With the advancement of digital technology—especially as it relates to the financial industry—our banking, purchasing and selling habits have changed drastically over the past 15 years or so. The days of writing a physical check are all but gone; we just swipe a card or make payments online now. While all this is obvious to the average consumer, there's a potential conflict developing in the online payment field, and its outcome could affect the way we make payments online. We're talking about the current impasse between digital currencies and the most popular online payment venue, PayPal. In this article, we'll take a look at the background of this issue, and where it looks to be headed.
When PayPal was introduced in 1998, it very quickly became the gold standard for making payments and transferring money online. According to their web page, PayPal now has over 110 million registered users, and they take advantage of the services the company provides for online purchases, money transfers, bill payment, and even employee salaries. Pretty much anything you used to do with money in a traditional fashion you can do with PayPal—provided it's legal, of course.
For ten years or so, PayPal has ruled the roost in their market—but there are those who say alternative currencies could put a dent in that. For those who believe cryptocurrency could prove a strong competitor to PayPal, they offer their own reasons—but most of them agree on one common theme. When you make a purchase with PayPal, you have the option of a charge-back; that is, if the goods or services don't arrive in good condition, or they weren't what you were expecting, you can dispute the purchase and ask for your money back. In direct contrast to that, when you use digital currency, all transactions are final, and there are no charge-backs.
There are two basic arguments to this point. Those for it insist the lack of a charge-back option forces consumers to be more careful when they make purchases. Those against it claim the consumer has no path of recourse should they be dissatisfied with the transaction. Both sides have valid points, and for the time being PayPal is coming down on the side of the consumer.
Ironically, it's partially because of charge-backs that PayPal doesn't allow digital currency transactions to be made through their services. For every charge-back claim made, PayPal must investigate the matter—and that can mean man-hours and money lost. There was an inordinately high percentage of charge-back claims being made that involved alternative currencies on PayPal. Their Acceptable Use Policy states the following:
You may not use the PayPal service for activities that... involve currency exchanges or check cashing businesses... (This part of their policy lists several activities that are considered violations, and we have edited it down for clarity on this one point; please click the link above for the full policy.)
Potentially, any violation of this policy can result in a frozen PayPal account, or having it terminated altogether.
Industry analysts insist, however, that this isn't the final word on this topic. In a recent CNN article, BitPay founder Tony Gallippi said the following about digital currency: “It's going to become the default payment system for the internet by the end of this decade.” BitPay is considered the cryptocurrency equivalent to PayPal, and Gallippi is clearly speaking in his own interest. However, digital currency payment options are likely to be a increasingly-viable contender in the market currently led by PayPal. Will they do nothing? Will they take an “if you can't beat 'em, join 'em” attitude?
It's wait-and-see for now. CNet recently interviewed PayPal president David Marcus, and while he admitted he liked Bitcoin, and owned some himself, “People are confused. They think because it's called cryptocurrency it's a currency. I don't think it is a currency.” That isn't to say he's closing the door forever, however. Marcus also added, “Whenever the regulatory framework is clearer, and the volatility comes down, then we'll consider it.” That's a long way away from saying, “Nope. No way, no how.” So, for the time being, PayPal is officially saying “no” to cryptocurrency transactions—but in the words of their own president, that could conceivably change. Coin Pursuit will keep an eye on this issue, and will keep you posted.
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