You may wonder why you should be concerned about PayPal choosing or not choosing to branch out into crypto-trading. It all sounds specialist to the FinTech world and one unlikely to impact regular people. Seemingly, some industries were early adopters of the technology and it is likely that few regular people have noticed. The question is whether PayPal’s choice to get into the mix will have more of a ripple on broader financial circles.
PayPal seems to have sat back and waited to get involved. The first hints that PayPal was going to finally offer crypto-trading came when they posted a job position for a Blockchain Research engineer in June. The description for the job asked that the individual lead the discovery for understanding how PayPal could implement specific blockchain technology.
From what we can tell, PayPal and Venmo are working together to offer a crypto-feature for users. PayPal customers will be able to buy and store crypto using the site. The move comes as PayPal has recognized that the revenue from Bitcoin for its direct competitors is just too much to ignore anymore.
Let’s guide you through the details of PayPal and Venmo moving toward crypto-trading.
So far just rumor
Before we continue, it is fair to point out that much of this is speculation. The job description was a hint that PayPal and its payment application Venmo would offer cryptocurrency payments and storage via a wallet. Indeed, the purchase of Venmo was a sign that PayPal might move in this direction, as a way to monetize this new application. However, all this is coming from sources within the industry who assume what the moves could be.
PayPal has confirmed that they are working to bring crypto capabilities to the platform, revealing their plans in a letter to the European Commission. However, they only admitted to monitoring the evolution of the crypto-asset space as part of its responsibilities as an “innovative FinTech company”.
Yet, PayPal has made interesting steps to demonstrate its independence and intent. It is taking unilateral decisions, making the move to leave the consortium known as the Libra Association. This also suggests that the company is trying to demonstrate a core mission to democratize access to financial resources and tools, which is a central benefit of crypto-trading.
Finally, it is fair to say it is more than just rumor when CTO for PayPal Sri Shivananda notes that “we are a strong believer in the potential of blockchain. The digitization of currency is only a matter of when not if.”
Why is this a big deal?
PayPal has over 52 million registered users. Other crypto-trading platforms cannot compete with these numbers, with Coinbase only enjoying 11.7 million users and Binance only 15 million. Therefore, if PayPal does follow through with this plan to trade using cryptocurrency, then it could open the door for retail cryptocurrency investors. In short, we could be paying for our items using cryptocurrency rather than our sovereign notes and coins.
It would allow many more people to enter into a person to person transaction (P2P) using the app. PayPal would have felt the pressure in this area of its business from its primary rival Square, who entered the sector in 2018. In the first quarter of 2020, Square earned $306 million in Bitcoin revenue. So, when PayPal claims to need to respond to the success of its competitors, this is likely the key fact driving their response.
While PayPal already has a deal with Coinbase to allow some withdrawal and deposits to the Coinbase trading site using PayPal, this is not enough of a stake for the site. PayPal will want some share of the profits that Square is seeing and this will only come with wallet functionality and the ability to buy and sell using cryptocurrency.
For users, this is a significant move by PayPal. Cryptocurrency allows for the instant transfer of funds with limited costs. Currently, trading with other countries costs a lot of money. Not only is there the currency exchange rate and fees but also the time and cost of completing the administration and security of the transfer of the monies. In short, for many people and some nations, it is too expensive to send money from one part of the world to another. Cryptocurrency resolves these barriers to financial services, offering instant, cheap and secure modes of payment.
Therefore, the idea that the 305 million users of PayPal will soon have access to crypto-trading further democratizes the world’s financial trading. No longer will this mysterious world of financial exchange be limited to the hands of a wealthy few.
There are significant reasons to believe that PayPal would want to move into crypto-trading, not least the amazing profits earned by Square from Bitcoin alone. There are also hints from the company that this is likely going to happen. The message from the CTO, the job advertisement, and the split from the Libra Association point to the company doing its own thing in the future.
The move by PayPal into cryptocurrency will be massive for the retail sector. Suddenly, a global market will be able to pay for goods instantly, cheaply, and securely. It really will democratise global trade. So, when you say “so what?” you really need to understand that this will be a significant move in terms of FinTech and the future of how we might pay for goods.