PayPal Synergy with Village Capital Eyes FinTech for the Poor

Suitability poses challenges within poor demographics, as well as aspects of financial resources and investment experience.

Three new FinTech initiatives for 2016 are being launched as part of a collaboration between PayPal Holdings Inc. (NASDAQ: PYPL) and the venture efforts spearheaded by Village Capital’s accelerator and incubator programs.

Village Capital is the brand behind VilCap Inc, a 501c3 non-profit Washington-based venture development organization that looks for entrepreneurs that work on global challenges – including within FinTech – and trains them as well as provides funding via an award at the end of every program when certain criteria are met by the winning startup recipient.

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Peer-selected funding

At the end of each venture development program, participating entrepreneurs are evaluated against each other across six indicators of investment readiness, according to Village Capital, and then at least $50,000 of investment capital is awarded to the top two peer-selected entrepreneurs. This peer-selected investment model is a core part of Village Capital’s process.

The aim of the venture is to help democratize access to financial services for low-wealth individuals, families and small businesses, a challenge that is amplified by the aspects of suitability and investment experience for people with either little or no resources including disposable income.

Often, regulations are most strict with regard to how investment firms may approach such clients as many financial products can be considered unsuitable depending on age or financial resources and investment experience, a view that regulators have taken in an effort to combat predatory financial services providers.

Motive behind challenge

Even the poor or the less affluent deserve a chance to partake in investment opportunities provided that the products are understood and suitable for them, as appears to be the aim of the new synergy.  FinTech is helping to overcome traditional barriers for entry into different demographics, and PayPal and Village Capital are looking to the harness new approaches using financial technology.

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Franz Paasche, VP of Corporate Affairs at PayPal said in the announcement: “At PayPal, we believe that affordable, convenient and secure financial services should be a right for everyone, and not a privilege for the affluent.” He added: “Through our expanded relationship with Village Capital, we’re pleased to help build a more supportive ecosystem for FinTech social impact entrepreneurs, which we see as critical to our vision of improving the financial health of underserved individuals and businesses around the world.”

Ideal partner for synergy

According to information on its website, over the past 5 years Village Capital program graduates have reached 6 million customers, created over 7,000 jobs, and raised more than $110 million in follow-on capital, and 93% of its portfolio companies are still in business. In addition, the company had won the M prize for innovation in 2013 from the McKinsey/Harvard Business Review, some attributes that clearly helped catch PayPal’s eye when it chose to partner with the company.

Interestingly, as the program will run across three continents, the regulatory differences, among other variables, will provide unique challenges and opportunities within each region, even if the products or technology are the same, as an example.

Upcoming Events

With the support of local partners, the three new development ventures for 2016 will focus on India, Latin-America, and The United States, as part of the joint initiative. The first event to launch is Village Capital Fintech Mexico 2016, and then the Village Capital FinTech US 2016, and which will be preceded by a recruitment event co-hosted at SXSW this Saturday on March 12th.

As an example excerpt from one of its upcoming events, Village Capital notes that 68 million adults in America are currently disconnected from the financial system, with 17 million of those individuals having no bank accounts at all, according to 2014 data from the FDIC.

The news follows Village Capital’s announcement in 2015 with Ebay that aimed to bring financial services to the “underbanked,” hinting that the prior relationship with Ebay may have helped plant the seed for the new deal with PayPal.

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