PayPal is interested in developing a stock trading platform, according to a report from CNBC that cites anonymous sources at the company. The move would make PayPal a direct competitor of Robinhood, a stock trading app that’s helped create a surge in retail investing but is coming under increased scrutiny from the Securities and Exchange Commission.
CNBC reports that PayPal recently hired Rich Hagen, a brokerage industry big-shot, for a new division called Invest at PayPal — a fact confirmed by Hagen’s LinkedIn page. Hagen co-founded TradeKing, an automated investing platform that was sold to Ally Invest for $US275 ($377) million.
Hagen’s LinkedIn describes his job as, “Leading PayPal’s efforts to explore opportunities in the consumer investment business.” As CNBC points out, at least 10 million Americans have started trading stock for the first time in the first half of this year.
When reached for comment, PayPal pointed CNBC to CEO Dan Schulman’s comments at the company’s investor day in February, when he spoke about the long-term vision for the company and how it may include many more financial services, including “investment capabilities.”
That’s obviously not a denial, but it doesn’t give a us a timeline for PayPal’s desires in the space of retail investing. And that space could get much muddier in the coming weeks in months following comment on Monday by the head of the SEC, Gary Gensler, who expressed an interest in cracking down on the business model free stock trading apps like Robinhood depend on.
Gensler told Barron’s that he’s looking at potentially banning what’s called “payment for order flow,” a completely legal practice on Wall Street that amounts to a kickback for information. The practice is banned in the UK and Canada.
From a new report in the the New York Times on Monday:
Mr. Gensler told Barron’s that the practice has “an inherent conflict of interest” because the firms that execute the trades can benefit from that information.
“They get the data, they get the first look, they get to match off buyers and sellers out of that order flow,” he said.
Over the past several months, Mr. Gensler has made a series of statements saying he was closely examining the practice and was open to a wide range of regulatory options. He ordered the agency to look into the matter shortly after he was confirmed; the review is still ongoing.
PayPal’s interest in allowing average users to trade stocks seems very real, but obviously the SEC could throw a wrench in the company’s business model if PayPal wanted to purse payment for order flow. But that’s not the only way to make money in retail investing, it’s just the most popular at the moment.