A sign is displayed outside PayPal’s headquarters in San Jose, California.
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PayPal is exploring a potential stock trading platform.
After rolling out the ability to trade cryptocurrencies last year, the payments giant explored ways for users to trade individual stocks, according to two sources familiar with the plans.
According to a source, the San Jose, California-based company recently hired brokerage industry veteran Rich Hagen as part of the move. After leaving Ally Invest, Hagen is now CEO of the previously undeclared division of PayPal, which is called Invest at PayPal, according to his LinkedIn page. Hagen was the co-founder of the online brokerage TradeKing, which was acquired by Ally Invest.
Her current job description describes PayPal’s efforts to “explore the opportunities” in the consumer investment industry. When contacted for comment, PayPal highlighted comments by CNBC CEO Dan Schulman at the company’s Investor Day in February when he spoke about the company’s long-term vision. and its “investment capabilities”, including several other financial services. How can I get involved?
PayPal’s move comes amid a retail renaissance. According to estimates by JMP Securities, more than 10 million new individual investors entered the market in the first half of this year, roughly matching the record levels of last year. A combination of stay-at-home orders during the pandemic, government stimulus checks and viral events such as GameStop’s rise in January have sparked renewed interest in the stock market.
Trading has become a booming business thanks to the companies that offer it. PayPal’s rival Square offers stock and cryptocurrency trading through the Square Cash app, and its CFO said the app increases engagement and revenue per user. Robinhood, which went public this summer, has seen explosive growth with over 22.5 million customers and doubled revenue in the last quarter compared to a year ago.
In order to offer stock trading to clients, PayPal may partner or purchase an existing broker-dealer. According to a source, PayPal has already had discussions with potential industry partners.
Still, a source close to the idea said sales service is unlikely to start this year. The sources spoke on condition of anonymity because PayPal’s plans were not public and they were not authorized to share information about a potential partnership.
PayPal shares rose more than 3% after the CNBC report, while those of Robinhood fell more than 3%.
If PayPal is to gain full approval as a stand-alone brokerage, it will need to complete a new membership process through FINRA, the industry’s main regulator. This process can take more than eight months. PayPal has over 400 million accounts worldwide.
A PayPal market launch will come at a competitive time for the FinTech industry. Square, PayPal, Robinhood, and SoFi have a list of overlapping products that describe a similar mission of being a one stop shop for finance. Cryptocurrency and stock market transactions are seen as ways to retain consumers on these payment platforms.
While useful for user growth and revenue, the retail boom has also prompted further regulatory scrutiny.
The Securities and Exchange Commission said last week it was investigating “gamification” and how brokerages are using technology to interact with their clients. The agency cited behavioral signals used by online brokerage houses and investment advisers that can encourage investors to trade more stocks and other securities and take more risk.