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Dive Summary:
- PayPal account holders in the US will be able to buy, sell and hold cryptocurrencies in their PayPal digital wallets in the coming weeks and use digital currencies to pay for purchases at the 26 million merchants on the company’s payment network to starting early next year under a company effort launched Wednesday.
- The company plans to expand those services to the peer-to-peer subsidiary Venmo and to international markets in the first half of 2021, it said.
- The New York Department of Financial Services also granted PayPal a conditional BitLicense on Wednesday to offer the services through a partner company, cryptocurrency brokerage Paxos Trust Company. The state regulator aims to encourage more companies to enter the virtual currency space.
Dive Insight:
Traditional finance companies and governments have kept digital currencies at arm’s length, painting them as niche fascinations. While the volatility of cryptocurrencies can be attractive to traders, it is exactly that quality that has made banking and payments titans reluctant to hang their balances on it.
PayPal’s broader crypto acceptance, with 346 million active accounts worldwide and $ 222 billion in Q2 processed payments, may convince other major players to double their digital currency investments.
“The shift to digital forms of currencies is inevitable, and brings with it clear benefits in terms of financial inclusion and access; efficiency, speed and resilience of the payment system; and the ability of governments to disburse funds to citizens quickly,” Dan Schulman, the president and CEO of PayPal, said in a press release Wednesday. “We look forward to working with central banks and regulators around the world to offer our support and contribute significantly to shaping the role that digital currencies will play in the future of global commerce and finance.”
To be sure, fintechs like Square and the Robinhood stock trading app already allow users to buy and sell cryptocurrencies. Square has offered support for Bitcoin through its Cash app for over two years. The company said it saw $ 875 million in Bitcoin revenue generated through the Cash app between April and June, a 600% year-over-year increase, the Financial Times reported. This month, Square invested $ 50 million in Bitcoin, whereas earlier, software company MicroStrategy put all of its $ 425 million in cash reserves in the digital currency.
But PayPal’s size gives it the leverage it needs to create a domino effect, analysts said.
“There is no comparison regarding potential exposure between PayPal’s advantage this offers and the advantage of any similar previous offering,” Joseph Edwards of London-based cryptocurrency brokerage Enigma Securities told Reuters.
“PayPal, with 300 million users, can be the bridge between traditional payments and cryptocurrencies by telling users: ‘Here is an easy way to get into cryptocurrencies; we can incorporate it,'” Douglas Borthwick, director of marketing of the blockchain trading platform INX Ltd., told American Banker.
“We have crossed the Rubicon,” said former hedge fund manager Mike Novogratz. tweeted on wednesday, adding that banks will now compete to service digital currencies.
Until now, PayPal allowed users to transfer funds on and off cryptocurrency platforms, but not hold or exchange cryptocurrencies directly within its own application.
That said, there will be limits. Users will not be able to transfer coins in and out of accounts and can only have cryptocurrencies that they purchased from PayPal, the company said, according to Bloomberg. The payment network will accept four digital currencies: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. There will be no service fees for buying or selling cryptocurrencies until January 1, and no fees for holding cryptocurrencies in a PayPal account, the company said.
On the merchant side, PayPal will manage the risk of cryptocurrency price fluctuations. Merchants will receive payments in virtual currencies, but transactions will be settled using traditional currencies, such as the dollar.
“We are doing it in a fundamentally different way to make sure we provide maximum security for our traders,” Schulman told Reuters.
PayPal, for the past year, has been hot and cold on crypto. The company was among the original 28 backers of Facebook’s Libra development, but last October it became the first of several firms to pull out of the project.
It signaled its interest in the space in March, and told the European Commission in a letter that it was “continually monitoring and evaluating global developments in the crypto and blockchain / distributed ledger space,” and that it hoped the technology could. ” achieve greater financial inclusion and help reduce [or] eliminate some of the weaknesses that exist today in financial services. “
Traditional banks and regulators showed a gradual warming towards virtual currency this year. JPMorgan Chase this spring extended banking services to two crypto exchanges, Coinbase and Gemini. Meanwhile, the Office of the Comptroller of the Currency in July clarified that national banks can provide crypto custody services, as well as hold unique crypto “keys” on behalf of clients.
Although the Federal Reserve Bank of Boston announced in August that it is partnering with researchers from the Massachusetts Institute of Technology to build and test a hypothetical digital currency, Fed Chairman Jerome Powell said Monday that the central bank would not has “made the decision to issue one.” “adding that more work needs to be done, along with an” extensive “public consultation with stakeholders
Payment networks have also made strategic breakthroughs this year to expand their crypto footprint. Visa created links to 25 digital currency wallets that allow users to spend from their crypto balance using a Visa debit or prepaid card. Crypto platform Wirex partnered with Mastercard to launch a card that returns users 1.5% in Bitcoin for in-store purchases.
PayPal’s move brings it one step closer to the actual crypto exchange than Mastercard. A Mastercard licensee like Wirex “will hold cryptocurrencies on behalf of consumers and issue Mastercard payment products,” Eric Grover, director of Intrepid Ventures, told American Banker. “PayPal is a network, but also an issuer. It will hold cryptocurrencies on behalf of PayPal users.”
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