by Noreen Burke
A raft of recent announcements relating to the intersection of traditional financial services and fintech show that the banking industry is in for major disruption, according to Jessica Rabe, co-founder of the market research firm DataTrek.
PayPal (NASDAQ:PYPL) is looking at a way to cut down cryptocurrency transaction times, according to a patent filing published by the U.S. Patent and Trademark Office, released on March 1. The digital payments company has proposed a way to operate a parallel payment system on top of Bitcoin or other cryptocurrencies that can authenticate transactions in real time, by using secondary virtual currency wallets with their own unique private keys for buyers and sellers.
The system would transfer private keys corresponding to a predefined amount of a virtual currency that equals the payment amount identified in the transaction. By building a proprietary network on top of a cryptocurrency, PayPal could have cheaper transfers than the existing banking system and proprietary security to boot, Rabe said.
Meanwhile, cryptocurrency trading platform Coinbase announced Monday that it hired Emilie Choi as vice president of corporate and business development. Choi oversaw more than 40 mergers and acquisitions deals at LinkedIn as their former head of Corporate and Business Development.
The move by Coinbase could be the start of a new stage of mergers and acquisitions in cryptocurrencies. Coinbase said that Choi “will be focused on scaling Coinbase globally, seeking out world-class acquisition and partnership opportunities, and managing our strategic projects.”
The San Francisco-based startup, which is valued at about $1.6 billion currently has more than 10 million clients. It has come under growing strain as a huge influx of new accounts caused outages and slowdowns in service.
“Any public company mentioned as working on a deal with Coinbase will see a pop in their stock price and unlike so many of the micro-cap scams of the last few months, the move higher will have actual fundamentals behind it,” Rabe said.
Also this week, The Wall Street Journal reported Tuesday that online retailer Amazon (NASDAQ:AMZN) is in talks with major banks, including JP Morgan (NYSE:JPM) about building a “checking-account-like” product to offer its customers. The report said the effort is focused on creating a product that would appeal to younger customers and those without bank accounts. The move by Amazon would remove a major barrier to shopping on its website—the lack of a credit card.
Rabe said Amazon would like consumers to store their money with them in anticipation of spending it later. “That avoids the need to pay credit card fees and helps profitability. Amazon’s North American ecommerce sales last year were $106 billion; every 10 basis points of transaction cost savings represents $106 million to the bottom line,” she said.
Rabe explained that while there are some analogs for “money storage,” including PayPal, Venmo and Starbucks prepaid balances, but these do not offer FDIC balance insurance, which limits their appeal as a viable option for many consumers.
“By teaming up with a bank, Amazon is clearly thinking bigger than just a few dollars in a transactional account. Will Amazon one day take your entire paycheck in a direct deposit? Never say never,” she said.