Barclays has announced a new strategic partnership with PayPal in the UK and US that is designed to enable customers to manage and use respective accounts together with greater ease, for the first time.
It suggests a move with serious industry implications.
Commenting on the partnership in an announcement, Ashok Vaswani, Barclays UK CEO, said “Barclays is becoming a digital company and I believe this strategic partnership with PayPal will provide the first of many new developments in which we join up with partners to enhance digital journeys.”
But Vaswani’s words downplay how significant this partnership is.
It is a rarity to see two former payments rivals find mutual interest in collaboration.
The trends of the last five years - challengers, regulation and emerging technology - have all converged to have a significant impact on how the incumbent banks act, react and behave commercially.
“Our customers and clients live in an increasingly connected world and this is why we are working with PayPal to make services more joined up and convenient for them.” says Vaswani.
Certainly, on the face of it, the potential retail interest in providing the convenience of syncing PayPal and Barclays accounts to the benefit of millions of users seems obvious enough for this partnership. So too are the new connections, the new digital channels and the ability to redeem Barclays rewards via PayPal. Likewise, SMEs can use Barclays SmartBusiness Dashboard to view PayPal and their Barclays account simultaneously.
All incredibly useful for the customer, but still this partnership goes beyond competing with customer-friendly challengers and similarly beyond Open Banking.
The fintech ‘revolution’, beginning back in 2010 to 2018 and showing no signs of abating for at least another five years, has seen a dichotomy between challengers and regulators on the one hand, and the incumbents on the other. Basel, Solvency, PSD2, Open Banking and a whole litany of legislation have all forced active change in the habits and behaviours of CMA9.
So too have the challengers forced proactive change, where banks have either adopted new approaches or upped their game. The likes of Monzo, Starling and Fidor have all spotted a gap in the market and filled it with their customer/client-centric approach kitted out in the latest agile technology, largely enabled by the crossovers with consumer and business tech (IBM, Amazon, Apple, Google etc.).
It’s the reason PayPal, Stripe and Revolut are where they are, offering a payments service that far surpassed their contemporary competition's offerings; quick, easy and convenient - customer and product oriented. In the order above, these companies have etched out a significant market, partnering with merchants, retailers, corporates (to a lesser extent) and the entire payments supply chain.
“Our partner relationships in the U.S. and across the globe continue to grow and flourish. As the digital economy gathers speed, we are excited to provide new and innovative capabilities to better serve our consumer and merchant customers," said Dan Schulman, President and CEO of PayPal, in their 2018 Q1 report.
This recent partnership with Barclays is an addition to a long line of partners, including Bank of America, JP Morgan Chase, Visa and HSBC, and certainly grants PayPal the title of ‘fintech giant’. Once dubbed one of the ten worst business ideas in 1999, PayPal has gone on to dominate the total payments volume, some $132 billion according to PayPal's 2018 Q1 report.
When a banking giant meets a fintech giant, it is a genuine and clear change in behaviour from Barclays to partner with a former rival. According to a Barclays spokesperson, it is a board-down acknowledgement that the companies that succeed in the long-term are those who find the right partners to deliver the products and services that best meets their customers’ needs.
While Barclays’ Accelerator and their new UK Ventures may already be nurturing the ‘next PayPal’, PayPal’s services will provide immediate scale. The same spokesperson says that at Barclays they know where their strengths lie, and they know where PayPal’s strengths lie, and they further know that lowering the proverbial drawbridge will benefit them more than resisting collaboration.
With a global payment market worth $1.8 trillion besieged by the triple A tech giants – Amazon, Apple and Alibaba – this partnership play by Barclays is a clear understanding that it needs an ally that can straddle the fin-tech divide and keep banking and payments firmly close, even if that ally was a former challenger once upon a time.
It is here where Barclays goes beyond the legislative ‘Open Banking’, shedding the go-it-alone attitude to financial innovation, towards the philosophical tendencies of ‘Open Innovation’.