PayPal’s decision to open its network to bitcoin and its rivals was hailed by virtual coin enthusiasts as a watershed moment for cryptocurrencies and their path towards becoming a widespread means of payment.
But the move might do little to drag existing cryptocurrencies out of their niche in payments, according to many fintech specialists, as holders of such coins often view them as an investment asset akin to gold rather than as a means of spending.
PayPal’s decision could, however, help the company attract new users in an increasingly competitive digital payments landscape where innovation is king, the experts said.
It is also likely to prepare the company for the advent of mainstream digital coins, like those that could be developed by central banks, they added. Such coins are a world away from the ethos of bitcoin, which sought to subvert the financial establishment by doing away with a central issuer or authority.
“I think this is more about PayPal being smart and looking to the future when fiat currencies will go digital,” said David Birch, a director at payments consultancy Consult Hyperion. “I don’t think it makes much difference for bitcoin.”
PayPal said on Wednesday it would allow U.S. account holders to hold cryptocurrencies and shop with them at its 26 million merchants. The California-based company plans to expand the service to Venmo, its peer-to-peer payment app popular with younger consumers, by the first half of next year.
The company said it hoped the service would help cryptocurrencies become more useful, while readying its network for the emergence of more mainstream digital coins.
The shift makes PayPal one of the largest companies globally to give consumers access to cryptocurrencies and sent bitcoin’s price soaring to its highest level in over a year.
“For regular people that have never heard of bitcoin, the association between PayPal and bitcoin, those are all signals for bitcoin being recognised as a digital asset that works,” said Lex Sokolin, global fintech co-head at blockchain software company ConsenSys.
But that association might benefit PayPal more than cryptocurrencies, other experts suggested. Indeed, the company’s stock rose more than 5% following after its plans were revealed.
‘More of an unknown’
Simon Taylor, a co-founder and head of ventures at fintech consultancy 11:FS, said PayPal’s move would help it attract and retain the interest of customers, or “user engagement”.
“Robinhood and Square used bitcoin for the engagement. Then the question is, would someone want to use it for merchant transactions, which is more of an unknown.”
Square Inc, the payments company led by Twitter boss Jack Dorsey, has been offering crypto buying and selling in its increasingly popular P2P payment app Cash since 2018. Bitcoin revenue for Cash App jumped 600% to $875 million in the second quarter, versus a year earlier.
Online brokerage Robinhood Markets Inc has been offering crypto trading since 2018 and has seen overall business boom this year.
Through the move PayPal is also broadening the suite of products within its wallet, reflecting a winning strategy by Chinese rival Ant Financial, whose popular Alipay digital wallet includes services such as payments, loans and insurance.
PayPal’s vast merchant network is doubtless likely to make it more convenient for consumers to spend their crypto. By making settlement happen through traditional, or fiat, currencies, it also allows merchants to avoid exposure to volatility risk when accepting cryptocurrency payments.
The real question, however, is whether people will actually want to spend their cryptocurrencies, which are seen by many as a store of value, experts said.
Large companies from computer maker Dell to travel site Expedia Group have announced plans to accept digital assets over the past 10 years, but none have prompted large-scale adoption by cryptocurrency users as a means of payments.
“Nobody really wants to spend crypto,” said Michel Rauchs, author of several Cambridge University studies on cryptocurrencies and blockchain. “Everybody wants to keep it in order to benefit from potential price increase.”
This was echoed by industry analysts.
“If we look at history, basically bitcoin-specific payments haven’t taken off unless it’s a darknet-related market,” said Tim Swanson, the head of market intelligence at blockchain software firm Clearmatics.
Mainstream digital coins
Long term, however, the move is likely to help position PayPal at the forefront of facilitating payments in more mainstream digital currencies, like those that could be developed by central banks and large corporations.
PayPal Chief Executive Dan Schulman said ahead of the launch that the company was working with regulators on central bank digital currencies.
Major central banks around the world, including the European Central Bank, have been accelerating research on issuing their own digital currencies, with the People’s Bank of China’s digital yuan project the most advanced.
Plans have been spurred on by the prospect of privately-issued tokens such as Facebook’s Libra gaining wide traction. PayPal was a founding member of Libra but dropped out after a few months.
(Reporting by Anna Irrera and Tom Wilson in London; Editing by Rachel Armstrong and Pravin Char)