s kind of forcing you to save again, asking you to round up some of those purchases, investing the spare change and then putting that to work in baskets of exchange traded funds."
  — Peter Rudiger [04:05]

• Why Millennials Are Drawn In

  "Roboinvesting is something that millennials have been drawn to along with other segments of the population. Is this sort of a way to bring them in on the ground floor in terms of investing and keep them around?"
  — JR Whalen [04:54]

• On App Engagement

  "By introducing investing, it’s hoping that users will engage with the smartphone app maybe more than they otherwise would have."
  — Peter Rudiger [05:30]

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Timestamps for Key Segments

• [00:25] — Introduction & PayPal-Acorns news
• [00:53] — Rollout details; scale and reach
• [01:13] — Micro-investing and robo-advising concept
• [02:06] — PayPal’s evolution and CEO Dan Shulman’s vision
• [03:38] — Robo-investing and Acorns’ approach explained
• [04:17] — How the integration works for PayPal users
• [05:06] — Strategic reasoning behind the move, targeting more engagement

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Conclusion

This episode highlights PayPal’s strategic shift towards becoming a full-spectrum financial platform. By teaming up with Acorns and embracing robo-investing, PayPal aims to democratize investing for a broader audience, increase user engagement, and further differentiate itself in the ever-evolving fintech landscape. The conversation focuses on simplification, automation, and inclusiveness in personal finance, putting investing within reach for millions of new users.

Transcript

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[Show Announcer]

this is yous Money Matters from the Wall Street Journal.

[JR Whalen]

Welcome to youo Money Matters. I'm JR Whalen in New York. PayPal users will soon be able to take money in accounts and put it to work. The company has announced plans to connect its website to Acorns Grow, an automated savings and investment service, and Wall Street Journal reporter Peter Rudiger is here to Discuss. So Peter, PayPal took a minority stake in Acorns Grow last year, and an initial batch of PayPal users will see that connection available to them this week.

[Peter Rudiger]

That's right, with the expectation that all of PayPal's users in the US will be able to invest through PayPal into Acorns by the probably first quarter of

[JR Whalen]

2018, PayPal has roughly 218 million active users. That's a lot of money that could be coming. Acorn Grows way that's absolutely right.

[Peter Rudiger]

Acorns has popularized this idea called micro investing or robo advisory in micro investing, in which they take transactions that you might make through PayPal or through credit cards, round them up, and then invest the spare change in things like exchange traded funds of stocks. So it's really trying to get people to save and invest more automatically so you don't have to really do anything. PayPal, as you say, kind of has the broad user reach to really turbocharge Acorns customer base. Acorns currently has about 1.6 million accounts actually investing. As you mentioned, PayPal has well over 200 million accounts, so it could really get better distribution.

[JR Whalen]

Through this partnership, PayPal has been searching for ways to branch out beyond simply payments into other financial services. It's kind of geared to consumers, as you point out in story in the Wall Street Journal, who have limited access to some services.

[Peter Rudiger]

PayPal is actually almost 20 years old at this point, is that right?

[JR Whalen]

20 years old.

[Peter Rudiger]

1998 was founded for most of that time, it was kind of what you first think of when you think of PayPal. It's a button on a website allowing you to check out usually on ebay faster and easier. Now under Dan Shulman, who became CEO slightly before it spun out of eBay in 2015, he's really tried to diversify the company into other businesses. Dan has really been interested in serving customers that really don't have access to mainstream financial products. In 2015, they bought a company called Zoom, which handled Remittances, cross border money transfers for consumers. He's also invested in companies like Venmo, which PayPal also got through an acquisition, which is a millennial money transfer service. Those are acquisitions. But Dan has also been active in using PayPal's capital to invest in startups that also offer services for the underserved. So that includes LendUp, which is an online lender, as well as Raise, which is a marketplace for gift cards.

[JR Whalen]

You mentioned Venmo. So Venmo and PayPal are owned by the same company?

[Peter Rudiger]

That's right. It's pretty funny. The CEO has often faced questions about how he's going to compete with the likes of Venmo, given that it's very popular with younger users. And as you say, a lot of people don't realize that Venmo is actually a unit of PayPal.

[JR Whalen]

So what exactly will access to acorns grow allow PayPal users to do with their money? We'll answer that in a moment. We're speaking with Wall street reporter Peter Rudiger and you're listening to your Money Matters from the Wall Street Journal. Welcome back, everybody. So, Peter, Acorns Grow is focused on the growing trend of robo investing. Can you just explain what that is?

[Peter Rudiger]

Think of traditional investing. Usually you might have a broker or a financial advisor who advises you on different kind of stocks or index funds that you want to buy, usually charges a fee and facilitates getting you access to those. Robo investors or robo advisors kind of take out that human layer. A lot of the times you can give them a pot of money. They might, based on a few questions, gauge your risk tolerance and automatically invest that into different funds without you having to do anything. Acorns is really focused on folks that haven't saved before. They call them the up and coming savers. The average account size is only a few hundred dollars and it's about savings as much as investing. So it's kind of forcing you to save again, asking you to round up some of those purchases, investing the spare change and then putting that to work in baskets of exchange traded funds. So with this PayPal partnership, now you can link your PayPal account, start making transactions to Acorns through PayPal. And within the PayPal app, you can kind of manage that whole account. You can look at your balances, look at your returns, set up additional recurring investments if you want to do that, and really try to bring the whole narrative around financial wellness into inside the PayPal app.

[JR Whalen]

The amount you have and what you say about yourself sounds like it creates a sort of algorithm that allows them then to spread your money around.

[Peter Rudiger]

That's exactly right.

[JR Whalen]

Roboinvesting is something that millennials have been drawn to along with other segments of the population. Is this sort of a way to bring them in on the ground floor in terms of investing and keep them around?

[Peter Rudiger]

I think that's right. I think one of the reasons PayPal wants to introduce a service like this for its users is that it really wants to get people to engage with its app more. Like I said at the beginning, PayPal is a payments company first and is trying to get in other areas. Its app is primarily a payments app right now. So I can send you money through the app. There are some locations where you can see a map inside the app where PayPal might be accepted. And now by introducing investing, it's hoping that users will engage with the smartphone app maybe more than they otherwise would have.

[JR Whalen]

All right, that's the Wall Street Journal reporter Peter Rudiger joining us here in the studio. Peter, thanks for being with us.

[Peter Rudiger]

My pleasure.

[JR Whalen]

And thank you for listening to your money matters. I'm JR Whelan in New York for the Wall Street Journal.

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