In brief

  • PayPal CEO Dan Schulman says the company's crypto forays will expand beyond "buy, sell, hold."
  • The digital payments firm is also experimenting with Ethereum.
  • PayPal's quest for a "super app" reflects rapid changes in the fintech industry

PayPal is riding high.

The company posted blowout fourth quarter 2020 financial results last month thanks to spectacular growth in its core app and Venmo unit, and from the success of its new buy-now-pay-later service. The firm is expecting an even bigger 2021 as the pandemic leads more consumers to embrace e-commerce and to turn away from cash altogether.

None of this means that CEO Dan Schulman is resting easy, however.

In an exclusive interview with Decrypt, Schulman explained how PayPal is racing to adopt the next era of financial technology, including by launching a business unit dedicated to cryptocurrency, first announced last month.

"There is a ton of opportunity for us to be helpful in creating that next generation of infrastructure," Schulman said. "That’s what this business unit is about." He added that part of the mission is to "advance the utility of digital currencies."

The new unit includes transfers from some of the firm's core tech team, and is being guided by an advisory board that spans experts in technology, cryptocurrency and regulation. PayPal has in the past also worked closely with Wences Casares, a former board member and the founder of Bitcoin firm Xapo, who is a legend in crypto circles, for advice.  "He encouraged us to look at all forms of different structures that might emerge," noted Schulman.

Schulman himself turns out to be versant in the language of the cryptocurrency world. He describes how PayPal's crypto unit is experimenting with smart contracts, and testing Ethereum and other blockchains as potential candidates to help the company improve payments and other transactions.

Schulman says PayPal's crypto endeavors, which currently amount to just offering Bitcoin and a handful of other cryptocurrencies, will soon expand beyond "buy, sell, hold."

On a broader level, Schulman expressed frustration with how digitization of the financial system has failed to bring down costs for consumers, noting that the average "take rate" for transactions has stubbornly remained at 2.8%. He added that this take rate—fees paid to banks, card processors and other entities—is typically lower for affluent consumers, but can be as high as 5-10% for the poor.

According to Schulman, it's not just companies like PayPal, but governments and central banks that are looking at how blockchain and other new technologies might bring these costs down.

“I do think that some of the underlying technologies associated with cryptocurrencies—potentially some of the underlying technologies that central banks are looking at—do have that benefit of really taking the infrastructure of the old system and modernizing it so that we can achieve a much more inclusive society," he said.

Will PayPal buy Bitcoin for its balance sheet?

Interestingly, Schulman does not yet envision PayPal joining the likes of Square, Tesla, and other public companies that have recently added Bitcoin to their corporate treasuries.

"It's not necessarily high on our radar screen," he said. "We don't necessarily like the ups and downs of what can happen if you invest in a certain asset class."

Schulman added that PayPal wants to keep its spare cash free for potential acquisitions, including those in the crypto realm. In recent months, media rumors have indicated the company has explored buying crypto storage firms BitGo and Curv.

'Super apps' and the future of digital wallets

Schulman's comments on cryptocurrency come at a time when PayPal and a growing list of other fintech companies—including Square, Coinbase, Apple and Stripe—are competing to redefine digital wallets as more than a tool for occasional payments. On a recent earnings call, Schulman touted the idea of PayPal as a "super app."

During a recent investor day, Schulman explained that PayPal envisions a "super app" offering a set of features that once would have required a series of different apps. These include tools for payments, shopping, financial services, and "even new forms of digital identification."

The arrival of such a "super app" would also suggest U.S. consumers are ready to adopt trends popular in Asia. In China, for instance, the super app WeChat is not just a payment wallet but also a social network and a commerce platform. In North America, though, most consumers still prefer swiping plastic cards or using cash to shop, so it may be an uphill battle to persuade people to embrace a WeChat-like experience.

Nonetheless, the potential seeds of such a transformation are emerging. Venmo, as well as trading apps like Robinhood and Public, already offer a strong social media component. Meanwhile, the likes of PayPal and Square are emerging as the primary payment portal for millions of merchants, and could in time serve as beachheads for those companies to expand their marketing outreach to consumers.

"It's an ecosystem that's evolving pretty dramatically right now," says Schulman who notes PayPal's customer base currently includes 377 million digital wallets, and that the company is working ways to consolidate a wide variety of payment tools—from store credit cards to hotel rewards—into a single app.

One challenge for PayPal's super app ambitions, however, may come in the form of competition. While PayPal may favor the emergence of a single all-purpose app—and while many consumers would find this convenient—the company's competitors are unlikely to help it achieve that goal. The history of apps and Silicon Valley has often revolved around company's seeking to create "walled gardens" in which they can control the customer experience (Apple is famous for this), and PayPal's competitors likely harbor similar ambitions of their own.

Schulman is philosophical about the challenge, saying PayPal is pursuing numerous partnerships that will help the company expand its reach. He also advocates for companies to work closely with governments in order to build a new era of payments and financial services.

"If we move into these new technologies, if we move into more central bank digital currencies … what good things could that unleash?"

This story was updated on March 4 at 10am EST to add more details about PayPal's super app.

Photo credit

Main image by Kris Krug for PopTech licensed under CC BY-SA 2.0