Is PayPal affected by SVB? U.S. government regulators have stepped in to try and stabilize the chaos kicked off by the sudden collapse of Silicon Valley Bank. A confluence of events (poor asset management, rising interest rates, and fear among SVB’s tech start-up customers) led to a bank run, and stocks of other small and regional banks have sold off.
Fintech giants PayPal (NASDAQ: PYPL) and Block (NYSE: SQ) aren’t exactly banks themselves, but investors may be wondering if similar risks could apply. Let’s dig into some details.
Is PayPal affected by SVB?
PayPal is a major payment company that operates in over 200 countries and territories. The company has over 400 million active users and processed over $400 billion in payments in 2022.
PayPal is not directly affected by the collapse of SVB. However, the collapse could have a number of indirect impacts on the company. For example, the collapse could lead to a decline in the value of tech stocks, which could hurt PayPal’s business. Additionally, the collapse could make it more difficult for PayPal to obtain financing, which could also hurt its business.
Are PayPal and Block actually banks?
PayPal and Block are financial technology (fintech) companies that use software and computing technology to do business differently from traditional banks. Nevertheless, as they have grown, PayPal and Block have begun to look a bit more like typical banks.
PayPal and its digital wallet subsidiary Venmo are quite different from a bank. The typical user keeps small amounts of cash in their PayPal and Venmo account, opting instead to link their existing banking and credit accounts to PayPal and Venmo to make digital payments. PayPal primarily makes money by earning a small percentage fee taken on each transactions, much as Visa (NYSE: V) or Mastercard (NYSE: MA) do on transactions that cross their electronic payment networks.
However, like a traditional bank, certain PayPal and Venmo deposits do qualify for Federal Deposit Insurance Corp. (FDIC) protection known as pass-through insurance. This happens when PayPal or Venmo deposits funds on users’ behalf with three FDIC-insured banks — The Bancorp (NASDAQ: TBBK), Goldman Sachs (NYSE: GS), or Wells Fargo (NYSE: WFC). PayPal Debit Mastercard holders, users who have signed up for direct deposit into PayPal or Venmo, and cryptocurrency buyers using PayPal or Venmo qualify for this FDIC pass-through insurance. Cryptocurrency holdings and non-U.S. dollar balances do not qualify for FDIC pass-through insurance. This insurance offers no protection against the failure of PayPal or Venmo, however.
Block also earns most of its money from transaction fees. Block is a little different from PayPal, though, because it actually received a bank charter in 2021 when it bought a bank, now part of its Square Financial Services. On the Square merchant side of the business, Square Checking accounts are offered through Sutton Bank, a regional bank based in Ohio. Accounts are insured by the FDIC up to $250,000 per depositor.
On the Cash App consumer business, deposits are also eligible for FDIC pass-through insurance via Sutton Bank for customers that use the Cash App Cash Card (a Visa debit card). Again, any crypto or deposits made in anything other than U.S. dollars do not qualify for FDIC insurance.
Stop Chargebacks from Growing into a Monster
You might have opted for the most expedient payment solution when launching your business, maybe using an intermediary to handle credit card processing. While that decision may have made sense at the time, it can leave you less able to dispute chargebacks. Besides rolling back sales revenue, chargebacks can cost you administrative fees, fines and higher processing rates. Ultimately, having too many chargebacks can put your merchant account at risk or make it difficult to open an account in the future.
If you’re handling payments through an intermediary, you likely skipped the merchant underwriting process that helps ensure you’ve got solid return, cancellation and refund policies posted on your site. Those take some time and attention to create, but you’re going to need them when you’re disputing a chargeback.
You’re better positioned to fend off chargebacks by working with a merchant services provider that thoroughly knows your industry. The right provider should help vet your customer policies and check whether they meet market standards. And because timing can be critical in fighting chargebacks, you want to work with a partner that notifies you right away and can connect you to 24/7 dispute resolution services.
Give Customers Fewer Reasons to Dump their Carts
People abandon their online shopping carts for a lot of reasons, but two common situations can be the easiest to remedy: when customers want to use a payment method you don’t offer, or when they find your checkout process cumbersome.
To fix these issues, you have to be ready to accept payments in as many forms as you can imagine. Make sure you’re working with a payment processor that can accept not only a broad range of credit and debit cards, but also electronic checks and PayPal. Also streamline your checkout process; it’s especially important to let customers save their shipping and payment information for future transactions.
Working with a processor that has robust security and complies with the most up-to-date Payment Card Industry (PCI) standards will let you offer one-click purchasing with some assurance that you’re not putting customer information at risk.
Don’t Leave Overseas Business on the Table
Any company participating in the digital economy — and that’s every e-commerce company — needs to be ready to seize business opportunities globally. In a McKinsey Global Institute survey, 86 percent of tech-based startups reported some type of cross-border activity. “Even the smallest enterprises can be born global,” MGI says.
Building your business on a payment platform that will let you go global is something to think about now — even if you’re focused on local markets, global opportunities may come your way sooner than expected. Your ability to accept payments in other currencies or other countries is fundamental, and working with the right processing partner will help ensure that.
Beyond simply handling foreign payments, you may find yourself working through issues such as whether to set up shop in a specific local market, local payment preferences, interchange, tax provisions, compliance and banking relationships. Your payment service provider should be on top of all wrinkles related to multinational payments. Find out about volume-based pricing for economies of scale and how you can score the most favorable transaction fees. Look for clear, easy-to-understand reports on global transactions and advanced fraud management tools.
A fast-moving, “adapt-as-necessary” mentality is essential to growing companies. But when your payment infrastructure is robust early on, you’re less likely to get sidetracked by chargebacks, lack of payment choice or an inability to make global sales. Instead, you can focus on optimizing your customer experience and the product offers that will keep your e-commerce business growing.
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