PayPal's Schulman: Payments & Banking Consolidation Ahead

It’s 2034. Many of the ways you think about retail banking and payments today no longer exist.

Plastic cards for credit and debit? Extinct. Coins and paper currency? Relics for museums. Banking and payments will have melted into each other, as the longstanding promise of in-the-moment financial management has become a practical reality.

Ten years from now, the organization you currently work for — bank or credit union or fintech — may no longer have direct connections to consumers. (If the organization still exists, that is.) The fragmented financial relationships many Americans navigate today will be consolidated and centralized — simply because it all works better that way.

This is the vision of Dan Schulman, who retired as president and CEO of PayPal in September 2023. “There’s going to be more change in the financial services industry over the next 10 years than there has been in the last 30 to 40.”

Dan Schulman will be a keynote speaker at The Financial Brand Forum 2024, May 20-22 in Las Vegas, part of the Forum’s CEO Leadership Summit. Schulman will discuss emerging global trends in financial services, business and technology, and how these impact the unique challenges and opportunities facing the financial industry today. See the Forum website for more info on his session, and details on the full program. See you there!

Schulman Forecasts a Frictionless Financial Future

Schulman, who has spent his career in fintech and mobile digital services, is more qualified than most to predict what banking and payments will look like in a decade. “It will all be digital. It’s unlikely we’ll have plastic as a form factor. It will all be done via your phone. We’ll need to take the friction out of that — but we will, via biometrics.”

Schulman says instruments of credit and debit will still exist, but they will underlie what consumers see on their devices, mostly embedded within solutions. People won’t be thinking about their affairs on an account-by-account level much anymore.

Even “money” will be different — replaced or augmented with central bank digital currencies, stablecoins and other digital representations of dollars, euros, what have you.

In short, digital devices will become the “banker on your shoulder” (or in your pocket) within a decade “if you’re doing AI the right way.”

AI in the device presents options and ideas and “discuss” them with the consumer when a purchase is being made, for example. Optimization at the time of purchase will be the goal.

Schulman says the AI might say, “Right now, you should use your credit instrument because you don’t have enough cash in your banking account. But you’re going to be getting a payment soon. If you really want this, you can buy it with your credit account and you’ll get rewards points. And, by the way, it’s double points this month.”

The AI could bring up other possibilities as well, to present alternatives, detailing alternative outcomes. A buy now, pay later capability might be offered instead of a credit line, for example. When the installments come due, the AI might suggest variations, paying off from debit, from credit or other resources, such as points.

“Or I might want to hit my ‘snooze alarm’ and pay 30 days later,” says Schulman. “The range of options will multiply quite a bit. You might not be able to do this today, with separate physical ‘worlds,’ but you can do it through software. We have to be able to harness AI models to help consumers decide what their next best choice is.”

Read more about experts who will speak at The Financial Brand Forum 2024:

Massive Consolidation of Consumer Financial Relationships is Coming

Today’s banking industry, plus big techs, fintechs and payment companies, provides Americans with a wide range of choice. But the future price for a system like Schulman describes will be major consolidation of providers.

“Scale really matters,” Schulman explains. “If you think about the era of AI, models are your weapons. Data is your ammunition. The more data you have, the more powerful those models can be, the more powerful your value proposition can be.”

Developments like the proposed acquisition of Discover Financial Services by Capital One will spur more thinking along lines that larger players are already mulling – and accelerate a debate of what financial companies want to be and how they will do it.

“How many pieces of the ecosystem do you want on your platform? Do you want to be exclusively a merchant acquirer? Do you want to be a digital wallet and focused on consumers? Do you want to create the network in-between?” are all on the list, Schulman says. Some will spin functions off, some will create bigger financial conglomerates.

But the emphasis on scale will ultimately drive substantial consolidation of customer relationships onto single platforms. For consumers, it will simply be more convenient.

Schulman doesn’t necessarily mean that ownership will always be consolidated. His point is more subtle. The platform operators won’t necessarily be building or running everything.

“A good platform with application programming interfaces (APIs) that connect into it, that can ingest functionality from other companies, can present it to consumers in a seamless way,” says Schulman. “So, you’re not bouncing from this company into this company, entering separate IDs and passwords again, that kind of thing.”

Schulman believes large, established players will run the platforms, among them JPMorgan Chase, Apple, Microsoft, and, naturally, PayPal.

Other providers will take part, to the extent they can, by supplying services that fill in layers in the infrastructure of the platforms the larger companies provide.

Start reading our five-part series about the future of banking: Banking 2030, Part 1: The New Realities of Banking

It’s Not Just Technology that Hangs on Provider Size and Scale

Schulman’s emphasis on size isn’t just a matter of scale, but also trust. A corollary, in his mind, to consumers consolidating relationships is that platforms will have to be large enough and have strong enough reputations to earn consumer trust. Ultimately, he thinks five to 10 companies will be able to meet both prerequisites.

For Schulman “trust” is more than a buzzword. The more financial services become strictly digital, the more of consumers’ lives will be exposed to risk.

“Brands that people will trust are going to have to have some scale to be able to offer real technical prowess,” he says. “Trust will be about availability, security and privacy.Inevitably, that means big, meaningful, important companies that will combine the best of both the fintech world and the traditional financial services world.”