PayPal announced it is launching a debit card in the U.K. tied to PayPal business accounts in partnership with Mastercard. Although that might not be earth-shattering news, it is a very competitive product with low fees and cashback on every purchase that will likely get noticed. The cash back rewards is aggressive in a region with low, regulated interchange:
Mastercard is the most widely accepted card in the world, meaning PayPal’s UK business customers can now spend money held in their PayPal account at over 45 million Mastercard acceptance locations worldwide. The new card has no monthly fees and offers uncapped 0.5% cash back on every pound spent. There are no foreign exchange fees and a flat ATM withdrawal charge of just £1 worldwide.
“Nicola Longfield, Senior Director, Small and Medium Business at PayPal UK, said: ‘The new PayPal Business Debit card is the latest example of how the support we offer our small business customers extends far beyond processing payments. It gives small business owners a fast, easy way to use the money in their PayPal account both online and in person, wherever they are in the world.”
A similar product has been available for businesses in the U.S. for some time. In the U.S., the card offers 1% cash back. Since the U.S. issuer is Bancorp Bank, an exempt financial institution, PayPal is earning full interchange which can support a cashback rewards program. When looking at the disclosures for the U.S. program, you will find that PayPal will only provide cash back for Mastercard processed transactions:
“Transactions eligible for 1% cash back include: credit transactions which you sign for and which are processed via Mastercard; online transactions processed via Mastercard; and phone transactions processed via Mastercard. Transactions that are not eligible for cash back include, but are not limited to: purchases processed via a debit network (including PIN-less debit transactions); cash withdrawals and cash advances.”
With these caveats, PayPal is able to control its cash back expenses, but at the same time, it must frustrate users, as they have no influence with most merchants over how a transaction is processed.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group