PayPal
PayPal Holdings, Inc. is a leading digital payments company founded in 1998 by Max Levchin and Peter Thiel. It has transformed the payments landscape by facilitating secure and efficient online transactions across over 200 global markets and handling payments in more than 100 currencies. Initially launched as a money transfer service for PalmPilots, PayPal quickly gained traction among users of auction sites like eBay, where it made financial transactions faster and safer than traditional methods. The company was acquired by eBay in 2002, but later became an independent public entity in 2015.
Throughout its history, PayPal has expanded its services through strategic acquisitions, including Braintree and Venmo, and has embraced innovations like mobile payments and cryptocurrency transactions. PayPal not only charges transaction fees to sellers but also earns revenue from interest on user balances. Despite increasing competition from companies like Apple and Alipay, PayPal has maintained a strong market position with millions of active users. In recent years, PayPal has ventured further into banking services, aiming to offer features like direct deposit and debit cards to underserved customers. However, it has faced challenges, including cybersecurity threats and restructuring efforts amidst economic uncertainty.
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PayPal
- Date Founded: 1998
- Industry: Digital payments
- Corporate Headquarters: San Jose, California
- Type: Public
PayPal Holdings, Inc. is one of the world’s largest digital payments companies. Founded in 1998 by Max Levchin and Peter Thiel, PayPal pioneered a revolution in the payment services industry in the following decades.
With a presence in more than two hundred global markets as a payment service provider and in handling payments in over one hundred currencies, PayPal has moved over $1.5 trillion since its inception. PayPal grew by acquiring competitors and ancillary companies that helped streamline its payment services on Web, mobile, and in-store payments, fortified its security features, and increased its reach to consumers who did not use PayPal directly.
A simple user interface, successful marketing campaigns, and advanced security features made PayPal widely popular, especially on auction sites like eBay. PayPal was listed on the NASDAQ stock exchange in February 2002 and was acquired by eBay in October 2002. After thirteen years, eBay announced it would spin off PayPal to once again become an independent public company in 2015.
History
In 1998, Max Levchin, a computer scientist, met Peter Thiel, a hedge fund manager, to discuss funding for his startup ventures. Thiel liked Levchin’s idea about building a company that would make security software for handheld devices, enabling users to store information in an encrypted format. They started Fieldlink, a company that made encryption software. The firm was later renamed Confinity.
In 1999, Confinity launched PayPal, a money transfer service for the PalmPilot, a popular handheld device with calling and organizing capabilities. Account holders could "Beam Money," or send money from one PalmPilot to another by linking their bank account details to their unique email addresses. Funds could be sent without having an account, but recipients were required to have a PayPal account.
It was not long before the founders realized PayPal could solve a crucial problem for buyers and sellers on auction sites like eBay. PayPal could make money transfers faster, safer, and less cumbersome. Before PayPal, buyers and sellers would pay each other by mailing money orders or checks, which took as long as five to seven days to process. PayPal broadened its payment services beyond the PalmPilots to the larger arena of the Internet.
The company, which was growing quickly, acquired its present name (PayPal) in March 2000, when Confinity merged with X.com Corporation, a financial services company owned by the American entrepreneur Elon Musk. Between March and August 2000, the number of PayPal accounts rose from a few thousand to 2.7 million.
In 2002, eBay acquired PayPal for $1.5 billion, an investment that market experts anticipated would help eBay control a larger share of the sales made on its site. In its initial years, most of PayPal’s revenue came from processing eBay transactions. However, over the period of the next few years, PayPal depended less and less on eBay for driving in profits. By 2008, eBay contributed less than 50 percent to PayPal’s revenues.
PayPal made money from a typical transaction in a number of ways. Though buyers did not pay a transaction fee for purchases made using a PayPal account, sellers were charged as much as 4.4 percent of the amount of the transaction. PayPal also made money from the interest earned on the funds maintained in PayPal accounts. For example, if about 150 million users each maintained a minimum balance of $5 in their PayPal account, then on an annual interest rate as low as one percent, PayPal could make as much as $7.5 million.
PayPal continued to innovate and expand through acquisitions. In 2006, PayPal was the first service to go mobile with text-based payment services. Money could now be sent or received using text messages. In June 2008, PayPal entered the consumer credit space by acquiring Bill Me Later Inc. (rebranded as PayPal Credit) for about $1 billion. In 2013, PayPal bought Braintree and its peer-to-peer payment application Venmo. These deals helped PayPal reach out to consumers and businesses that did not use PayPal directly.
In 2012, PayPal’s president, David Marcus, aggressively led the company into mobile applications and in-store payments business with the launch of a mobile credit card reader called PayPal. This initially signed up about fifteen retailers, including Office Depot, Barnes & Noble, and JCPenney, to provide its technology at their points of sale (POS). PayPal struck partnerships with major POS terminal vendors like Equinox Payments, Verifone, and Ingenico, gaining access to over 200 retailers.
Through the 2010s, PayPal was well-established as a leader in digital payment services. However, with the entry of new players in the mobile payments industry, including Apple, Alipay (the payment services arm of Chinese retailer Alibaba), Stripe, and Amazon, competition became fierce. In 2013, Alipay processed about $150 billion in mobile transactions, surpassing PayPal’s $27 billion in mobile payments. Apple launched tap-to-pay technology-based Apple Pay in October 2014 with additional security features that would protect user data even if retailers’ data was breached. That same year, Amazon launched a debit and credit card reader offering deep discounts for retailers.
In July 2015, PayPal was spun off from eBay into a separate public entity after key investors such as Carl Icahn pushed for a PayPal–eBay split. These investors felt that both firms needed to focus on their core businesses in the face of increasing competition from startups and technology giants alike. At the time, the company reported that eBay transactions made up over 30 percent of PayPal's revenues and over 50 percent of its profits.
PayPal continued to be successful after the split, announcing moves such as a partnership with Chinese technology company Baidu in 2017. That deal allowed the approximately 100 million users of Baidu's mobile wallet service to interface with merchants already accepting PayPal. The company continued its lucrative partnership with eBay as well. However, in early 2018, eBay announced that it would begin to phase out its use of PayPal for back-end payment processing and also deemphasize PayPal as a preferred payment method when the contract between the two companies expired in 2020. Later, in 2018, PayPal and eBay reached a mutual agreement to ensure PayPal would continue to be accepted as a form of payment on the auction site. Into the mid-2020s, PayPal remained an accepted payment method on eBay, although sellers were no longer required to accept it.
In 2018, the Wall Street Journal reported on PayPal's efforts to move further into the territory of traditional banking companies. Specifically, the company sought to expand its provision of products and services such as direct deposit of paychecks, debit cards able to be accepted at ATMs, and Federal Deposit Insurance Corporation (FDIC) insurance. PayPal executives suggested this move was intended to provide the benefits of having a bank account to customers who have been unable to hold standard bank accounts. The company bypassed the need for banks to be federally licensed as such in the United States by partnering with local banks to provide such services. In 2023, PayPal introduced its own digital currency to help facilitate transactions.
Impact
PayPal was the first company to provide an infrastructure to store private data such as bank and credit card details securely over the Internet. From its beginnings, PayPal revolutionized and drove innovation in the online payments industry. After a decade of its dominance, it fought to retain its leadership as other players entered the market, seeking to emulate and surpass its success. Despite fierce competition, PayPal retained a strong market position in the late 2010s. In the fiscal year 2017, PayPal processed about $451 billion through about 7.6 billion transactions made by 227 million active users. PayPal remained strong into the mid-2020s: By 2023, PayPal's total payment volume had increased to approximately $1.36 trillion, with 22.3 million active merchant accounts and 431 million active consumer accounts.
Despite PayPal’s dedication to protecting customers’ data, it has at times shown vulnerability to security lapses. In 2010, for example, PayPal’s services came under attack by a group of hackers. In an effort to fortify its security features, PayPal invested heavily to put more advanced encryption software in place. PayPal was the first to introduce identity screening methods such as the Gausebeck-Levchin test, which required users to type in a word displayed within a boxed image, something only a human eye could capture, thus detecting the presence of malware trying to gain access to the payment systems.
In late 2020, PayPal moved into the cryptocurrency space. The company announced it would allow cryptocurrency to serve as a funding source for transactions on its platform. Also, the company began to enable users to buy, hold, and sell cryptocurrency as a service. In 2023, PayPal added its own digital currency, PayPal USD. Also in 2023, uncertainty in the global economy and the tech sector, saw PayPal cut approximately two thousand positions. This action mirrored other technology-based companies such as Amazon and Facebook. In 2024, PayPal announced plans to lay off 9 percent of its employees, or 2,500 individuals.
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