Paypal is a business operated by PayPal holdings which is a multinational company working in the financial sector.
It supports money transfers between the dealing parties.
It is a US based company and its launch of the USD backed stable coin could be more than just a business move...
Is Paypal the secret weapon that the US is using to increase the influence of US Dollars?
There has been chatter in the business circles that as USD weakens there are others who want to replace it as the world's reserve currency and the currency of choice for trade.
However this is easier said than done.
To understand the impact of Paypal's stablecoin PYUSD one has to understand what PayPal does and how it conducts its business.
Paypal is a business operated as a multinational business in the financial sector and has a global footprint.
It facilitates money transfers between individuals across various countries all over the world.
Let us understand it with an example.
A business in in Singapore wants to engage a graphic designer in India
They discuss the project and strike a deal via an online platform . The deal is struck for $150 for making a couple of graphics. The work gets completed and and it comes to making a payment.
Paypal steps in.
The sender sends $150 via PayPal to the graphic designer who gets the money into his PayPal account.
Paypal takes a fee for carrying the financial transaction.
Ideally small transactions kike these can be done using Paypal without bringing a traditionally bank into the picture.
At times a person may like to hold on to the USD amount in his wallet if he wishes to do so. However if a person is in India he cannot because as per the Reserve Bank of India or RBI this holding of funds in your Paypal account is not allowed. So you have to transfer the PayPal amount to your bank account.
PayPal again comes to your rescue and in compliance with the RBI policy automatically transfers the wallet balance the users Indian bank account.
Next week the developer needs to pay $50 to an associate in another country so he loads his account with $50 from his bank account and sends it to his associate without having to go to a bank or another agency.
For freelance workers Paypal is the lifeline of their financial transactions.
PayPal is super friendly and convenient right?
Well this convenience comes at a price.
When you are doing a USD to USD transfer things are usually fine. However every time the person is transferring from the wallet account in USD to his local currency there is a cost involved.
The person cannot transfer the funds to a money changer. PayPal is the money changer for you.
There is a catch here and that is the conversion fee. The USD to local currency conversion fee which is INR here happens at a rate controlled by paypal and is different from the rates prevailing in the market.
The conversion rates used by the PayPal account are different and tilted in favor of PayPal.
The conversion rate remains in favor of Paypal even when a person loads and sends money in USD or any other currency supported by Paypal.
This model ensures that not only does PayPal earn from a transaction fee but also from a conversion fee which makes it a good profit per transaction.
Step back and look at the scale of the Paypal model
Paypal operates in 200 countries worldwide. Tweaking its policies to accommodate local laws and in the process making more profits for itself.
Since these 200 countries have their respective national currencies and at some point the holder needs to convert the USD to the local currency or do the reverse the conversion charges come into play.
This means that its reach is far and wide and it caters to a large user base that may not have the option to transfer and receive money via a local bank account.
Another point to note is that Paypal lets you send and reserve money in a number of currencies namely
- Australian dollar AUD
- Brazilian real BRL
- Canadian dollar CAD
- Chinese Renmenbi CNY
- Czech koruna CZK
- Danish krone DKK
- Euro EUR
- Hong Kong dollar HKD
- Hungarian forint HUF
- Israeli new shekel ILS
- Japanese yen JPY
- Malaysian ringgit MYR
- Mexican peso MXN
- New Taiwan dollar TWD
- New Zealand dollar NZD
- Norwegian krone NOK
- Philippine peso PHP
- Polish złoty PLN
- Pound sterling GBP
- Singapore dollar SGD
- Swedish krona SEK
- Swiss franc CHF
- Thai baht THB
- United States dollar USD
This 200 country reach did not happen in a day for Paypal. It has evolved and adapted its business to suit the local laws over time.
PayPal is a champion of Compliance and Partnership's
In China (July 2017) it had a partnership with Baidu to make payments to 17 million PayPal Merchants through Baidu services.
In March 2011 PayPal made changes to its user agreement to comply with RBI
It further disabled sending personal payments within the country by its local users.
It stopped its services in Crimea to comply with international sanctions against Russia and Crimea
The list goes on and on
Its compliance friendly image makes it the poster boy of regulated crypto?
This could mark a soft launch of accepting crypto on a global stage.
It is starting with PYUSD and it is not likely to stop there.
If more and more countries allow it to operate its PYUSD issuance it would translate into the users getting PYUSD would have to buy and give that USD to PayPal
This purchase of USD happens from PayPal at a conversion rate that PayPal determines.
Now think of people in 200 countries doing that.
This becomes a distinct possibility because PayPal is already proving its service in these countries, it is trusted and service provider of choice so it could vert well become the gateway of crypto for its userbase.
The demand for USD that it generates would also cement the position of the USD as the world's currency of choice both as a reserve as well as for doing trade.
On the other hand Paypal can hold that USD forever and put it to good use.
The interesting part is that it is very easy for it to toe the line of local authorities and stop or not give its stablecoin services in countries which say no to crypto.
Yet it is a platform with a global reach and also a platform which facilitates communication and payments.
This could open another possibility.
Another way this development could play out is that even though it may not be possible to get your PYUSD or crypto directly from PayPal due to local compliance issues but people dealing with USD or other other currencies may use PayPal to conduct a part payment to establish trust and route the rest of the payment via a Peer to Peer P2P transaction.
Final thoughts
The launch of PYUSD has spiced things up both for the crypto space as well as for those in the fiat world.
For those in the crypto space another stablecoin provided it stays stable could be a welcome thing.
The second set of people would be the stakeholders and investors of Paypal because it is starting a product offering that is going to tremendously increase the cash flow into its coffers and big businesses know very well how to turn cash flows into profit or tax free profits.
Whichever way things evolve this would be a big step that could establish crypto as a means of payments for users across the globe.