With Stock Trading, Would PayPal Beat Robinhood at its Own Game?

PayPal is reportedly discussing plans to enter the stock market, offering users the ability to buy and sell publicly traded shares listed on the US stock market. Considering the corporation’s sheer size and name recognition, this has the potential to seriously shake up the US stock trading space.

PayPal’s Stock Trading Plans Explained

Sources close to PayPal have highlighted the corporation’s interest in stocks, and while nothing is finalized just yet, the rumors have already had a positive effect on PayPal’s own value. This response from investors is a notable sign of support from the financial world.

However, the retail stock trading industry can be tough to break into, with many other platforms having cemented their position in recent years. If PayPal is to enter the market, it will be fighting against the likes of several popular stock apps such as Robinhood, E*Trade, Fidelity, and even Chinese competitors who jumped into the US market earlier in the year.

The news has, nevertheless, sent shockwaves through the industry, as Robinhood’s stock fell by 7%+ after this was revealed. PayPal’s news was also coupled with SEC Chief Gary Gensler recently discussing a ban on payment for order flow, which is Robinhood’s primary model of revenue generation. All of this could spell trouble, especially considering Robinhood’s poor reputation, and the fact that it has struggled to turned a profit this year.

This could also stop Robinhood from becoming a so-called “single money app”, as their CEO Vlad Tenev described in a recent interview:

“Over time, we want to be the single money app, the most trusted and most culturally relevant money app worldwide. So, everything that you use your money for, you should be able to do through Robinhood…

Anytime you receive a paycheck direct deposit, we’d like you to do that through Robinhood. Your emergency fund, your bill pay, your day-to-day spending, we’d like for customers to use us for that. And of course, all types of investing ranging from more discretionary investing to long-term retirement savings as well.”

PayPal has already partially derailed Tenev’s plans by offering crypto trading solutions, and if it steps into stock trading, then it is sure to diminish some of Robinhood’s userbase. PayPal largely has a positive reputation, though it clearly lacks in some areas according to customer reviews.

Is There Room for PayPal in the US Stock Market?

It is worth questioning what the retail side of stock trading would look like if PayPal were to begin offering this capability. Despite the industry being saturated and rife with competition, it is fair to say there is still no single market leader for retail stock trading. There are many different brokerages available, with each broker appealing to a specific group investors.

For example, the average account size on Robinhood is $3,500. With Interactive Brokers, that number increases to $250,000.

This means it is certainly possible for PayPal to take the reins and become the first port of call for those who are looking to get into the market. CNBC’s report notes PayPal may be teaming up with another company to offer this capability– though no specific identities have yet to be released.

While the corporation has never offered this to their customers before, they recently hired a former trading veteran, Richard J. Hagen Jr, as the CEO of a newly formed division named Invest at PayPal. Before working there, he was the President of the trading company Ally Invest, VP of retail brokerage at Folio Investing, and a stockbroker at TD Waterhouse. Needless to say, it appears as though this hire was of strategic importance and conducive to the active rumors.

Considering PayPal’s positive response through its increase in stock price and the lack of any clear market leader in terms of a one-stop-shop personal finance app, it certainly seems possible for the form to have a large impact on the industry. And with the hire of Richard J. Hagen Jr, they certainly appear to be positioning themselves for this type of move. If so, the question then will be whether competitors such as Robinhood, SoFi, and others can even keep up.

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Do you think PayPal will offer stock trading? Let us know in the comments below.