Over the last several years, PayPal Holdings Inc (NASDAQ:PYPL) has shed its earlier identity as merely a processor for online payments and has been in the midst of a full-blown transformation. The company has used partnerships with major credit card issuers to vastly expand its ecosystem of services.

And that's not all. The company now provides working capital loans to small businesses, person-to-person cash transfers with Venmo, mobile payments, and a full-service digital wallet that allows customers to choose from a variety of payment options, all without ever leaving the app.

Now, PayPal is moving into the personal investing space.

Four smartphone screen images showing various aspects of the Acorns investing app.

PayPal is now partnering with investing app Acorns. Image source: PayPal.

Investing in pocket change

PayPal announced that it is partnering with Acorns, the fastest-growing microinvesting app in the U.S., which will now be integrated with PayPal. Customers will be able to log in and then link their Acorns account directly to their PayPal account. Additionally, PayPal users will be able to open a new Acorns account from within the PayPal app or website. 

Acorns is an investing app that encourages users to round up their daily purchases and then transfers the difference into their investing account. The app provides access to exchange-traded funds (ETF) and other low-cost options. Acorns will recommend a diversified portfolio based on answers to a number of questions, such as age, income, and investment goals. It then chooses from several different predetermined portfolios that range for conservative to aggressive, and charges $1 per month for accounts with a balance of less than $5,000 and 0.25% for accounts over that amount. 

Neither company has disclosed the terms of the agreement, so we don't know if PayPal will realize any direct financial benefit.

Acorns currently has only 2.3 million users with an average account balance of $407. PayPal reported an active customer base of 218 million in its third-quarter 2017 financial report, so it's easy to see the benefit for Acorns. PayPal's large user base will give Acorns a targeted group that might benefit from its services, and if only a small percentage of those customers adopt the investment platform, Acorns could double or even triple its current user base.

What's in it for PayPal?

While the benefit for PayPal may not seem readily apparent, it seems that the company's goal is to keep users logged in to the app for all their financial needs. Once customers have signed in to PayPal on a specific device, its One Touch feature allows them to stay logged in for all future purchases made using that same device. PayPal users can make payments, send money to friends using Venmo, and now invest using Acorns.

It is also worth noting that Venmo and Acorns are both wildly popular with millennials, a demographic that has now overtaken baby boomers as the largest generation. The popularity of both apps bodes well for PayPal, as courting the youngest consumers and giving them little reason to leave the app increases the likelihood that they will become lifelong users.

A brilliant transformation

PayPal's strategy to transform itself has seen nearly flawless execution in the little more than two years since it re-emerged as a public company. Revenue for the most recent quarter grew to $3.24 billion, up 21% over the prior-year quarter, while exceeding analysts' estimates and the high end of the company's ambitious forecast. The stock has followed suit, gaining 89% so far this year.

PayPal continues to give customers and investors alike reasons to bet on the company. Great oaks from little acorns indeed.

Danny Vena owns shares of PayPal Holdings. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool has a disclosure policy.