PayPal is one of the most popular payment portals on the internet, offering an alternative to bank transfers and more. The aim of PayPal was to facilitate transfer of fiat funds around the world. Therefore, you could argue that cryptocurrencies that aim to democratise financial services and reduce fees would be a direct competitor of the company. Therefore, PayPal’s decision to make into cryptocurrency could be revolutionary, offering greater legitimacy for certain coins. It could make such bitcoin trading easier, and opening to a broader market. The question is whether this move is a game-changer or not – most think not.
A watershed moment?
Bitcoin has been around for decades and while it peaked in popularity a few years ago, it has remained in the periphery. Other cryptocurrencies have equally had their moment in the crypto sun but never broken into the mainstream, where the normal individual on the street would choose it as a payment method or investment route.
Therefore, those enthusiastic about virtual coins are calling this move by PayPal a watershed moment. It is the first sign that crypto could become a mainstream method of payment to compete with fiat currencies. In other words, PayPal’s decision is a sign that cryptocurrencies are gaining some level of credibility.
For PayPal, the move to virtual currencies allows them to attract new users and increase their competitiveness in the sector of digital payments. Innovation, being at the forefront of the latest technology, is crucial for the success of businesses in this industry. PayPal are being smart, as there is increasing evidence that fiat currencies will go digital too and physical currency will disappear.
Therefore, while the ethos of bitcoin was to subvert the financial establishment, PayPal could signal the failure of this early vision as bitcoin becomes part of the establishment too.
Little difference for the virtual currencies
Therefore, while it might extend PayPal’s customer reach, it might not do that much for bitcoin, ethereum, litecoin and other virtual currencies. PayPal is offering the facility to its US account holders to store cryptocurrencies and show with them at over 26 million merchants. They are essentially acting as a wallet for the currency, of which there are many already in existence.
What might be more revolutionary is the plan to expand the service to Venmo. Venmo is a peer-to-peer payment app, which is exactly what crypto was designed to be. This P2P app is popular with younger customers, which could introduce virtual currencies to another demographic. When this happens in the first half of next year, it will be interesting to see if there is more of a bump to the fortunes of the cryptocurrencies.
Better fortunes for PayPal?
However, all this is just speculation and in reality no one knows when the impact of introducing bitcoin to merchant transactions can bring.
PayPal certainly isn’t the first in this space. Square has been offering crypto buy and sell options on its app Cash since 2018. Cash is a popular P2P payment app and as a result of adding bitcoin, the app jumped 600% to $875 million in a single quarter. Equally, online brokerage Robinhood has offered cryptocurrency since 2018 and its business has boomed. Therefore, the impact for other companies in a similar space has been impressive.
However, PayPal, as a means of managing merchant transactions, is a different animal. While broadening its suite of products can’t hurt, it might not be the revolutionary strategy. Yet, Chinese rival Ant Financial did enjoy it as a winning strategy – but again, who knows at this point.
What is causing the uncertainty? Well, it is because virtual coins are more likely to be used to store value than to be used as a means of making payments. A single bitcoin has been worth $10k in the past, making it impractical to pay for goods over the internet. People are more likely to settle a transaction using fiat currencies, removing any risk of the volatility of the cryptocurrency.
The reason for buying bitcoin is to hold it for those moments when the price rises and you make money. Most industry experts believe that people do not want to spend crypto, making the introduction to PayPal’s business model relatively pointless. The only place paying by bitcoin has taken off is on the darknet and the presumption is that no one wants their mainstream corporate image associated with this.
So, while there isn’t much belief that the introduction of crypto to PayPal will do much to shake up payment methods, it will help digital coins become more mainstream. It will increase a desire in larger institutions to create their own digital currency and maybe move us one step further away from traditional country-led currencies.
This may have started anyway and it is a chicken and egg scenario. For instance, PayPal may have made this choice because companies like Facebook have issued tokens call Libra, which have gained traction. PayPal was a founding member of Libra but dropped out after a few months. So, far from being a surprise, this development should be seen as a natural evolution for the merchant payment platform.