The crypto and fintech spheres are abuzz with news that PayPal could potentially be making an entrance into the cryptocurrency sphere by offering its users the ability to buy and sell cryptocurrencies. But are the rumors true?
The story started with a CoinDesk report on Monday, June 22nd, which stated that several people familiar with the matter confirmed that Paypal was working on building a direct buying and sales portal for cryptocurrencies within its own app and its subsidiary, Venmo.
Additionally, "they are going to have some sort of a built-in wallet functionality so you can store it there," the source told CoinDesk. The source also stated that Paypal "would be working with multiple exchanges to source liquidity," and that the portal could be expected to be online as soon as three months from now.
PayPal has shown some interest in cryptocurrency in the past
Although PayPal hasn't come out and announced an entry into cryptocurrency, the company's history does seem to say that an entrance into the world of cryptocurrency sales is highly likely. After all, Paypal has brushed up against the cryptocurrency world in the past; however, this would be the first time that Paypal dipped its toes directly into the crypto pond.
For example, PayPal can currently be used as an alternative means for withdrawing funds from a number of different cryptocurrency exchanges, including Coinbase. CoinDesk also reported that Paypal and Coinbase have had a longstanding relationship with ties forming between the two companies as early as 2016.
Roel Wolfert, a serial entrepreneur and chief executive of Shareitt, told Finance Magnates that "PayPal has been working with crypto since 2014 when they started accepting Bitcoin. Throughout the years, they have learned and gained experience with crypto and Blockchain technology."
Therefore, Wolfert believes that "this next step is not a surprise."
Roel Wolfert, serial entrepreneur and chief executive of Shareitt.
Other fintech and Payments platforms have increasingly turned toward crypto
He also pointed out that PayPal's rumored foray into crypto is likely driven by user demand: "obviously, PayPal has the ability to know their customers and be clear on servicing them or not for the right reasons," he said.
PayPal may have observed some of its fellow payments companies giving into similar user demand for crypto and thereby cashing in on crypto endeavors.
Square, the payments company founded by Jack Dorsey, chief executive of Twitter, began allowing its users to buy Bitcoin directly in 2018 through the Square Cash App. In its most recent earnings report, the app had raked in $306 million in Bitcoin-related revenue.
Indeed, "with the adoption of the currency becoming more and more widely accepted, it would make sense for a payments giant such as PayPal to try and take a piece of the pie," said fintech entrepreneur Andrew Anastasiou to Finance Magnates.
"[...] With more and more people turning to cryptocurrency as a way of making payments online, it would make sense that a company predominantly providing fiat transactions would want to gain a foothold in such a fast-growing industry."
Roel Wolfert also pointed out that beyond profits, crypto and blockchain have increasingly appeared in payments as a technological advance: "We have seen more and companies using blockchain as part of their payments processes," he said, adding that the technology is "efficient and low cost."
"This creates value for end-users, so it's likely that blockchain investments will grow in the payments industry," he continued.
"Interestingly, for crypto, it will become important to be clear about 'what you are;' some cryptocurrencies," such as stablecoins, "are really created to have a constant value and are therefore great for payments. The ones that are fluctuating will be less used for payments but more for investment/saving and speculation."
Crypto could be an opportunity for Paypal to onboard new users and monetize existing users
Additionally, other kinds of fintech platforms that have opened their doors to crypto have gotten quite a bit of attention from VCs and other private investors.
Revolut, a UK-based "challenger bank" and investments app that began offering its users access to crypto in February of 2017, raised a whopping $500 million in February, bringing the company's valuation to $5.5 billion.
With a valuation of nearly $200 billion, PayPal may not be in need of money from private investors--indeed, "[...] we have to remember that PayPal is in no way a start-up and has access to a strong network, where fast integration of new products is always possible and with such a serious and trusted brand, a lot of people will take up the opportunity to purchase crypto via PayPal," said Andrew Anastasiou to Finance Magnates.
Still, the company could see crypto as a new and innovative way to bring in new types of users and to monetize Venmo, which has more than 52 million accounts.
Andrew Anastasiou, fintech entrepreneur.
PayPal chief executive Dan Schulman said in a press call in January of this year that "in 2020, we're looking to grow our investments based on our recent acquisitions, building new infrastructure in China and other international markets, continuing work on monetizing Venmo and [expanding] our focus on our in-store initiatives."
PayPal has been searching for crypto experts to add to its workforce
So far, PayPal hasn't come out and declared its intentions to start offering crypto sales. However, PayPal's dive into crypto isn't just context and hearsay--rumors that PayPal may soon allow its users to buy cryptocurrencies was further bolstered by the fact that the company's job board is rife with crypto-related postings.
Indeed, CoinTelegraph reported yesterday that one of the first listings on the company's job board is entitled "Technical Lead - Crypto Engineer"; the listing's description says that the individual to fill the role will be responsible for "new initiatives for PayPal global with a focus on agility, time-to-market, and innovation."
Specifically, "the role includes designing, developing and maintaining key crypto products/features targeted towards availability, performance, and scalability of PayPal services."
The job board also includes a posting in search of a blockchain research engineer to work with "a newly formed group within the Strategic Technology Enablement team chartered with establishing expertise and opinions on emerging blockchain technologies and their potential uses within PayPal."
PayPal's 10-K filing also contained hints that it may be foraying into crypto
The company's 10-K filing, which describes possible risk factors for investors, PayPal also lists potential rapid developments related to blockchain and virtual currencies as a factor that could have a negative impact on the company this year.
Specifically, under a heading entitled "rapid, significant, and disruptive technological changes impact the industries in which we operate," blockchain and virtual currencies were two of many factors listed.
Indeed, "payment technologies (e.g., real-time payments, payment card tokenization, virtual currencies, including distributed ledger and blockchain technologies, and proximity payment technology, such as NFC and other contactless payments)," were all listed as potential risk factors.
In theory, PayPal's infrastructure could easily support crypto adoption
PayPal is also well-poised to enter the cryptocurrency world in terms of its infrastructure.
Fintech entrepreneur Andrew Anastasiou told Finance Magnates that "in terms of the actual platform that would be required to support cryptocurrency, I don't believe we would see any substantial change in how it would look."
Anastasiou said that specifically, the platform is likely to resemble the multi-currency wallet platform that PayPal already offers: "essentially, an eWallet is likely to be offered where cryptocurrency could be stored, and PayPal already has this user interface for its multi-currency accounts," he said.
Anastasiou also pointed out that many PayPal users have already gone through the necessary KYC and AML checks associated with buying and trading crypto on a number of other platforms.
"There is also the added benefit that a large majority of PayPal users have already passed enhanced KYC to be able to use the platform, so from a practical sense, I imagine there will just need to be some implementation of limits and controls," he said.
"[...] With such a huge audience already available, it would be a very simple migration to add a product to the already vast fiat currency user base."
Regulatory and compliance challenges could vary regionally
Roel Wolfert also said that PayPal's existing AML and KYC measures might be sufficient for crypto purchases, but there may be some regulatory challenges: "practically, I can assume that with your PayPal account, and maybe some extra verifications on you as a person, you can buy mainstream cryptocurrencies, like BTC, ETH, et cetera," he said.
However, "I am not sure whether they will allow people to transfer crypto from other accounts given FATF regulations."
Additionally, "There will be challenges per region, and of course, PayPal--as a regulated institution--will have to comply with KYC and FATF regulations, as well as being auditable by their accountant."
However, "I think with the experience PayPal has built up, [these factors] are not holding them back," he added. In fact, PayPal's regulatory compliance when it comes to crypto "will open secure ways for consumers to get more certainty when they are buying, selling, and spending crypto."
If PayPal gets into crypto, so do its users
Therefore, it's also possible that the entrance of a firm as big as PayPal into the cryptocurrency space could greatly benefit cryptocurrency in terms of exposure.
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Arguably, payments companies who have ventured into the cryptocurrency space have already been some of crypto's largest "gateways" into the mainstream commercial and financial world.
"Cryptocurrency already has a solid foundation in the payments world, with sways of online FX and Casinos turning to Crypto as a way of receiving deposits from their traders or players," Andrew Anastasiou told Finance Magnates.
"However, when big names such as a PayPal start to look into offering these products, it brings a sense of trust and stability, and this will only help the industry gain a larger following," he added.
"I expect a lot of the 'smaller' exchanges to start to re-evaluate their product line and cost methods to be able to stand up against giants like PayPal, and this is a good thing as it should bring pricing to an acceptable line when it comes to deposit fees."
