PayPal Goes after Crypto

PayPal (PYPL) Goes After 'Crypto-Curious' Custome

Source: lnvstopedia

PayPal Holdings, Inc.'s paypal interest in cryptocurrencyis not new, but over the past quarter the company has taken the plunge, introducing a range of new services and offerings for its customers. The digital payments company is looking to expand further in the first half of this year.

Back in October the company first allowed its U.S. users to trade cryptocurrencies on its platform. Bitcoin, Bitcoin Cash, Ethereum, and Litecoin are the cryptocurrencies currently available through PayPal, according to its kpresentation to it's investors.

In the first half of 2021, PayPal will enable users to trade crypto in the U.K. and a number of additional international markets. It will also expand crypto offerings to Venmo, a payment app it bought in 2014. Earlier this month, PayPal announced that it has also established a crypto-focused business unit and is planning to allow users to make purchases through the app using cryptocurrency later this year.

"I would describe the type of user on our platform right now as more of the crypto-curious,"  said PayPal CFO John Rainey on the fourth quarter analyst call earlier this month. "We're not getting these heavy day traders in crypto – it's more a casual customer that is somewhat intrigued by this and now has a trusted digital platform where they can go out and buy this and hold this, and then eventually be able to use this as a form of payment." Rainey noted that PayPal has also set volume limits on its platform.

PayPal's rollout of crypto offerings is in line with its mission to become a one-stop shop, a closer competitor to a company like Alibaba Group Holding Limited's  AliPay in China offering a range of services. "That's really the promise of a super-app, where you can live a lot of your digital life on one app and then be able to manage all of your transactions in one place, track them all, and have personalized, customized recommendations," CEO Dan Schulman Market Watch. Last quarter, PayPal also made investments in TaxBit, cryptocurrency tax software, and Paxos, a blockchain platform that PayPal uses to provide crypto services.

PayPal's cryptocurrency expansion along with other market players like Visa Inc.  are likely to create the so-callednetwork effect and faster adoption rates. "We are eager to work with central banks and regulators around the world to offer our support, and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce," Schulman said.

While companies like Square, Inc.  enabled Bitcoin trading years ago, PayPal's expansion has been more gradual. Now this expansion of services coincides with growth in consumer awareness and interest in crypto. The users who buy crypto on PayPal log back into the app at double the rate before purchasing cryptocurrency, the company said.

"One of the things that I particularly am most excited about is what we're seeing around the levels of engagement of these users," Rainey said. "This really fits with this thesis that we have around, as we add additional products and services that are attractive to our consumer base, it creates a stickiness to our platform where we really are going towards this everyday financial app, and we're quite excited about that."

For PayPal, it's still early days, but it may change as users are able to use cryptocurrencies to make purchases and crypto trading is available in more markets. Customers will be able to use crypto to pay for goods at 29 million merchant locations by the end of the first quarter, the company said.

"For us to see an outsized impact on our business certainly to the point where it's starting to move the dial on the overall growth numbers of our business we are a little bit of a ways out on that right now," Rainey told analysts. "When we allow our customers to use crypto to go shop at our merchants, our network of [nearly] 30 million merchants around the world, that's where this halo effect or indirect benefit, that's where it gets really attractive on a margin basis, because the funding cost of that being so low.

What is blockchain?

 Learn the basics of blockchain technology and why it can enhance trust in both record keeping and financial transactions.

Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.

A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralised database managed by multiple participants is known as Distributed Ledger Technology (DLT).

Blockchain is a type of DLT in which transactions are recorded with an immutable cryptographic signature called a hash.

 

This means if one block in one chain was changed, it would be immediately apparent it had been tampered with. If hackers wanted to corrupt a blockchain system, they would have to change every block in the chain, across all of the distributed versions of the chain.

Blockchains such as Bitcoin and Ethereum are constantly and continually growing as blocks are being added to the chain, which significantly adds to the security of the ledger.

 

Why is there so much hype around blockchain technology?

There have been many attempts to create digital money in the past, but they have always failed.

The prevailing issue is trust. If someone creates a new currency called the X dollar, how can we trust that they won't give themselves a million X dollars, or steal your X dollars for themselves?

Bitcoin was designed to solve this problem by using a specific type of database called a blockchain. Most normal databases, such as an SQL database, have someone in charge who can change the entries (e.g. giving themselves a million X dollars). Blockchain is different because nobody is in charge; it’s run by the people who use it. What’s more, bitcoins can’t be faked, hacked or double spent – so people that own this money can trust that it has some value.

Understanding Libra

Understand how Facebook leveraged specific aspects of blockchain technology to launch a new cyrptocurrency called Libra, and its potential impact on the banking and finance sector.