Happy hump day, Idiots,
Today, let's talk about PayPal and common sense. (With a side of BitPay.)
My job would be a lot harder in a world where common sense was a commodity and not a differentiator. I don't like sounding hostile or condescending, but it's really hard to not get frustrated when everyone starts jumping for joy after an interview in which eBay / PayPal CEO John Donahue told the Bloomberg
team that his company is "building a digital wallet that can hold multiple types of digital currency."
Well, of course they are, and have been for a long-time now.
Paypal is the pioneer in digital payments and they already accept over 25 foreign currencies. Basically all of the ones that matter with the exception of the Chinese RMB. New digital currencies like Bitcoin will likely interact with PayPal's systems in a very similar manner as existing fiat currencies - once they are big enough. That's because, like Coinbase and BitPay, you would expect PayPal to lock-in bitcoin prices for their consumers and fiat prices for their merchants who'd like to accept bitcoin. They would also be likely to batch transactions "off-blockchain" in order to cover price risks during the 10 minute confirmation window.
Let's back up and look at what was actually said during the interview (emphasis my own):
Matt Miller (Bloomberg):
I feel like digital payments like Bitcoin or something similar are clearly going to rule the way that we do internet commerce in the future. Wouldn't you get a great headstart if you could spin off PayPal, take the valuation on it now, before something like Bitcoin comes along and makes PayPal useless.
(My reaction: So Miller sets the trap by essentially calling PayPal useless in the long-term, a position that is absurd on its face and neglects the fact that PayPal owns some serious eCommerce real-estate. It's like saying that Amazon, after murdering the book industry, would never be able to move into electronics (or anything else really). Miller also speaks with an irritating certainty about Bitcoin. It's safe to call me a fanatic, but Miller is already in outer space on his way to the moon. The idea of a "headstart" PayPal would get for spinning off now makes some sense until you consider the context, which is PayPal should essentially spin-off to the highest bidder before it dies an inevitable death. A perverse corporate pump and dump?)
John Donahue (PayPal):
Well there's nothing that's holding PayPal back from pursuing digital payments today as part of eBay. In fact, PayPal is pursuing digital payments and is the leading digital payments alternative in many different environments. So it's not a matter of eBay holding PayPal back.
(My interpretation: I'm a pro, running a $75 billion company. Good luck getting under my skin, child. We will do with Bitcoin what we want, when we want to because we are really, really good at payments, even if some people hate us. I don't need to say the name Bitcoin, because that particular currency would be lower volume for us today than the Russian Ruble. Also, when I say different environments, I mean six continents and just about everywhere with an internet connection. Oh and by the way, if you listen to my other interviews, you'll know eBay customer information basically gives us a proprietary e-commerce credit score. So when we build the credit layer on top of Bitcoin, please don't act surprised.)
Matt Miller (Bloomberg):
Well that's now, right? Until everyone starts using Bitcoin, and then there will be no reason to use PayPal.
(My reaction: Wat?)
John Donahue (PayPal):
Well you can use digital currencies in the PayPal digital wallet. That's, in fact, what PayPal is doing in building a wallet that can hold multiple types of digital currency.
(My interpretation: Ok, fine. I'll give you a short common-sense line that serves for click-fodder. Like Ripple, Bitcoin, Clinkle (whatever the hell they're doing), Coin, Google Wallet and iPayments, we will also release some new innovative payment products in the coming years. As soon as crypto-currencies are actually worth our time and we aren't exposed to massive liabilities from regulatory uncertainty, we'll integrate them into our system. And we'll be a force from Day 1. Next question, please.)
It's really not a matter of "if" PayPal enters the Bitcoin industry, but when and, more importantly, how. PayPal has enormous resources at its disposal in terms of both financial and human capital, but the company seems to have a much better option than building their own Bitcoin products from the ground up. On the merchant side, at the very least.
I think PayPal could acquire BitPay and it would be a great deal for both parties. Not just because BitPay is the leading Bitcoin payment processing company, and PayPal would gain their expertise while dotting the global map with locations that accept Bitcoin overnight. Not just because their joint DBA is already flawless. (What's not to like about BitPayPal?) But because their business models are perfect compliments.
A lot of people have a misconception that Bitcoin will crush PayPal. Not exactly. PayPal could drop their prices for Bitcoin transactions overnight by a full point and still make the same gross margin as they do currently. That's because they wouldn't be exposed to the same interchange fees and credit card partner fees as they are today.
In addition, PayPal could become an instant Bitcoin market maker with BitPay, which is really a "long" hedge fund in addition to a SaaS merchant services provider. Multiple sources have told me that the company sits on as many as 40,000 bitcoins. That's a lot of exposure to bitcoin's price swings, but it is also an asset that would allow a company like PayPal to kill two birds with one stone via an acquisition: acquire the talent and IP and seamlessly acquire the necessary underlying currency.
(For what it's worth, I also think that Coinbase should forge a strategic partnership with one of the Square, Stripe, WePay crowd. Rather than compete against all of these entities, why not leverage those real estate assets and marketing dollars right now?)
Do I think the BitPay acquisition will happen? Probably not. It depends on cultural fit, and the BitPay team seems full of more Pirates than Sailors. But economically, it makes a lot of sense.
Either way, TL;DR is that PayPal is a sleeping giant, not a company that should be scared of Bitcoin like the credit card companies, Western Union, and maybe even the fractional reserve banks.
Now for Today's Tid Bits:
The Banking Industry's Varied Views on Bitcoin
Canadian Bank Cuts Cointrader Accounts Amid Hostile Government Rhetoric
The Rise of the Cryptocurrency Gift Economy
Docs now taking payment by Bitcoin | Healthcare IT News
Bitcoin Itself May Live or Die, but Cryptocurrencies Will Live On | MIT Technology Review
What it Takes to Design the Next Best Thing in Mining Hardware
Bitcoin's Recent Price Plunge Could Have Been Worse, Wedbush Finds