Paypal is set to join the ranks of neobrokers.

In the rapidly evolving world of online finance, PayPal is set to make a significant move by entering the neobrokerage market. The digital payment giant has reportedly been in talks with an existing broker about a potential collaboration, with Rich Hagen, a brokerage specialist and co-founder of TradeKing, appointed as CEO of PayPal's new investment arm, Invest at PayPal.

Neobrokers, also known as online brokers, have seen a surge in popularity in recent months, particularly due to lockdowns and increased free time. Companies like Berlin-based Trade Republic have emerged as leading players in the market, offering low or free stock trading fees and attracting a large number of young consumers.

However, neobrokers have not been without controversy. The practice of Payment for Order Flow (PFOF) has been a subject of criticism, with the U.S. Securities and Exchange Commission (SEC) considering a ban on the practice. PFOF involves payments from market makers to neobrokers for order flow, which could incentivize users to engage in more trading and riskier investment behavior.

Robinhood, a U.S. neobroker, has been one of the most prominent players in the market. The company added 22.5 million customers and doubled its revenue during the COVID-19 pandemic. However, the SEC's potential ban on PFOF could force online brokers like Robinhood to fundamentally change their business models.

The SEC is headed by Gary Gensler, who has voiced concerns about the PFOF practice, stating that it could lead to unfavorable trading conditions due to exclusive contracts with a few market makers. These contracts could potentially limit competition and transparency in the market.

Meanwhile, PayPal's plans to enter the neobrokerage market could be affected by these changes. CNBC reports that PayPal is unlikely to implement its brokerage plans this year, as it waits for regulatory clarity on the PFOF practice.

As the neobrokerage market continues to grow and evolve, it will be interesting to see how PayPal navigates the challenges and opportunities that lie ahead. With Hagen at the helm of Invest at PayPal, the company is well-positioned to make a significant impact in the market, should it choose to proceed with its brokerage plans.