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Why PayPal’s changing its rates

Hello and welcome to Protocol | Fintech! This Tuesday: what PayPal's fee changes say about the payments market, Goldman's crypto moves and the debate over "true lenders."
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When PayPal got its start over two decades ago, taking credit cards online was complicated, with monthly fees, minimums and confusing interchange rates. It responded by charging most sellers one blended rate: 2.9% plus 30 cents a transaction. (It's even there in PayPal's original S-1 from 2001, the first time the company went public — that's how long the fee structure's been in place.)
In early August, the company is changing its longstanding fees, raising some rates and dropping others.
Things aren't so simple anymore. Payments aren't just about web commerce, PayPal's in many different lines of business, eBay's gone off on its own and the company has a host of rivals.
It's the end of the blend. PayPal's business model used to be simple, as you can see in that 2001 SEC filing. It made a thin margin, about 1%, when people used credit or debit cards, and a lot more when they connected their bank accounts or used PayPal balances. It blended those to make for a nicely profitable business.
Price matters, but so do conversions. The price hike could cost PayPal some retailer customers.
PayPal doesn't seem too concerned about losing customers. It has flourished during the pandemic as consumers moved online to shop. PayPal posted strong earnings in the first quarter as growth continued to rise.
Brue pointed out that PayPal may struggle to charge its new, higher rate if consumers don't show a preference for its wallet: "They're not a brand younger consumers are as aware of." Of course, PayPal has an answer for that: Venmo me.
— Tomio Geron
Every day the global financial markets create incredible amounts of new data that we need to consume. Our success is reliant upon our ability to make this data available to researchers — and available quickly. The most productive quants have the competitive advantage, and a huge amount of that productivity relies on fast access to massive amounts of data.
A moment of truth for "true lenders." Members of Congress and consumer advocates are pushing for rollback of a Trump-era "true lender" rule that supporters say has made consumer lending more competitive and critics say is just a new avenue for predatory lending.
California contemplates crypto rules. Meet Christina Tetreault, the new head of California's Office of Financial Protection and Innovation. If you're in crypto, she wants to talk.
What fintech trend are you most excited about?
I have always been fascinated with smart contracts, NFT and the other non-fungible implementations of blockchain. I've even considered building features on these tools, but it's just not quite there yet for me. But it is getting there, and I'm cheering them on — lowering transaction barriers and creating trust without counter-parties would be great. Insurance is basically one giant spreadsheet — what if that spreadsheet didn't require permission from third parties to keep it up to date? We're a long way from that, but it's fascinating.
What fintech trend is most troubling for you?
Apps and pricing strategies that enable day trading. Almost all day traders lose money — I've seen research saying anywhere from 80% to 98% lose. I am all for democratizing investing — we need to broaden the base of people who own financial assets — but when they enable troubling gambling behaviors, I worry. And when day trading is supercharged by margin lending ... gambling debt kills, literally and tragically.
What's been your biggest professional blunder, and how did it help you?
The first line of business I was responsible for at AIG, where I used to work before Goodcover, failed big-time. We thought our insurance product and service were superior to anything out there, but it just wasn't what our distributors or potential customers wanted. That's where I learned that the most important person in your business is your customer. You need to listen to them and then make something people want.
Every day the global financial markets create incredible amounts of new data that we need to consume. Our success is reliant upon our ability to make this data available to researchers — and available quickly. The most productive quants have the competitive advantage, and a huge amount of that productivity relies on fast access to massive amounts of data.
That's Revolut's 2020 loss, which doubled from the previous year, due to a spike in staffing costs as the company expands globally. The London-based fintech said its adjusted revenue rose 57%.
Thanks for reading — see you Friday!
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