It has been over a year since PayPal has shown interest in getting involved in crypto space. This ambition has been welcomed by many in crypto world. It is always great to see globally recognized brands realizing the power of crypto and taking active steps to participate one way or the other. PayPal made it possible purchases of crypto, sending and receiving crypto on their platform. It even started its own stable coin. Now in the latest news I have read that PayPal applied for NFT marketplace patent for on/off chain asset trading. This pivot in business is interesting, however more I think about it more I realize that PayPal won't be able to succeed in crypto. Let me explain why.
PayPal was revolutionary innovation. It is still a great tool. Something that may seem very simple today, it was revolutionary when they came up with a system of allowing online payment with only using email, without revealing financial information to everybody. It has been simple to use, and it just worked. It still does. PayPal is not a bank, and never wanted to become one. It found it niche and dominated the online payments. It brought merchants and customers together. Many still use it today, and it probably is not going away anytime soon. However, in a long run PayPal may not be around in a five to ten years. Crypto solutions not only offer better payment system, but they are in direct competition with PayPal. Even without the threat of crypto taking away the market share, there are a lot more competition in online payments today. Apple Pay, Google Pay, Venmo, Cash App, soon X-pay, etc. There is plenty of competition in traditional payments already.
I do like when companies realize where the future is heading, keep up-to-date with technological innovations and how they may impact their business in the future. Most importantly it is great to see companies to be able to pivot at the right moment and lead their core businesses into the future. I have no doubt crypto will dominate payments in the future. There are so many solutions that are much better than traditional systems in many ways: speed of transfers, fees, transparency, security, efficiency, etc. But how would a traditional payments platform pivot into crypto? They answer is different for different entities. There is a different answer for banks, different answers for card payments, and also different answer for PayPal. PayPal is not a bank. It partners with banks to make transfers to happen. PayPal's revenue model heavily relies on transfer fees. It charges both merchants and their customers transfer fees. It has revenue in tens of billions, and profits in billions. If any pivot involved lowering transfer fees or removing them completely, PayPal won't be able to generate revenue, and maybe even won't be able to operate. That's the only crypto path I can think of for PayPal may not even work.
There is a crypto path for PayPal. But it involves strong conviction in what crypto truly represents. Embracing the technology and revolution. However, what PayPal seems to be doing is trying to have both traditional payments and offer crypto services. The two complete opposite of each other, and would undermine each other. Let's take a look how crypto could transform PayPal as a superior payments system. The company has developed good relationship with banks and understands how traditional systems work. PayPal's original vision was making online payments effortless, while providing the security. The same model can be implemented utilizing better payments technology, crypto. People would still be able to use USD or local currency for transfers. However, backend technology would utilize decentralized blockchains like bitcoin, litecoin, hive, etc. They can even utilize stablecoins if they choose to. There are many options that offer speedy transfers that doesn't rely on slow motions banks. There are feeless transfer blockchain that Hive that can power the backend tech as well. Utilizing Hive's HBD would probably benefit PayPal the most, as it would easily be able to translate into USD. But it can be anything, it can be low fee lightning network, or low fee litecoin.
PayPal can still charge fees, but they would have to lower their fees significantly. I believe they would be able to lower these fees, because they wouldn't be using banks that often. There is still need for banks, because PayPal users would want to deposit or withdraw fiat. If I am a frequent PayPal user, they can offer me one time fee for depositing few hundred dollars, and super low fees for all transfers afterwards. Once the money is deposited, they would be dealing with the banks. In the backend they can use stablecoin or other crypto for transfers. They can also lower bank deposits and withdrawals too, since it wouldn't cost them much either. As long as they know the user is return customers and has built relationship with the platform, it would present any risks for them either. While bank deposits take days, they can still credit the account for instant use of funds.
Usually merchants are the ones who pay most fees. Lowering transfer fees and even removing them for merchants would help PayPal to continue build strong merchant relations, and retain them on the platform for a very long time. Merchants would be happy to pay lower fees than choosing new alternatives that may offer zero fees. This would also allow merchants lower their prices for their products and services, and make marketplaces that utilize PayPal more attractive. Such pivot would definitely cost PayPal. It would lose revenue in a short term. The only way they would be able to regain current levels of revenue or even more is only with much more transactions. Which is possible, but risky. This is one of the reasons PayPal would never make such changes. Even if they wanted to as a company, stakeholders and board would veto such actions. That's why PayPal will never be able to fully utilize the crypto technology, and transform itself into a viable crypto company.
More and more competition will continue emerging, and PayPal has a lot of work to do to protect its market share. It is trusted payments platform, and globally recognized brand. It will be used for a while. But I think there will come a time, it will be no more. Because there will be newer companies who will be able to embrace PayPal's original vision and implement it is utilizing more sophisticated payments systems like bitcoin, litecoin, ethereum, hive, etc. In the meantime, PayPal can continue generating revenue and experimenting with crypto.