Speculation has been rife that PayPal could start to support crypto transactions in the near future. The speculation has appeared frequently on social media, as many believe it could fuel mass adoption. PayPal competitor, Square recently revealed that they saw a huge spike in revenue. According to the report by Square, most of its growth was driven by activities involving Bitcoin. Why could PayPal cripple Square in the digital assets space?
Some proponents of the crypto sector believe that crypto transactions will eventually replace card and cash transactions. However, if the speculation around PayPal is true, the company might be trying to expand its market share. With PayPal having better financials and a larger user base, it could have a significant impact on Square’s scalability. Back in late June, it was reported by Finance Magnates that PayPal was looking to roll out its crypto solutions in the “next three months or sooner.” It is believed that PayPal users will be able to buy and sell cryptocurrencies, with built in wallet functionalities.
Crypto is the Next Step
Crypto veterans see the industry as the next step in the evolution of the financial system. A good analogy is the use of debit and credit card payments. In the past, most transactions took place in cash. However, some places around the world have over 90% of all transactions taking place in debit, credit, store, and prepaid cards.
Another analogy is the stock market. In the past, a person had to sign a physical certificate when selling his or her shares to another person. Today, the stock market is electronic and transactions take place in fractions of a second.
As a result, many understand the history of the financial sector and see crypto as a natural step in the evolution of finance. While the crypto sector pales in comparison to the financial world at a market cap of $270 billion, many people see it having significant potential. Besides that, most of the crypto in the world is still traded amongst retail traders.
Why PayPal Could Emerge a Winner
PayPal could very well choose to not enter the crypto market directly. Instead, it could do so via its subsidiary Venmo, a P2P payment platform, which only supports fiat currencies. If it did, it would be going up against the Square Cash App, which has just over 30 million users.
For comparison, Venmo had over 52 million users in 2019. The pandemic has forced more people to rely on online payments, leading to major growth for the platform. In the last quarter, PayPal reported a user base of over 350 million globally.
How Will PayPal Benefit?
The reason for PayPal to offer crypto support is to offer a one-stop-shop for people’s personal financial needs. Besides that, PayPal has taken an interest in touchless payments, which have become popular during the COVID19 outbreak. Unlike cards and cash, there is no physical contact required.
A major reason why Square should be worried is that its margins are razor-thin. For instance, the company only recorded $17 million in gross profits after $875 million of BTC revenue. However, Bitcoin integrations are creating an environment for Square where users come to the platform for Bitcoin, but end up using other features like the Cash card and payment processing applications.
The advantage for PayPal is that it could afford the thin BTC margins. The company reported over $2 billion in free cash flow in the last quarter. Besides that, they are sitting on $7.3 billion in investments and net cash. For Square, the figure is just over $1 billion.
Thus, if PayPal decides to go ahead with a crypto offering, it will be interesting to see how Square reacts. Despite many viewing this as a negative event, creating competition is always beneficial to the end user. Regarding cryptocurrency, the competition is even better since mass adoption has yet to surface. In the future, this could fuel the integration of digital assets other than Bitcoin into popular payment applications. Similar to Facebook Libra developments, PayPal and Square will only scale as fast as regulators let them. Until the regulations become more transparent, it is assumed that these developments will slowly come to fruition.
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