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Why PayPal Is Teaming Up with Acorns

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PayPal partners with Acorns

PayPal (PYPL) recently announced the integration of its platform with Acorns Grow, a mobile app that provides automated savings and investment services that mainly target Millennials. The integration will allow PayPal users to link their accounts with the Acorns app so they can automatically save and invest through the Acorns app whenever they make a purchase using PayPal.

Acorns provides what’s called robo-advisor services. Subscribers link their debit/credit cards or digital wallets to the Acorns app and whenever they make a purchase, the app rounds up their spending to the nearest dollar and then invests the change.

PayPal closed 3Q17 with 218 million active customer accounts with the vast majority of the accounts belonging to consumers. PayPal processes payments for eBay (EBAY) shoppers who could benefit from the partnership with Acorns. The rollout of the PayPal-Acorns integration will begin in the US (SPY).

$220 billion worth of assets under management

Robo-advisors such as Acorns and Betterment are expected to have $385 billion worth of assets under investment by 2021, up from $220 billion by the end of this year, according to financial research firm Cerulli Associates.

For PayPal, the tie-up with Acorns appears to fit into the company’s ambition to offer a broader range of financial services as it seeks to diversify its revenue streams. Additionally, the integration with Acorns could help PayPal attract more users, especially those left out of the mainstream investment services because of high fees or other barriers. Acorns charges $1.00 a month to manage the investment portfolios of its subscribers.

PayPal holds minority stake in Acorns

At this moment of intense competition with Square (SQ) and Apple (AAPL) in payments processing and loans supply markets, PayPal is always on the lookout for ways to recruit new customers.

PayPal led a $30 million financing round for Acorns last year, and subsequently acquired a minority stake in the startup. Given this investment, PayPal stands to share in Acorns’ success.

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