Introduction
Cryptocurrency has become popular in recent years, and its application has found a place in the global financial niche. Even though bitcoin trading has been unstable, its use has taken shape this year. Consequently, financial experts have suggested that the technology is likely to survive and have a meaningful impact going forward. Additionally, as more individuals embrace the use of digital currencies and related technology, financial organizations and governments are noticing the trend. The developments in cryptocurrency have created new opportunities and barriers to various players in the global economy. For instance, small businesses have found an alternative platform to grow while larger firms are beginning to appreciate the security and speed of distributed ledger systems. PayPal is one of the latest financial companies to embrace Bitcoin as a currency in its services, a step that has potential benefits to the institution and its clients.
Integrating Digital Currency into PayPal’s Operations
It is important for companies to carefully analyze financial trends in order to grow, and PayPal has done so by paying attention to developments in digital currency. The company currently has 300 million active clients, and in October this year, it announced that the customers will be able to make bitcoin transactions using their accounts (Salzman, 2020). This is a good decision because it will not only improve the experience of current PayPal users but also attract new clients who are more inclined towards cryptocurrencies. Furthermore, formalizing this type of currency in the company’s platform implies that users could have the opportunity to purchase items from 26 million merchants registered by PayPal.
Early November 2020, the company introduced bitcoin services to its American customers and plans to extend the same to its users all over the world in due time. The PayPal news to embrace cryptocurrency came at a time when the bitcoin prices were at $12,000. However, since the company’s decision, the cost has maintained a forward trajectory and as of November 20, it stood at $18,997, the highest figure to be recorded in the past three years. Furthermore, financial experts have predicted that if the growth is maintained, PayPal will be buying close to all of the new bitcoins within short periods. This fact implies that the company made the right choice and is already noticing the technology’s huge impact.
According to Smith (2020), PayPal chose the right time to make the move because bitcoin is now more stable than it has been in recent years. Aside from the company, interest from other similar entities, such as Robinhood and Cash App, has led to the cryptocurrency’s rise in popularity because individuals can now buy bitcoins easily. Previously, the process of purchasing and using bitcoins was quite technical and time-consuming because the interested parties had to take photos of themselves and wait for days before their accounts were activated (Salzman, 2020). However, the situation has changed because an applicant can now gain access to digital currency in less than a day.
Research on the use of cryptocurrencies in the business world indicates that bitcoin is largely run by institutional buyers. According to Gogo (2020), close to 21 companies, including Galaxy Digital Holdings and Microstrategy Inc., have a total of $14.42 billion of bitcoins in their accounts, which is more than 4% of the current supply. In the initial stages of the cryptocurrency’s introduction, enterprises and individuals were quite skeptical about the validity and sustainability of bitcoins (Fosso Wamba et al., 2019). Nonetheless, the innovation is becoming a currency like any other, and people quickly accept its use.
Potential Benefits of Bitcoin to the Financial Industry
The adoption of bitcoins as part of PayPal’s financial technology is supposed to improve the engagement between clients the services offered by the company. Consequently, the company’s CEO Schuman suggests that PayPal should have a routine utility to maximize the benefits of cryptocurrency by ensuring customers start thinking about the innovation. Square, PayPal’s rival is an example of an institution that has enhanced engagement by adding bitcoin as a feature in its Cash App (Gogo, 2020). Clients who make use of bitcoin trading will send more money on the platform, spend more using their cash cards, and take advantage of other related features. However, PayPal endeavors to perform better than its competitor by allowing its customers to make any online transactions using their cryptocurrency reserves (Fosso Wamba et al., 2019). Even though the institutions will liquidate the digital currency for their merchants, clients will be in a position to save their money as bitcoins until they want to use it.
Additionally, the introduction of bitcoins in PayPal will enhance financial inclusion considering the company serves a variety of clients. Peer-to-peer (P2P) and production to consumer (P2C) are examples of transactions made online that will benefit from digital currency. According to Levy (2020), bitcoins reduce the costs of sending money to friends and companies because the charges are close to free. This means PayPal and other similar institutions will be able to attract more clients due to the affordable transaction rates. Furthermore, cryptocurrencies will improve the efficiency, resilience, and speed of the company’s payment system. This feature will reduce the number of times customers wait for their transactions to be completed.
Expected Challenges of Introducing Bitcoin to FinTech
Like any other financial strategy, the use of cryptocurrency at PayPal also has limitations. First, there is a concern about client data privacy considering all bitcoin transactions can be traced and done in public. A user will need to transfer bitcoins from their wallets to PayPal accounts and vice versa, and all these transactions can be tracked online (Smith, 2020). Consequently, there are likely to be questioned on security, especially on clients who understand little about bitcoins. PayPal currently has data privacy rules to protect its users from information misuse, but it will be difficult to do the same when using digital currency. Secondly, using bitcoins as a currency will also lead to regulatory-related issues (Smith, 2020). Financial technology institutions must adhere to regulatory frameworks put in place by governments. Online transactions create platforms for black market activities, and the use of cryptocurrency makes it difficult for law enforcers to monitor such illegal conduct. Consequently, PayPal has a challenge of enacting policies that will regulate the use of bitcoins for sustainable purposes.
Conclusion and Recommendations for the Integration of Cryptocurrencies
Bitcoin and other cryptocurrencies are the future of financial technology. PayPal has taken a vital step to accept bitcoins as one of the methods of transaction in its operations. Cryptocurrency has existed for close to 10 years now, and, despite its advantages, very few people and institutions use it. However, in the past three years, the financial industry has seen stability in technology use and a steady increase in its prices. Consequently, PayPal has made a bold decision that has the potential of enhancing client engagement and taking financial technology to another level. Other global financial institutions, such as Payoneer, should also consider adopting the technology.
However, since the future will be defined by digital currencies, PayPal should focus more on creating its cryptocurrency to mitigate the discussed regulatory and security issues. Facebook initially invested in the project its digital currency by the name Libra but failed due to regulatory challenges. PayPal has a chance of improving on those issues by ensuring its cryptocurrency policies match those of respective financial regulating bodies. The company has chosen the right path by introducing bitcoin. Nonetheless, a more sustainable plan would be to develop its unique digital currency.
References
Fosso Wamba, S., Kala Kamdjoug, J., Epie Bawack, R., & Keogh, J. (2019). Bitcoin, Blockchain, and Fintech: A systematic review and case studies in the supply chain. Production Planning & Control, 31(2-3), 115-142.
Gogo, J. (2020). PayPal bought 70% of all newly mined bitcoin last month as demand rockets | news bitcoin news.Bitcoin News.
Levy, A. (2020). Why PayPal’s bitcoin support is a big deal.The Motley Fool.
Salzman, A. (2020). PayPal’s big bitcoin news helps the company more than the coin. Barrons.
Smith, S. (2020). Bitcoin and PayPal have made headlines, but what about other crypto trends?Forbes.
Appendix
BTC Price in USD in the Past Six Years
Implied PayPal Bitcoin Purchases
