PayPal’s decision to tentatively enter the digital currency space is the latest in a series of moves by mainstream companies to offer, accept or interface with the digital currency ecosystem.
These interactions have ranged from outright acceptance of bitcoin in lieu of national currency to establishment of blockchain protocols to speed and secure transaction processing. PayPal, with nearly 150 million active users and 2013 revenue of $6.6B, is the largest financial payments business to embrace bitcoin to date. The initial move, allegedly in discussions for several months, is a tentative one; PayPal has teamed with leading exchanges Bitpay, Coinbase and GoCoin to offer North American digital-goods merchants (think music and gaming) the ability to accept bitcoin through PayPal’s Payments hub, where it offers a number of transaction options such as credit cards and mobile payments. It is essentially offering a very select group of merchants already pre-disposed to bitcoin the option to accept it if they wish.
PayPal’s move is important on a number of levels, some of which have little to do with the acceptance of bitcoin. For one, it validates the theory that the payments industry is keenly aware of the threat from, and the promise of, widespread adoption of digital currencies. Far from ignoring them, major players in the industry like PayPal are actively seeking ways to gather the necessary information to make informed judgments about how to incorporate them.
Also, PayPal’s cautious approach underscores the complex legal and regulatory environment facing global blue chip corporations when it comes to bitcoin. Active in 26 countries, PayPal must take note of differing interpretations, tax implications and legal definitions of digital currency all around the world, making it impossible (for now) to manage a coherent, company-wide policy. Indeed, PayPal has publicy stated that its initial foray into bitcoin is being partly metered by the developments on the regulatory side. Finally, although PayPal’s initial foray into the bitcoin world is limited to a niche sector, it combines with the recent integration of bitcoin by mobile payments specialist (and PayPal subsidiary) Braintree. Taken together, PayPal will rapidly gain experience working with the many facets of digital currencies.
Importantly, both PayPal and Braintree are ultimately owned by eBay, which announced plans to spin PayPal off into a separate publicly held company next year. The move could ultimately open the door to greater adoption of digital currency as PayPal seeks to fend off innovative competitors such as Stripe and Square, which have wholly embraced bitcoin. A key requirement for future merchant adoption of bitcoin is adequate next-generation hardware and software infrastructure that enables retailers to process any form of payment from customers.
Disruption in Real Time
The PayPal announcement, coupled with news that Circle’s bitcoin banking service has exited beta and Ripple has teamed with two U.S. banks to improve transaction processing, are welcome signs of digital currency integration on both the commercial and consumer sides. Meanwhile, the rapid evolution of the mobile payments business means established transaction-oriented companies of all types are scrambling to avoid being left behind by more aggressive firms.
Apple’s Apple Pay is a case in point, offering one-touch payment capability at retailers through existing credit card and banking networks. Although arguably utilizing a blockchain-esque token system, Apple is saying little about integrating bitcoin into Apple Pay, there will certainly be application development combining the two in the future.
Apple Pay’s use of technology to improve the convenience and security of mobile interaction with traditional bank and credit card networks is a good step towards full implementation of user-friendly, secure mobile payments. As such, it can only benefit the digital currency ecosystem in aggregate. But Apple Pay layers yet another fee on top of an already expensive, antiquated system, while Bitcoin remains more efficient, cheaper, and more secure. It is also more customizable, thanks to a growing army of young, highly-talented developers who are also Bitcoin enthusiasts.
Ultimately, Apple Pay’s greatest impact on bitcoin may be its ability to shift consumer behavior about mobile payments the way it did for music with iTunes, thus paving the way ahead for digital currencies.