Who will use Paypal’s crypto payments?

At the end of March, PayPal announced it would allow its users in the USA to pay for online purchases with cryptocurrency. The global payments giant told Reuters: “We think it is a transitional point where cryptocurrencies move from being predominantly an asset class that you buy, hold and or sell to now becoming a legitimate funding source to make transactions in the real world at millions of merchants.”

According to Marc Hochstein for Coindesk, ‘transitional’ is a good word to describe the situation, “especially for anyone using crypto with PayPal.” Since Autumn 2020, PayPal has allowed its US customers to buy or sell Bitcoin, Ethereum and a handful of other altcoins on its platform, but that is all they have been able to do with them. They couldn’t even withdraw their crypto from PayPal, or deposit crypto they already owned and stored in other places.

In this situation, the service offered by PayPal was arguably one of simply gambling on the price of these assets, “Which, to be fair, is probably the most popular use case for crypto, at least among those people who don’t need to make transactions,” Hochstein says.

He points out that if you are unable to withdraw or deposit digital assets with PayPal, crypto’s core idea that the technology puts individuals back in control of their money, is undercut. However, now you can at least use it to shop following the recent announcement.

Hochstein wonders how many PayPal users will actually use this new service. He believes some skepticism is warranted “given this technology’s long struggle to catch on as a payment mechanism.”

For example, Bitcoin transactions have historically taken too long to appeal to merchants hesitant about the risk of waiting 20 minutes, even though a card transaction may take two to three days to complete and appear in the merchant’s account.

One example of the downside of the crypto transaction speed appeared recently. Following Elon Musk’s announcement that customers could buy a Tesla with bitcoin, one buyer tried it and tweeted: “Thought I’d be hip and pay my Model Y deposit in #BTC but my crypto app took longer than Tesla’s half hour window to send — now the BTC seems lost and no one is able to help. Not good for mass adoption.”

On the upside for PayPal customers, they won’t have to worry about on-chain fees or confirmation times, either; that will be handled by the company and its partner Paxos. Plus PayPal will “mitigate the tax-preparation headache for U.S. customers by providing them with a form 1099 documenting their crypto sales and reporting the transactions to the IRS.” Hochstein asks, “Will that be enough for consumers to overcome the indignity of paying taxes to buy a cup of coffee, and the disincentive to spend a coin today that might be worth more tomorrow?”