PayPal president Scott Thompson is excited over the future profits PayPal will earn when its customers embrace further the use of PayPal as a “digital currency”.
From his three week long
sabbatical vacation in Cape Cod the PayPal executive describes his own attempt to switch from using a wallet and describes the company’s digital currency employee challenge.
“Five employees will try to use PayPal for everything they do” he states, in a video address. ”We know this will not be easy since it’s going to be an entirely new way of living for these five employees” writes Sam Shrauger in a post on the company blog.
Perhaps Mr. Thompson has been following Bitcoin. Several months ago Bitcoin community member Plato (@TheRealPlato) began his #BitcoinRoadtrip, a journey that took him coast-to-coast in which all purchases were made using only bitcoins.
After reaching the trip’s initial destination, Los Angeles, Plato then continued up the west coast. After spending some time the the Bay Area he then continued north with the intention of reaching Seattle and possibly Vancouver even. Those plans have now changed though, as Plato recently shared, as his experience in Portland has been so positive that he has decided that this is where the road trip ends. Plato is now attempting to secure housing in the area and though he would prefer to pay his rent using bitcoins, he no longer keeps his self-imposed “bitcoin-only” restriction.
Mr. Thompson refers to PayPal as a “digital currency” PayPal’s attempt to co-opt this term is not new. VISA uses that term apparently to mean any financial transaction that is other than a paper check, for instance. But similar to VISA, PayPal does not issue currency. PayPal isn’t even a bank. Funds in a PayPal account are simply representative of funds deposited with other institutions. For U.S. funds, customer balances are pooled and deposited in pass-through accounts at other banks or savings institutions.
PayPal would love to see its customers embrace the concept of moving more and more transactions online or to mobile. Accepting PayPal payments for commercial purposes generates huge fees earned by the company — $0.30 plus 2.9% for a typical domestic sales transaction.
That means paying for a $7 hamburger and soda using PayPal results in PayPal taking $0.50 and the burger joint getting just $6.50.
These fees are now contributing to revenues of over one billion U.S. dollars per quarter for PayPal’s parent company, eBay.
With Bitcoin a transaction fee is paid only if a fee happens to be necessary and even then so, it is paid by the customer instead of being withheld from the payment that the merchant receives. That fee expense is hardly a problem for customers though as the transaction fee when using Bitcoin is not just a little less, but is instead a lot less.
At the present time, most transactions are processed without a fee whatsoever. When a fee is required it can be as little as 0.0005 bitcoins (an amount worth less than a penny, at the current market exchange rate).
Additionally, bitcoin transactions are irrevocable so accepting Bitcoin for payment will never cause there to be an unexpected chargeback transaction later on. PayPal is seen as being merchant-unfriendly for the way the service handles chargebacks including placing immediate temporary holds and for their practice of imposing “reserves” (payment revenues that are automatically set aside) that can become devastating to a growing business.
Mr. Thompson may be correct in expecting that we’ll be moving to an all digital lifestyle thanks to the smartphone and other technological advancements. That helps to explain why there is so much excitement for the still-experimental Bitcoin-android client, the recently launched mobile app BitPay and the upcoming WebCoin/BitcoinJS project which will work on iPhones as well.
What Mr. Thompson may be overlooking though is that merchants don’t particularly like funding his Cape Cod vacations and other efforts such as this employee challenge publicity stunt. Instead, those merchants might like to keep more of their own money.
Merchants will begin to learn what the term digital currency really means. They will learn that Bitcoin is a digital currency that delivers benefits that PayPal couldn’t even consider offering because PayPal simply isn’t a digital currency.
What they’ll learn is that Bitcoin is a game changer.