PayPal stepping up to face its rivals should come as no surprise

May 31, 2024
Kate Baucherel

THE news that PayPal’s PYUSD stablecoin is now available on Solana should come as a surprise to no-one.

The payments giant started its exploration of crypto back in 2019, testing a number of Layer-1 chains and proving that crypto rails were many times cheaper per transaction than banking rails. They chose to use Ethereum for their proof-of-concept as it was the most well established and reliable platform with the greatest concentration of developers.

PayPal gradually introduced crypto to its service, their incremental approach matching the gradual evolution of crypto knowledge in its customer base. In October 2020 they launched the first consumer-facing product, the in-app purchase and sell back of crypto, without any on-chain transfers involved.

This was aimed at people who had heard of crypto but not dabbled, and would start their journey with a trusted brand. In 2022, as users became more sophisticated, PayPal enabled on-chain transfers and links to Metamask, becoming an on/off ramp for those who needed it. In 2023, they launched the PYUSD stablecoin.

Over the last five years, however, blockchains have moved on. Ethereum’s network became clogged and expensive and it has long been overtaken by faster and cheaper technology. Speaking at SXSW in Austin in March this year, PayPal’s Senior VP Crypto, Jose Fernandez da Ponte, highlighted the need for speed.

Faster and better

To match existing payment expectations, he said, the blockchain used by the PayPal system should be able to process at least 1,000 transactions per second (TPS) - a long way from Ethereum’s sedate 25 TPS.

Transaction fees were also an issue, with the volatility of gas prices and ETH values throwing too much uncertainty and high costs into the mix.

Ethereum served its purpose to test crypto rails and new business models, but in the long term will not give the global retail user base the convenience and financial advantage that PayPal intends. A second chain would be announced this summer, he said, and the news has come earlier than expected. 

Solana was always the front runner. It has the speed and low cost that PayPal needs and has its eyes firmly fixed on the payments market. It already has a number of support agreements and integrations in place with the likes of Visa and Shopify, and earlier this month announced a partnership with Google Cloud.

Visions and challenges

Fernandez da Ponte sees PayPal as a conduit between fiat and digital currencies for retail customers, abstracting the complexity of wallets and keys for easy adoption of rapid payment rails.

People will always move towards something that offers convenience and financial advantage, he says, and the market decides - not the regulators. Ironically, PayPal’s crypto purchasing service is temporarily paused in the UK while they update their systems to comply with new regulations. 

Ultimately, despite all the hype around crypto and blockchain and the special properties that we know and love, the public wants not a car, but a faster horse. Stablecoins like PYUSD that can be used without delay, high cost, complexity or volatility fit the bill, and in this vision of a global peer to peer economy, PayPal is the new Henry Ford.