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Apple is rumoured to be in discussions with banks to set up a new money transfer app that would put it in direct competition with PayPal.

The application would reportedly allow iPhone users to transfer money via text, the Wall Street Journal said.

PayPal shares were down 2% on the news.

Paypal's peer to peer lending app Venmo processed $2.4 billion in payments in 2014. Apple could be hoping to capture a share of that, as the market for mobile money transfers grows.

Peer to peer payment apps are seen as a convenient way to repay individuals digitally rather than in cash.

Venmo has already carved out a niche among younger consumers in the US, allowing users to send and request money from each other via their phones. It has become popular for splitting the costs of meals, taxis and gifts.

Apple launched Apple Pay in the US last year, and in the UK earlier this year. It allows users to make payments at certain stores via a tap of their iPhones. This latest step would allow users to transfer money, not just make payments.