Inclusive Economy | March 24, 2016

PayPal Enlists Village Capital to Bring ‘New Money’ to the Global Unbanked

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Dan Schulman, the CEO of PayPal, is on a mission to extend digital payments to the 2.5 billion unbanked people around the world. He is enlisting Village Capital, the scrappy business accelerator and venture capital firm, to help find local companies that can help.

PayPal and Village Capital will support roughly 40 financial technology entrepreneurs who are using technology and new business models to expand banking services to people with little or no access to financial services. Together, the firms will run three business accelerator programs this year in Mexico, India, and the United States.

Village Capital will recruit a dozen or so companies per program to participate in its focused business development workshops. At the end of the sessions, the entrepreneurs themselves rate each other and Village Capital’s affiliated for-profit investment fund, VilCap Investments, invests in the two top-ranked companies in each program.

[blockquote author=”Ross Baird, Village Capital” pull=”pullleft”]They’re playing for keeps in financial inclusion. [/blockquote]

PayPal employees will share technical expertise and mentorship with the entrepreneurs. The partnership will also expose the firm to innovators in three of its key markets. PayPal has acquired 11 fintech companies since 2008.

“The digitization of money, the rapid proliferation of Internet access and mobile phones have created the perfect conditions to make it easier and cheaper to save, spend, give, and borrow,” Schulman says.

The move is part of a broader effort at PayPal under Schulman to expand the financial pie, so to speak, to the 2.5 billion people outside of the global banking system. All three countries have a need for more affordable banking services. After years of progress, roughly 223 million of India’s 1.2 billion people remain unbanked. In Mexico, a smaller country but still home to 120 million, 75 million still have no access to financial services. Village Capital’s Mexico fintech program is currently underway.

Even in the U.S., nearly 100 million people, or 30 percent of the population, are un- or under-banked.

“For a very long time banks and other financial services firms were competing for share among the top 10 percent of the population. The cost of their infrastructure is high,” said Ross Baird, Village Capital’s founder and executive director, “The digital transformation presents a new paradigm.”

Democratizing Entrepreneurship

This isn’t the first Village Capital program PayPal will back. The two joined up for fintech accelerator programs in the U.S. and India last year.

Village Capital runs venture development programs in cities like New Orleans, Nairobi and São Paulo, outside of traditional startup hubs like Silicon Valley. It targets sectors overlooked by mainstream venture capital including education, water and agriculture. It recruits racially, gender and geographically diverse entrepreneurs not used to receiving investment — but that are likely to understand the problems facing their communities.

“The Village Capital approach helps to propel innovators, builds their capabilities, and gives them the additional tools and networks they need to develop and scale their ideas and impact,” says Franz Paasche, a vice president of corporate affairs at PayPal. “From day one, we’ve been impressed and inspired by the entrepreneurs Village Capital has identified.”

PayPal has not yet invested in any of Village Capital’s startups, however.

“We follow the progress of all the participating ventures after they graduate from the Village Capital program and we’ve been impressed by what many of them have gone on to achieve, including raising additional investment capital,” Paasche says. “Expanding our relationship with Village Capital globally is a natural extension of Dan’s and PayPal’s vision.”

Transforming Banking 

Since he arrived at PayPal in 2014 as part of the firm’s spinoff from eBay, Schulman has promoted PayPal’s opportunity and responsibility to use its tech platform and scale to bring more people in the financial system. The $50 billion digital payments giant was founded by tech titans Peter Thiel and Elon Musk, among others.

Earlier, Schulman helped American Express push into mobile and online payments internationally. He famously spent 24 hours on the streets of New York City to learn about more the lives of homeless youth so that Virgin Mobile — a company he founded — could better support a nonprofit that serves kids without a home.

More recently he spent a week using only “alternative financial services,” the check cashing and wireless transfer services used by many working poor in the U.S. He says he learned the “true cost of money” for those without a bank account. “Accessing my own money became a part-time job,” he said.

When PayPal launched its first brand campaign since the spinoff from eBay at this year’s Super Bowl, Schulman told the Wall Street Journal that the ad’s message is that “technology can play a tremendous role in reaching the billions of people around the world that are outside the financial system.”

The upbeat New Money ad featured a series of moving images contrasting old money — paper money, stodgy bank-tellers and banks that close at 5pm — to new money — mobile phones, urban clientele and customers of all ages and colors making payments on the move.

Since its launch in 2009 Village Capital has run 40 programs. It has invested in 62 companies that have gone on to raise more than $140 million in follow-on funding and create over 8,800 jobs. More than 35 percent of Village Capital’s investments have gone to women founders (in contrast, women led just three percent of US venture-backed companies between 2011 and 2013).

Of PayPal, Baird says, “They’re playing for keeps in financial inclusion.”