Much has been said about the Paypal second quarter results which saw the digital payments provider achieve a record $5.3 billion in net revenues thanks to the shift to online spending for many consumers. Additionally, the company recently announced the roll-out of the Paypal QR Code in an attempt to prove everything old is new again. This “new” product comes 5 years after the company acquired Paydiant, which was famous for their use of QR codes for point of sale transactions. There is one additional new product from PayPal that has been quietly released, and it also points back to the past. It seems Paypal is once again 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 travel reward site Doctors of Credit, we can get our first glimpse of how the product could be used to ‘hack’ the credit card reward systems that allow customers to specify an online spending reward category. The author suggest that a user could generate a Paypal Key number to essentially allow the use of a Paypal account on a website that doesn’t allow Paypal and therefore capture the Paypal category reward for more common purchases. For example, Discover ran a 5% reward category on Paypal transactions late last year, and other major credit card providers could be looking to run similar promotions in the fourth quarter of this year. In this scenario, the user could create a Paypal Key virtual number and use it across all purchases to drive spend to that category and max out the reward. Additionally, the user would also get the points on the underlying credit card being used within their Paypal account and essentially double dip. This isn’t likely to blow up the business model of any major bank, but it does present an interesting way to game the system.
It is even more attractive to know how Paypal can be used in a physical output (POS) by adding the Paypal key number to Google Pay. Paypal confirms on its own site that feature paintings with Google (not Apple Pay or Samsung Pay), it is not yet clear whether it only applies to online acquisitions or whether a physical acquisition would be possible at the point of sale. If edited, this may be just an additional detail of how Paypal plans to reorient physical acceptance of points of sale. By using the virtual card number in a virtual wallet and then managing account routing on the back end, Paypal does not want a point-of-sale-specific integration that allows its users to make acquisitions at the physical point of sale. In addition to the newly announced QR codes that will likely be painted on Apple devices, a Paypal virtual card number in a Google wallet would additionally distribute the option to use a Paypal account at the 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 only question left is why Paypal implemented this feature without any post or fanfare. Maybe the nerd of the invoices I carry inside me has 1st year of payment history with Paydiant, Paypal, Apple and card networks and is read too much on an undeniable virtual card creation product. If so, sign up for this adventure in the past. If I’m right, and Paypal Key has more than Paypal is willing to show, then take a look at this space.
I am Director of Strategy and Head of Payments at Levvel, a consulting firm in Charlotte, North Carolina. I’m also a former banker who’s spent 15 years running in the big
I am Director of Strategy and Head of Payments at Levvel, a consulting firm founded in Charlotte, North Carolina. I’m also a former banker who spent 15 years running in the big banks before releasing me to pursue a preference to have a more direct impact. The result has been five years of operation in the ecosystem of monetary facilities with banks, generation companies, stores and new companies more productive to take advantage of generation to advance their businesses. I also own a number of patents related to payments, I have been voted one of the “40 under 40s” through ETA and the Charlotte Business Journal, I am a common speaker in wallets and virtual invoices and played an active role in selling a cultural financial technology in the Charlotte community. I will reshape the global and I’m running to help ensure that the replacement is forever.