Bitcoin buying made easy

There have been some grumbles in the crypto media recently about the difficulties people are encountering when trying to buy Bitcoin. This excellent article by Bailey Reutzel summarises his problems, which is surprising considering he is a seasoned cryptocurrency owner who has been buying it for years. He found that at a number of exchanges he was locked out because of his New York location. In the end he went to PayPal, and after he’d discovered that you can’t buy Bitcoin from a PayPal business account, he set up a personal account and successfully completed a transaction.

PayPal entered the crypto market recently, making it easier for the regular Joe to buy BTC, and it appears to have paid off. According to Martin Young at Cointelegraph, “$242 million worth of digital assets changed hands on the platform during 11th Jan.” PayPal’s recent record was $129 million on 6th January. And, since 1st January, its daily volume has increased by 950%.

This is a moment to reflect on, because as Nuggets News’ Alex Saunders tweeted, “retail has arrived.” That is important for achieving mass adoption.

There is a downside to using PayPal the critics say, because PayPal is like a ‘gated community’ that doesn’t “support withdrawal functionality.” Twitter user Toomas Zobel suggested that the surge in PayPal volume maybe have resulted from retail capitulation, and that there was no way to see if this was a buy or sell volume. He remarked that retail buyers were probably rushing to realise profits when BTC hit $40,000.

However we should be mindful that the PayPal and crypto relationship is just beginning, and that it has plans to extend cryptocurrency services to its 26 million merchants in the coming months. Undoubtedly this will fuel further demand for cryptocurrency and for PayPal’s services. Above all, for the inexperienced crypto buyer, it is a far easier proposition to set up a PayPal account and buy crypto there than venture into the exchanges such as Binance and Coinbase. When you make buying crypto easier for those who have never invested in stocks, you open up the market to the mainstream: something that crypto has been waiting to happen for years. Let’s see if 2021 advances the buying and use of crypto even further.

PayPal targets fintech

PayPal is getting into point-of-sale financing. This is a tool that allows you to pay for an item in instalments rather than putting it on your credit card. It has been growing in popularity, and the pandemic has driven its use to rise even more steeply.

Two companies, namely Afterpay (Australia) and Affirm (USA) have been thriving in this sector. For example, Afterpay, whose entire business is staked on the scheme, has sailed from a market valuation of $1 billion in 2018 to $18 billion today, and Affirm is planning an IPO that could fetch $10 billion.

Now PayPal is squeezing itself into the space with its new ‘Pay in 4’ product. This will allow you to pay for any items that cost between $30 and $600 in four instalments over six weeks.

It promises to be slightly less expensive to use than the other two companies mentioned. It won’t charge interest to the consumer or an additional fee to the retailer, but if you’re late on a payment, you’ll pay a fee of up to $10. 

It’s OK for PayPal to do this, because it already has a highly profitable payments network it can leverage. As Jeff Kauflin says, “Eighty percent of the top 100 retailers in the U.S. let customers pay with PayPal, and nearly 70% of U.S. online buyers have PayPal accounts.” Not to mention the fact that as Covid-19 made online purchases skyrocket, it saw record revenues of $5.3 billion and profits of $1.5 billion. Its stock has rocketed in value, adding $95 billion of market value over the past six months, and Lisa Ellis, an analyst at MoffettNathanson, told Kauflin, “PayPal can grow 18-19% before it gets out of bed in the morning.” 

Why move into point of sale financing?

Data from both Afterpay and PayPal shows that consumers spend more money—sometimes 20% more—when they’re offered point of sale financing options. Therefore, when PayPal launches Pay in 4 this autumn it can expect to see transactions rise. It earns 2.9% on each transaction, so its fee revenues will receive a boost as well.

Kauflin makes a good observation: “With Pay in 4, PayPal’s renewed push into lending is an indication the company is getting more aggressive in a volatile economy where many consumers have fared better than expected so far.” Furthermore, PayPal will house these new loans on its own balance sheet. As its senior vice president Doug Bland says, “We’re incredibly comfortable in managing the credit risk of this.” That is indubitably true.

PayPal doubles down on P2P payments

For rather a long time, PayPal has been inextricably wedded to eBay, the mammoth auction site. However, that relationship is in a state of flux, and this has prompted PayPal to look to new partnerships that may take its service in a different direction.

To start with it has paid $4 billion to buy Honey, a shopping rewards platform, and now it is looking at Venmo, a peer-to-peer mobile payments service. Essentially the company offers a digital wallet that allows you to make and share payments with friends. For example, you can easily split a restaurant bill or a cab fare using the Venmo app.

Venmo is distinctly different to PayPal, and yet it complements it, which is no doubt why PayPal’s board considered it such an attractive proposition. By having one partner that covers day-to-day purchases, whilst PayPal covers payments for larger goods, or payments for freelance work, and other types of transfers, it means that together, they more or less have a large swathe of the market covered.

The Venmo app has been showing considerable growth as well. According to its fourth quarter results, published at the end of January, “Venmo processed $29 billion in volume for the quarter, growing 56%. And for the year, volume increased to $102 billion,” PayPal’s CEO, Dan Schulman reported. He also said that it ended the year with 52 million active accounts and revenue in excess of $450 million.

It has grown significantly since its third-quarter figures, which showed it had 40 million active accounts. By the end of 2019 it also, according to PayPal, exceeded a projected $100 billion in payment volume.

How has this happened? Well, PayPal points to Venmo’s deal with Synchrony Bank, which has allowed it to add a credit card to its offering. Plus, Visa will be Venmo’s exclusive network partner for the Venmo credit card, Schulman has revealed.

Future plans for Venmo, that it is predicted will boost growth, include Venmo Rewards, a loyalty program it will run with selected merchants. Schulman told Donna Fuscaldo at Forbes magazine: “Last year, we saw brands like Netflix, Pepsi and Chipotle use Venmo payouts to reward their customers and pay them via Venmo. We are excited to introduce new monetizable value-added services to our Venmo platform over the course of 2020.”

What we can conclude from this is that PayPal’s new direction is heavily skewed towards the peer-to-peer (P2P) payment market, where Venmo is the market leader. That makes sense, and it’s surprising it hasn’t moved this way sooner. Here’s why. According to eMarketer, P2P mobile transactions will reach $396.48 billion this year, up 27.9% from $309.95 billion in 2019. Moreover, it is expected that will be 73.8 million P2P payment users by the end of 2020. And by 2030, who knows how big that user base will be!