After many years of speculations on its interest in cryptocurrencies, this year PayPal finally announced that it will enable its users to buy and sell cryptocurrencies, as well as to safe keep them in crypto wallets on their accounts. With the money from the sale of cryptocurrencies, users may freely buy goods and services.
PayPal, the American company whose main business activity is the provision of payment services related to electronic money, has been long present in the payment services market. PayPal is not a bank, because it does not use the funds of the users for its own needs, nor it calculates interest, and the funds on the user’s account (so-called residents) are not considered as deposits. Its services are available in over 202 countries worldwide and it supports as many as 25 currencies. PayPal started operating in Serbia in 2013, and since Serbia is not a member of the European Union, it operates through a non-resident legal entity from Singapore.
PayPal previously dealt with cryptocurrencies, by entering Facebook’s “Libra” project. However, due to intense opposition from the state, it promptly withdrew.
Within its own project of cryptocurrency’ related services, in October 2020, PayPal announced a partnership with Paxos, which will be assisting PayPal in launching a new service. Also, it announced that everybody shall have access to the educational material, to make these new options as user-friendly as possible, since the users should hold cryptocurrencies in their PayPal crypto wallet.
In the initial period, PayPal shall allow Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, and there is also a plan to expand the project to Venmo platform. It is important to note that cryptocurrencies themselves shall not represent means of payment but shall be converted to a specific national currency, to be used for payment of goods and services. Such a mechanism should prevent the so-called “crypto-to-crypto” payment flow. This means that the seller will not receive virtual money for its product via PayPal, but a payment in fiat currencies. However, PayPal has announced that starting from 2021, there may be a possibility of direct payments via cryptocurrencies. The President and CEO of PayPal Dan Schulman stated: “We are working with certain banks and thinking about all the new forms of digital currencies and how PayPal can play a role in their implementation.” With this change, we are entering a new era of banking that will influence the whole financial system.
The significance of PayPal’s decision to start a cryptocurrency business is huge, especially considering that 346 million active PayPal accounts processed $ 222 billion in payments, in the second quarter of 2020 alone. After the news of the company’s decision spread, Bitcoin exceeded $ 16,000 in value. This is even more important if we consider that, since the beginning of the COVID-19 pandemic, cryptocurrencies and gold have not lost their value on the stock market. In addition to the growth in the value of cryptocurrencies, it is estimated that there will be an increase in the number of new users, as this move of PayPal instills trust in cryptocurrencies. Although PayPal is not the first company to engage in cryptocurrency business (Square Cash enabled the use of Bitcoin on its app in 2018), as a giant in this sector, it will surely influence others to follow the same path.
Unfortunately for Serbian users, PayPal’s cryptocurrency service shall be initially available only to U.S. citizens. However, the company announced that this method of payment will be enabled in some other jurisdictions in the first half of 2021.
With the decision to introduce cryptocurrencies in its business, PayPal has opened a new chapter of great importance to users, and the effects will be visible in the upcoming period.
Authors: Mina Kuzminac and Teodora Ristić
