PayPal was one of the first payment services that took advantage of the Internet. Unlike a cryptocurrency, which is a direct means of payment, PayPal acts as an intermediary between two parties and facilitates the transfer of funds.
When PayPal was founded, this was a unique business model. However, the Internet of twenty years ago was a very different place, and today the crypto revolution is on the cusp of destroying PayPal’s business model.
Unfortunately for PayPal, cryptos offer tremendous advantages over their platform.
There is every reason to think that as cryptos create tighter relationships with the existing banking infrastructure, PayPal will lose any competitive advantage they have. Here are a few important things to consider about their multi-billion dollar business.
ONE: Cryptos Remove The Middleman
PayPal makes a lot of money by getting in the middle.
Unlike a cryptocurrency transaction that costs little to execute, if anything, PayPal charges a fee that amounts to a few percent of a transaction to move data around. When a small amount of money moves around this is understandable, but on larger transactions, a 2% or 3% fee is entirely unjustified.
Given the fact that PayPal was initially competing with major banks, this shouldn’t come as a surprise as banks are notorious for overcharging their customers for just about anything.
TWO: Direct Access To Your Money
Banks and money transfer services seem to forget that the money that is in their possession isn’t theirs. People trust money to a transfer service because they want someone else to have it, not for the transfer agent to erect barriers to receiving the money.
In many ways, PayPal is something along the lines of an electronic Western Union, but cryptocurrencies are far more like an online cash transaction. This may be why they no longer supports the sale of cryptocurrencies via their platform.
The advantages that cryptocurrencies offer in this regard are enormous, and this probably isn’t lost on the management at PayPal.
THREE: Smart Contracts Offer Better Protection
One of the biggest arguments for using a middleman like PayPal is the security they provide for a transaction. However, like many things in the world of traditional financial system vs. crypto, the crypto world does it better, faster, and safer.
With the advent of easily accessible smart contracts, most money transfer services will be hard pressed to compete with cryptos. A smart contract can be created to deliver money once certain parameters are met, which could be as simple as a recipient entering a key code that the person sending the money provides.
At the moment, cryptos still aren’t in a position to challenge fiat currency due to their lack of acceptance at money center banks, but this is changing. Once there are national cryptocurrencies, it will be far easier to access the existing banking infrastructure via crypto-friendly central banks.
In some ways, major banks are in a better position to adapt to the changes that cryptos are creating when compared to platforms like PayPal, who occupy a position in the market that is rapidly becoming obsolete.
Nicholas Say was born in Ann Arbor, Michigan. He has traveled extensively, lived in Uruguay for many years, and currently resides in the Far East. His writing can be found all over the web, with special emphasis placed on realistic development, and the next generation of human technology.