Money Transfer Services No Longer Reserved For Tech-Savvy Millennials
Online money transfer services were mostly reserved for young tech-savvy millennials, but that is no longer the case due to the global COVID-19 pandemic.
Paypal’s chief financial officer John Rainey may have caught the investment community off guard during a recent industry conference. The executive said at the J.P. Morgan Global Technology, Media and Communications Conference in early May, and saw a surge in demand from people over 50.
If older folks are using Paypal, it would be reasonable to assume they are (or should be) evaluating a selection of mobile apps available.
1. Physical Retail Shuts Their Doors
Older people tend to avoid change, primarily when it consists of embracing new technologies. When it comes to transferring money for personal or business reasons, they are more likely to pay a visit to their bank’s branch or make use of a physical money transfer business like Western Union.
In either scenario, there will be a helpful clerk guiding them through the transaction.
The COVID-19 pandemic forced many bank branches and retail money transfer services to shut their doors to help slow the virus’ spread.
Even if a physical store remained open, those older than 50 years old were encouraged to stay home because of their higher risk of getting seriously ill from the virus.
Online alternatives for older people quickly become a new fact of life, whether they liked it.
2. PayPal Is An Industry Giant
PayPal traces its roots to its early days as the exclusive payment processor for the online auction site eBay. Fast forward to 2020, and PayPal is now an independent company worth north of $180 billion.
PayPal recorded revenue of $17.77 billion for the full year 2019, up 15% from the prior year. The company added 37.3 million net new active accounts, bringing its total active accounts to 305 million that combined for 12.4 billion transactions and $712 billion in total payment volume.
PayPal owns several money transfer platforms, including a mostly-millennial focused service called Venmo that doubles as a quasi-social media platform.
According to an AARP survey, 70% of people younger than 50 used PayPal versus 50% for those aged 50 and above. Another 33% of young people use Venmo versus just 9% for those aged above 50.
3. PayPal: ‘More Important And Relevant Than Ever Before’
PayPal President and CEO Dan Schulman said in its first-quarter earnings report in early May the money transfer service platform are “more important and relevant than ever before.”
Throughout April, net new account activations totaled 7.4 million, which was almost twice the rate of growth seen in March. For the full quarter, a whopping 10 million organic net new account activations were observed.
Just days after the strong earnings report, PayPal’s Rainey explained at the industry conference people aged 50 and above began flocking online to conduct their regular business.
The executive said older people used PayPal’s platform to transfer money to friends and family, and their purchase size was more significant compared to young people.
And this makes sense. Parents or grandparents in one part of the world could be using PayPal to send money to their children living in another region. Some of the young folks may have lost their jobs and needed help paying the rent.
The news is particularly crucial for PayPal investors as the new demographic group could be sticking around for some time.
“We think that these are some sustainable trends in our business,” Rainey said.
4. Market Is Big Enough For Everyone
The money transfer universe is certainly large enough for many companies to take full advantage of new demand from older customers. Typically, older folks are wiser at making decisions that save them money.
A bit of research would point to the conclusion that PayPal is far from the cheapest option available, especially when transferring funds internationally.
Some money transfer platforms offer a foreign exchange margin rate as low as 0.15% and up to 0.5%. By comparison, PayPal’s cost to the customer for converting one currency to another can be up to 4%.
Older people are encouraged to spend time first to figure out their direct needs. Perhaps the most crucial factor to consider is the level of customer service.
Older people are understandably less likely to want to figure out how to use financial technology (fintech) platforms for the first time.
As such, some online money transfer businesses are known to offer a higher level of customer service for people that need extra help — but this will likely come with a slightly higher final cost.
Money transfer services that operate exclusively through an application on a phone or tablet are also more likely to be overlooked by the generation that insists their flip phone from the early 2000s still suits their needs. Lucky for them, there is a wide array of companies that don’t even support a mobile app.
5. Bottom Line: Seniors Are Attractive Clients
The older and mature market tends to be more productive than millennials, so it shouldn’t surprise anyone if they pivot their marketing strategies or introduce new features geared towards winning over the mostly more productive and lucrative client group.
Whether these new clients are flocking towards PayPal or other platforms, there is little doubt the COVID-19 pandemic will change the dynamics of the online money transfer business.
This change shouldn’t be perceived as bad, and rather good for the industry as it further validates the importance of fintech in making everyone’s lives more convenient.