eBay Inc (EBAY) Might Be Planning Something Big: Capital One Financial Corp. (COF), Charles Schwab Corp (SCHW)

A recent article from PCMag caught my eye because of the ramifications it could have for the banking industry. Having worked in the industry for over 10 years, I can tell you first hand, the only constant in banking is change. eBay Inc (NASDAQ:EBAY) just struck an alliance that suggests the company has bigger plans for its PayPal unit than the market might realize. In fact, if the company were to expand this relationship, traditional banks might need to sit up and take notice.

This Isn’t A Huge Deal, Or Is It?

eBay Inc (EBAY)

The article I saw from PCMag detailed a partnership between PayPal and Coinstar, Inc. (NASDAQ:CSTR), where customers would have PayPal functionality at Coinstar machines. Admittedly this partnership is still in the testing phases, but the potential is huge. Customers in Texas, Northern California and Ohio have the ability to deposit, transfer, or withdraw funds from their PayPal account at the local Coinstar machine.

The initial results were positive. In the, “test in Dallas, 40% of kiosk users who took advantage of the feature went back to use PayPal on the kiosk an average of two times a month.” While customers are limited to adding $500 a month to their PayPal account currently, this has the potential to be a much bigger deal.

What I’m suggesting is, what if this test functionality is the beginning of a PayPal bank?

Unconventional Banking Is Becoming More Common
I’ve made the argument in the past, that eBay Inc (NASDAQ:EBAY) needs to consider separating the eBay and PayPal divisions to let the market more appropriately value the PayPal business. If the company were to consider a bank type offering, this split would be all but guaranteed. Given that PayPal is seeing user growth of between 12% and 15% over the last year, this increase dwarfs the type of new account growth traditional banks are seeing. Using Coinstar as a way to gain access to customers sounds like a brilliant idea that would benefit both PayPal and Coinstar.

Keep in mind, customers aren’t just banking with brick and mortar institutions anymore. The Charles Schwab Corp (NYSE:SCHW) said they added 844,000 new bank accounts in their last quarter alone. The brokerage realizes what banks have known for years, checking accounts are both profitable and a cheap source of funds. With Charles Schwab Corp (NYSE:SCHW) seeing a 28% increase in assets to $75 billion, this is no small offering itself. The company has gained these accounts by offering fee-free ATM usage, and by leveraging their existing brokerage relationships.

Traditional banks like Capital One Financial Corp. (NYSE:COF) have realized they need these profitable online accounts as well. The credit card heavyweight bought ING assets that increased their total deposits by 66% on a year-over-year basis. Capital One Financial Corp. (NYSE:COF) now can offer online checking, savings, and brokerage accounts to their millions of credit card faithful. Since the company’s cost of funds on these accounts is just 0.72%, it makes good business sense for their high-interest credit card portfolio.

By comparison, traditional banks like Bank of America Corp (NYSE:BAC) would seem to be the most at risk. In the last quarter, Bank of America saw deposit growth of just 2%. Though the bank has over 5,500 banking centers, the advent of direct deposit, ATMs, and checkcards is making the traditional branch less relevant.