Some background
The digital payment PayPal made a shockwave in 2020 when it announced that it would offer cryptocurrency services. Since the foray into the crypto sphere, PayPal users can now buy, sell, and checkout with digital coins, including Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. However, Bitcoin seems to be the asset that is most sought after.
Naturally, PayPal has also expanded its crypto-related products to Venmo, a popular online wallet owned by the platform. Similar to PayPal, customers can execute buy or sell orders with cryptocurrencies using the Venmo app.
With the most valuable token in the digital market combined with the most well-known online payment platform, Bitcoin and PayPal have created an alliance that is primed to further push crypto adoptions while disrupting the online payment industry.
How PayPal makes money
To understand how PayPal can benefit from entering the crypto market, you need to understand its core business operations. Essentially, PayPal charges fees whenever a transaction occurs on its platform, whether from merchants or consumers who executed the order.
The fee can stem from a wide range of other services. Those services include currency conversions, fund transfers between customers’ accounts, cross-border transactions, miscellaneous fees, and, of course, cryptocurrency transactions.
The fee structure for crypto transactions
When you use Bitcoin to pay for an online merchant via PayPal, that seller won’t receive the Bitcoin directly, but rather the token will be exchanged into fiat before the transaction go through. And PayPal siphons a percentage from the exchange as a fee. 2.3% for transactions less than $100, for example.
Also, when the platform first accepted crypto in 2022, it didn’t allow moving coins out of its wallet. Not until 2022 did it offer the feature to its users. But now they have to pay a fee if they want to transfer crypto to an address outside of PayPal.
As Bitcoin, and cryptocurrency as a whole, will likely increase its real-world usage and popularity, this represents a tremendous opportunity for PayPal. With PayPal gradually establishing itself as the de facto exchange for trading digital tokens, it will attract more users and boost the fee revenue.
Customers love crypto
Despite the cost of owning Bitcoin via PayPal, early reports, after PayPal adopted the crypto strategy, showed that customers were using the app more because of crypto offerings.
PayPal’s goals are not only to appeal to new users but also to entice existing customers to use the app more. The company once reported that users open the app more frequently after they sign up for crypto services.
Also, a report published by Mizuho Securities in 2020 indicated that nearly 25% of PayPal users participated in a Bitcoin transaction. While PayPal doesn’t publish much detail regarding its current crypto business, the early report showed a promising result.
In addition, consumers might be using Bitcoin as the main medium of exchange in the future. Jose Fernandez da Ponte, senior vice president and general manager for PayPal’s blockchain, said in an interview, “We think a substantial amount of commerce and payments will happen on digital currencies in the future, and we are playing the long game.”
New opportunity for PayPal
Although the crypto market might be experiencing a crypto winter, PayPal still doubled down on its commitment and expansion into the digital coin landscape. Particularly, the platform partnered up with MetaMask, a popular crypto wallet, late last year.
The move aimed to expand the company’s reach to new users, as well as to allow existing customers to conveniently transfer tokens between the two wallets. The partnership will also integrate PayPal as a payment option on MetaMask, generating an additional source of revenue.
Product manager Lorenzo Santos at Consensys, the developer of MetaMask, remarked in a press release, “This integration with PayPal will allow our U.S. users to not just buy crypto seamlessly through MetaMask, but also to easily explore the Web3 ecosystem.”
What does this mean for Bitcoin?
Bitcoin, and other cryptocurrencies, are going through a slump right now due to unfavourable macroeconomic conditions. And it doesn’t seem the market will recover any time soon, at least in the short term.
However, as for long-term growth, Bitcoin holds multiple catalysts for explosive growth in the future – and among them could be PayPal. With more than 420 million active users as of 2022, PayPal represents a much-needed stimulant for Bitcoin’s long-term rise.
As well, with more than 26 million merchants in its network worldwide, PayPal can serve as a springboard to precipitate Bitcoin’s ultimate goal as the main payment method.
Conclusion
Overall, the partnership between PayPal and Bitcoin has created a profitable alliance that has the potential to revolutionize the online payment industry. PayPal’s expansion into the crypto sphere has also enabled its users to easily buy, sell, and checkout with digital coins, including Bitcoin.
As Bitcoin and other cryptocurrencies become increasingly popular, this represents a great opportunity for PayPal to attract more users and boost its fee revenue. Despite the current slowdown in the crypto market, PayPal’s commitment and expansion into the market suggest an optimistic future for both PayPal and Bitcoin.
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