PayPal now a bank

PayPal has sent an email to all its UK subscribers announcing that it will now be considered a bank. The message reads:

“Currently, PayPal (Europe) Ltd. is the service provider for PayPal in the EU. PayPal (Europe) Ltd. is a UK company regulated and authorised by the Financial Services Authority (FSA) in the UK as an electronic money institution. This authorisation enables PayPal to provide its service throughout the EU. From 2 July 2007, a new PayPal company, PayPal (Europe) S.à r.l. & Cie, S.C.A. (PayPal Luxembourg), will become the service provider for PayPal in the EU. This is a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA. PayPal Luxembourg will provide the PayPal service throughout the EU.”

As it says, PayPal used to be an Electronic Money Institution regulated in the UK, but it will now be a full financial institution in Luxembourg (i.e a bank). This piece of news was particularly welcomed by Lilian Edwards and yours truly. Former students and the few people who have read our musings on the subject may recall that I have always claimed that PayPal behaved like a bank, and that it should be regulated as one. One of the small perks of academic life is being able to say “I was right all along!” (followed by the small voice inside of you saying “who cares?”, but I digress).

For those who wonder about the causes for this move, according to the Telegraph it has been prompted by fears of competition from Google Checkout, the new payment systems from, guess who? Google. It is an interesting move. PayPal will have to comply with more stringent regulation, as financial institutions are scrutinised more closely. It seems clear to me that whatever commercial reasons, the user is the winner, as there is now more certainty about PayPal’s European operations.

(via Lilian Edwards)

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