PayPal has recently announced it is updating its app to allow for stock trading by its US customers, potentially putting the payments giant in competition with the free trading platform Robinhood Markets. CNBC reported on Monday that PayPal hired brokerage industry veteran Rich Hagen to take charge of the project. PayPal confirmed the news on Tuesday. Hagen's LinkedIn page lists him as the CEO of Invest at PayPal. According to his profile, the former president of Ally Invest has been working for the payments giant since this month. On Monday, PayPal shares soared by over 3.5% and lost 0.5% on Tuesday. Meanwhile, Robinhood shares dropped by 0.8%. Robinhood (HOOD) is a popular free trading platform that became public this summer. On Monday, Robinhood shares closed down by 7% after Chairman of the Securities and Exchange Commission Gary Gensler said a full ban of payment for order flow is "on the table." The activity that accounts for about 80% of the company's revenue involves brokers sending trade orders to market makers who execute trades in exchange for some profit.

The IPO of the trading firm came amid a sharp rise in retail trading. Within the past year, investors were trading stocks heavily, influencing markets by means of a "meme stock" frenzy that happened in the early months of 2021.

In addition, demand for crypto assets has increased among retail investors. PayPal now offers crypto services to customers in the US and the UK.

Analysts, including Wolfe Research's Darrin Peller, say they are not surprised at PayPal's announcement. PayPal considered trading stocks at the beginning of the year, Barron's said on Tuesday.

"We announced this feature at our Investor Day in February and we are evolving our app to enable it," PayPal said in a statement released on Tuesday.

Wolfe analysts say the launch and expansion of PayPal trading are more likely to happen in 2022. They view stock trading as a significant factor for PayPal as the company seeks to gain a larger stake in a customer's wallet and attract more funds to its ecosystem.

The analysts pinpoint that a move into stocks is the "natural trajectory" of PayPal's expansion into crypto services.