Update: June 3, 2021: PayPal announced on June 2 that it plans to deposit $135 million into financial institutions and management funds that help underserved communities of color to reduce economic inequality. Hope Credit Union, One United Bank, Self-Help Credit Union and C-Note Wisdom Fund are the beneficiaries of the PayPal deposit.
"By partnering with financial institutions that have deep ties to Black and other underserved communities of color, we can create economic opportunity and make tangible progress toward closing the racial wealth gap," PayPal CEO Dan Schulman said in the press release.
PayPal, the digital payments company, plans to invest another $50 million in 11 Black and Latinx led venture capital funds, the company said in a May 26 press release. Some of the beneficiaries of the funds include Aperture Venture Capital, Collab Capital, Interlace Ventures, Kapor Capital and SV LATAM Capital.
The current investment is in addition to the $50 million investment by PayPal in eight Black and Latinx-led early-stage venture capital funds announced in October 2020 and are part of the company's commitment to invest $530 million to support Black-owned businesses. Paypal will act as a limited partner in the venture capital funds through this investment, a PayPal spokesperson told Payments Dive.
"Venture capital funds led by Black and Latinx managers expand wealth creation opportunities for diverse founders," PayPal CEO Dan Schulman said in the press release. "Over the long-term, the $100 million we are investing in 19 exceptional venture capital firms will help to foster a next generation of diverse founders that are building products and services that empower a more inclusive economy.”
PayPal plans to collaborate with the funds, which make early stage investments in companies, and in some cases, make investments alongside the funds through its PayPal Ventures, its venture capital arm. PayPal Ventures makes investments in companies it deems to be of "strategic relevance" to PayPal's business, the company said.
The move comes in after PayPal announced plans to invest $530 million last year in June to support Black and minority-owned U.S. businesses and communities, especially those hit hard by the pandemic, to reduce income inequality. According to PayPal’s 2020 Global Impact Report, the company deployed about $300 million of the $530 million commitment to help address economic inequality.
"It was an incredibly difficult decision to decide on the two groups of funds," a PayPal spokesperson told Payments Dive in an email. "Our ventures team met with more than 200 funds over the past year and ultimately evaluated them based on a mix of historical investment performance, diversity (race, gender, and geography), and alignment with PayPal’s commitment to address the racial wealth gap."
Through its online option for making donations, PayPal enables donors to give about $17 billion to nonprofits and other charitable causes, the 2020 Global Impact Report stated.
"Black and Latinx founders have been underrepresented in venture capital funding for far too long," PayPal CEO Dan Schulman, said in the press release last year. "By directing our dollars to investors from underrepresented communities, we're supporting their investment in Black and Latinx entrepreneurs at the earliest stages.”
According to Citigroup’s “Closing the Racial Inequality Gaps,” report if the U.S. had closed "key racial gaps" for Black Americans in wages, housing, education and investment 20 years ago, $16 trillion could have been added to the U.S. economy. If the gaps were to be closed today, $5 trillion would be added to the U.S. gross domestic product within five years, the bank's report estimated.
Citigroup, as well as the banking companies JPMorgan Chase and Wells Fargo, are also spearheading initiatives to launch venture capital funds and other initiatives to help provide capital to minority-owned businesses.
In February 2021, JPMorgan launched a $350 million fund to back Black, Latinx, women-owned and other underserved small businesses, in an effort to "help address the racial wealth divide and create a more inclusive recovery from the COVID-19 pandemic," the company said in a press release.
Wells Fargo pledged last year to invest $50 million in African American minority depository institutions to extend mortgage credit, small business lending, and other banking services in certain underserved communities.
Citigroup pledged last year to invest $1 billion to help "close the racial wealth gap and increase economic mobility in the United States," the company said in a press release.
The Office of Comptroller of Currency also launched Project Roundtable for Economic Access and Change (REACh) last year, "to bring together leaders from the banking industry, national civil rights organizations, business, and technology to identify and reduce barriers that prevent full, equal, and fair participation in the nation’s economy," the federal agency said in press release.