It communicates a lot about Paypal’s second quarter results, which saw the virtual invoice provider succeed in a record net sales of $5.3 billion thanks to the change to online spending for many consumers. In addition, the company recently announced the launch of the Paypal QR code so that everything that is old is new. This “new” product comes five years after the company acquired Paydiant, which stands out for the use of QR codes for point-of-sale transactions. There is another new PayPal product that has been released discreetly and that also reminds you of the past. It turns out that Paypal is flirting with virtual cards with a new product called ‘Paypal Key’.
According to the Paypal support site, “PayPal Key is a virtual card and a new way to use your PayPal account anywhere cards are accepted online. You can use PayPal Key like a card at any online merchant that accepts Mastercard – even those that don’t have a PayPal button.” For many users, this will remind them of the virtual cards offered by companies like Bank of America, Capital One, or others the allow a customer to create a single use digital card to be provided to websites that you simply don’t want to have your real card information. The idea is far from novel, and in fact Paypal themselves offered the product in the mid-2000s. However, what is interesting about the product is how some have suggested it be used.
On the Credit Physicians travel praise site, we can see for the first time how the product can also be used to “pirate” credit card praise systems that allow consumers to specify an online spending praise category. The writer suggests that a user may also generate a Paypal key number to necessarily allow the use of a Paypal account on an online page that does not allow Paypal and, therefore, capture the praise of the Paypal category for more non-unusual purchases. For example, Discover introduced a 5% praise category in Paypal transactions overdue last year, and other major credit card providers would likely offer similar promotions in the fourth quarter of this year. In this scenario, the user can create a Paypal virtual key number and use it on all purchases to generate expenses in that category and maximize praise. In addition, the user would also get the problems on the underlying credit card used in their Paypal account and necessarily a double dive. This probably doesn’t exploit the trading style of a giant bank, but it presents an attractive way of playing with the system.
Even more interesting is how Paypal could potentially be used at a physical Point of Sale (POS) by adding the Paypal Key number to Google Pay. Paypal does confirm on their own support site that the feature works with Google (and not Apple Pay or Samsung Pay), but it is still unknown if that is only for online purchases or if a physical POS purchase would be possible. If supported, this could be an additional piece of how Paypal plans to eventually target physical POS acceptance once again. By using the virtual card number in a digital wallet and then handling the account routing on the back-end, Paypal does not need special point of sale integration to enable their users to make purchases at physical point of sale. In addition to the recently announced QR codes that will likely work on Apple devices, a Paypal virtual card number in a Google wallet would further distribute the ability for a Paypal account to be used at physical point of sale.
The new feature of the Paypal Key product that deserves to stand out does not seem revolutionary at first glance, but the implications are broad. In addition to allowing a user to attach their new Paypal virtual account number to other Mastercard or Visa cards in their Paypal wallet, the user can also use the virtual number to log in as an American Express or Discover card to the Paypal account. The ultimate direct involvement of this is that Paypal will likely lose the maximum cash on Paypal Key transactions when they have to pay a larger exchange to American Express than they will get in their virtual Mastercard number. This becomes even more attractive if you notice the decoupling of the payment method presented to the merchant, in this case, a virtual number issued through Mastercard, of the payment method used. Current usage instances allow other cards, but what happens when the actual account the user has logged into their Paypal account is an existing account? Or is it Paypal credit?
This is the exact type of habit that caused Paypal to cease to be unpleasant for card networks and banks years ago and in the end forced PayPal to accept not inspiring consumers to link their bank accounts to their Paypal wallets. Whether or not connected bank accounts remain a key feature of Paypal and allow the company to obtain a source of exchange revenue in transactions that it can make to the industry with less expensive transaction prices, such as ACH movement fees or Paypal’s internal credit offering. Paypal trains with caution on this domain to avoid interrupting card networks again.
The one question that remains is why has Paypal seemingly rolled out this feature without any publication or fanfare? Perhaps the payment nerd in me is taking 1o years of payment history with the likes of Paydiant, Paypal, Apple, and the card networks and reading way too much into a simple virtual card creation product. If that is the case, then thanks for joining me on this journey down memory lane. If I am right, and there is more to Paypal Key than perhaps Paypal is ready to show, then watch this space.
I am the Chief Strategy Officer and Head of Payments at Levvel, a consulting firm based in Charlotte, NC. I am also an ex-banker who spent 15 years working at the large
I am the Chief Strategy Officer and Head of Payments at Levvel, a consulting firm based in Charlotte, NC. I am also an ex-banker who spent 15 years working at the large banks before breaking free to pursue a desire to make a more direct impact. The result has been five years of working across the financial services ecosystem with top banks, tech companies, retailers, and startups to leverage technology to drive their business forward. I also hold a number of payment related patents, was voted one of the top “40 Under 40” by both the ETA and the Charlotte Business Journal, am a frequent speaker on digital wallets and payments, and play an active role in fostering a Fintech culture in the Charlotte community. I believe technology will transform the world, and I am working to help ensure that change is for good.