PayPal becomes a Bank, no longer under FSA

PayPal announced this morning they are to become a bank headquartered in Luxembourg known as PayPal Europe SÃ rl & Cie, SCA (PayPal Luxembourg). All European PayPal accounts will be transferred to the new Bank on 2nd July.

The Bank of PayPal should gain a huge boost in momentum against their nearest competitors which in the UK are Nochex and more recently Google Checkout. Nochex has remained a smaller player, although popular – Checkout is merely a “Checkout flow for existing payment methods”. The irony is in the near future it could be possible to click through Google Checkout with your PayPal bank card – it’s already possible to use Google Checkout with your PayPal credit card (although it’s an affiliate card though GE Capital Bank Limited). Many larger retailers don’t accept PayPal services but the change from an electronic money issuer to a banking institution could make them a more attractive proposition.

The change also means that they’ll no longer be regulated by the FSA but will be regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA.

It remains to be seen which services will be affected by the changes. The despised ten day clearing time for eCheques should clear more promptly. PayPal Website Payments Pro (very similar to a full merchant account) may become more attractive to large retailers. PayPal will also have more flexibility to introduce new features such as debit cards allowing you to spend funds held in your PayPal account.

You can find more information on the PayPal website.