Digital Transformation: Cryptocurrencies Now Legally Recognized as Payment Method by PayPal
PayPal is set to introduce a new service called "Pay with Crypto," which will be available for U.S. merchants in the coming weeks. This move marks a significant step forward in the company's cryptocurrency plans, as it allows merchants to accept over 100 different cryptocurrencies.
The new payment function will support some memecoins like $TRUMP and $FARTCOIN, surprising many in the industry. This could make PayPal attractive to a new generation of merchants and customers who have been eagerly awaiting mainstream adoption of these digital assets.
PayPal's transaction fees for cryptocurrency payments are claimed to be significantly cheaper compared to international credit card processing. Initially, these fees will be set at a promotional rate of 0.99% for the first year, rising to 1.5% thereafter. This is a welcome relief for merchants, as transaction fees for Visa or Mastercard payments typically range between 1% and 3%, with additional small fixed amounts per transaction.
For international payments made in foreign currency, these fees can quickly reach the upper end of the range. Coinbase has previously produced ads highlighting the issue of high credit card fees and presenting cryptocurrency as a fairer alternative.
PayPal's revenue model for this new service is multi-faceted. The company will generate revenue through conventional payment processing fees, as well as innovative crypto-native income sources.
One such source is the spread from crypto-to-fiat/stablecoin conversion. Merchants receive instant conversion of crypto payments into PayPal's proprietary stablecoin, PYUSD, or fiat currency, allowing PayPal to earn revenue from currency conversion spreads and facilitate smoother settlement.
Another source is the interest (yield) on PYUSD holdings. Merchants who hold proceeds in PYUSD earn a 4% yield, effectively turning them into liquidity providers and creating a passive revenue stream for PayPal through managing these PYUSD balances and yield mechanics.
The integration of over 100 cryptocurrencies and the central role of PYUSD could open up new, lucrative revenue streams for PayPal. By tapping into a global market of over 650 million crypto users and enabling acceptance of a broad range of cryptocurrencies, PayPal aims to increase overall transaction volume, thus scaling fee-based income and fostering ecosystem lock-in.
The platform also simplifies global commerce by connecting multiple digital wallets and reducing friction in international payments. This could potentially benefit from strategic partnerships and expanding network effects that increase transaction volume and service uptake.
Investors are likely to continue supporting the PayPal stock due to the company's ambition to play a leading role in the digital currencies market. PayPal CEO Alex Chriss stated that this new service aims to remove barriers for companies during global expansion, a statement that further underscores the company's commitment to driving the adoption of cryptocurrencies in the mainstream market.
PayPal's revenue model for the "Pay with Crypto" service involves earning transaction fees from traditional payment processing and generating income from novel sources like the spread from crypto-to-fiat/stablecoin conversion and interest on PYUSD holdings.
The integration of over 100 cryptocurrencies and the central role of PYUSD could potentially create new, significant revenue streams for PayPal, as the company aims to scale fee-based income and foster ecosystem lock-in by tapping into the global market of over 650 million crypto users.
