Digital payments pioneer PayPal Holdings is reportedly for sale, with all the likely fintechs mentioned as potential buyers. But banks may be interested, too.
PayPal has long considered major banks to be rivals, given its 21st-century spin on their traditional way of making payments. In light of that longtime competitive tension, and the natural fit for payments with a suite of financial services, it might make sense to integrate PayPal’s assets with those of a bank.
JPMorgan Chase, the biggest U.S. bank, runs a massive payments operation, delivering $19.3 billion in revenue last year, according to its annual filing with the Securities and Exchange Commission.
That bank has made several payments acquisitions, including purchasing payments services company Renovite Technologies in 2022; healthcare payments firm InstaMed in 2019; and payment service provider WePay in 2017.
Apparently, the bank continues to have an appetite for payments deals. When JPMorgan CEO Jamie Dimon was asked about the bank’s acquisition strategy at an event last month, he pointed to payments as an area of interest. “Payments, I would look at all the time,” Dimon said. “We’ve done several, some did not work, as you know. But that doesn’t mean we wouldn’t try again.”
PayPal is a unique asset in that it has amassed millions of consumer customers for its digital wallet, as well as millions of merchant clients for its digital processing services.
Dana Stalder, a former PayPal executive turned venture capitalist, said he believes a sale of PayPal to a bank makes a lot of sense. Stalder said he could envision PayPal attracting JPMorgan’s attention.
“If you took [JPMorgan’s] Paymentech acquiring business, the Chase Card business and all of the PayPal and Venmo volume, and integrated that into a single network, that would be quite formidable,” Stalder said in an interview last week.
Spokespeople for JPMorgan and PayPal declined to comment.
For Capital One, meshing PayPal with its newly acquired Discover card network could create a powerful combination, Stalder said. Capital One could handle all that PayPal and Venmo payment volume on its Discover rails, skipping other card cards and eliminating PayPal’s past reliance on other card rails and jettisoning Synchrony as its bank card issuer.
“Suddenly, Cap One affords you the ability to truly vertically integrate and take an enormous amount of cost out,” Stalder said.
A spokesperson for Capital One didn’t respond to a request for comment.
Unlike some of the fintech companies that have been mentioned as potential PayPal suitors, such as Block and Adyen, big banks have more financial wherewithal to pull off a deal.
A bank purchase of PayPal isn’t “impossible,” Morningstar analyst Brett Horn noted, but he considers it “unlikely,” he said by email. “Only a few banks are big enough to do it — JPM has a sizable payments business but historically has not made large acquisitions in the space,” he added.
Either of the bank transactions would be “long-shot deals,” Stalder acknowledged, especially given banks are highly regulated and would require federal government approvals, he noted.
Still, with PayPal’s growth travails in the past five years, the synergies possible with a financial institution might be just the answer.
