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PayPal’s $890 Million Bet on Immigrants

PayPal CEO Dan Schulman (center, with hands clasped) with co-workers on July 20, 2015, the day PayPal's stock began trading on the Nasdaq.PayPal CEO Dan Schulman (center, with hands clasped) with co-workers on July 20, 2015, the day PayPal's stock began trading on the Nasdaq.
PayPal CEO Dan Schulman (center, with hands clasped) with co-workers on July 20, 2015, the day PayPal's stock began trading on the Nasdaq.Photograph by Spencer Platt Getty Images

For many years, Paypal (PYPL) was virtually the only game in town when it came to digital payments. But today the newly independent company, which joined the Fortune 500 for the first time this year, is in the fight of its life, as competitors ranging from tech giants like Apple (AAPL) and Google (GOOG) to credit-card stalwarts Visa (V) and American Express (AXP) battle each other for control of the “digital wallet.”

CEO Dan Schulman is trying a little bit of everything in his efforts to keep PayPal competitive. And immigrant workers in the U.S. may turn out to be one of his secret weapons, thanks to a PayPal subsidiary called Xoom.

Xoom is an app-based money-transfer service, designed to capture part of the $600 billion global market for remittances—money sent across borders, typically from a worker in one country to his or her family members in another. For decades, this business has been concentrated in storefront locations where lines are long and security problems can be a hurdle.

Last July, PayPal paid $890 million to buy Xoom, which moves such transactions out of the physical store and on to the mobile screen. Xoom’s app lets users transfer money to 53 countries, designating the recipient and specifying whether the payment should go to a bank account or involve a cash pickup or delivery. Senders must link transactions to a bank or credit card account, but it’s safer and cheaper than using a money-transfer office.

PayPal doesn’t break out Xoom’s finances separately. But in 2014, before PayPal bought the then-publicly traded company, Xoom saw revenue jump 30% to $159 million. Xoom CEO John Kunze has said that in 2014-2015 Xoom moved $7 billion, giving it much more room to grow.

Under PayPal, Xoom has launched the ability to send money to commercial accounts, allowing, say, someone in the U.S. to pay a relative’s utility bill in Mexico.

Just as important, Xoom lets PayPal plant a flag in yet another corner of the financial world—all part of its effort to make up for a “lost decade.”

For more about PayPal’s efforts to reinvent itself, read this feature in the Fortune 500 issue of Fortune magazine.