PayPal previously kept cryptocurrencies at arm’s length, unwilling to allow its customers to use the payments platform for anything related to buying, selling or trading digital currencies. Late last year, the company made a surprise announcement when it revealed that it was reversing that long-standing position. PayPal’s acceptance of digital currencies is potentially monumental for the acceptance of cryptocurrency on a global retail scale and Jason Simon, a FinTech and eCommerce expert, explains how the decision will impact the future of finance.
Last October PayPal announced that its users, starting with those in North America, would be allowed to buy, sell and hold cryptocurrencies in their PayPal accounts. Additionally, it also opened the door for the use of digital currency to be used to make purchases, mostly in the eCommerce segment. Explains Simon, “PayPal has sales relationships with retailers all over the world. Giving them access to accept cryptocurrency is a huge step forward for the fiat alternative as a legitimate form of money and instantly connected cryptocurrency enthusiasts to the platform’s 26 million sellers around the globe.”
After Bitcoin (BTC) became a major headline topic in 2017, when its value increased to $20,000, cryptocurrencies were viewed as a potential investment vehicle, not as a form of currency as was originally intended. This impacted the real-world value of digital currency as an alternative to fiat and, as cryptocurrency prices fluctuated tremendously, most financial institutions kept their distance. However, as prices have settled, they are now coming to grips with the role cryptocurrency has in a global financial market, which is one of the reasons PayPal was prompted to update its policies.
Now, the realization that digital currency allows faster, cheaper payments – especially in the eCommerce environment – is allowing Bitcoin, Ethereum and others to realize their full potential as a form of currency. Adds Simon, “Cryptocurrency was initially designed to serve as a peer-to-peer form of currency that allowed consumers to completely control their money. As more attention is given to the currency and its real purpose, financial payments platforms, banks and governments are coming to terms with the fact that digital currency can do what fiat has never been able to do – make payments simple.”
PayPal, of course, wasn’t the first payment platform to embrace cryptocurrencies. Square’s Cash app and Revolut have been supporting them for years. However, no other platform has the global reach seen by PayPal, which is why the company’s decision to embrace digital currency is monumental. It shows how easy it is to use cryptocurrency for virtually any kind of payment or money-based transaction, such as sending funds instantly to a family member in another country, at rates that are much more affordable than conventional methods.
At first, PayPal’s system allows its customers to display their cryptocurrency holdings in their PayPal accounts and, when making a payment, to select if they want to use those holdings. However, PayPal is serving as the custodian of the currency, instead of offering a user-controlled wallet. When a purchase is made, the user can select to use the value of the holdings, which PayPal then converts into the target fiat currency before completing the transaction. This means the seller will receive fiat, not the digital currency.
This alternative helps provide a mechanism to allow retailers to become used to digital currency without having to face the challenges of conversions and price fluctuations. Adds Simon, “Many people still don’t understand how cryptocurrency works, even though the concept is simple. Until the learning curve is lowered, financial platforms like PayPal will need to take baby steps into the cryptocurrency ecosystem or risk having their efforts completely fall apart due to resistance.”