Accounting & Finance
How PayPal Accepting Crypto May Affect Businesses
Online payments and money transfer giant PayPal has announced a major shift in policy. It will begin to allow its estimated 286 million active users around the planet to buy and sell cryptocurrencies such as Bitcoin. This move is expected to have a major effect on the cryptocurrency market, but what effect might it have on businesses?
How Will This Work?
According to the details released by PayPal, they will start to allow their customers to buy virtual currencies such as Bitcoin using their accounts. Their customers could then use the digital money to make payments to any of the 26 million or merchants who use the Paypal service.
This new way of paying online will be rolled out to users in the US first in the coming weeks. After that, PayPal will be gradually rolling it out to its customers worldwide from 2021.
As well as Bitcoin, the other types of online currency available for purchase include Ethereum, Litecoin, and Bitcoin Cash. In addition, PayPal users will be able to store the digital currencies directly in their digital wallet.
The Effect of Fluctuating Currency Exchange Rates
One issue for any company looking to expand into international markets is how long the transactions take. Traditional methods, such as bank-to-bank transfers, are often slow and cumbersome. At the same time, cryptocurrencies are unproven, and they haven’t gained mainstream acceptance, largely due to fears over areas such as security and volatility.
As well as the speed and ease of transactions around the effect that fluctuating exchange rates could have on the price of products or on the seller’s profits. Even relatively small changes to the current rate can make a big difference to a company that depends upon foreign sales in different currencies.
The fast-moving nature of this market is seen in the fact that its traders are increasingly turning to Forex Robots to automate their trades. Forex is described as “a complicated environment with many variables to keep track of”, meaning that staying up to date with changing rates can be difficult for international businesses as well as for traders.
The new PayPal solution will see buyers change their local currency into their chosen crypto, while the seller will receive the payment in their own local currency. Therefore, the risk of receiving money in different currencies will be reduced.
How Will It Affect the Cryptocurrency World?
Initial reaction to this news was extremely positive, as the price of Bitcoin immediately rose to over $12,000 (£9,170). The news that PayPal will make it easier for people to buy the currency encouraged the market, and some analysts believe that it could go higher still on the back of this news.
Despite earning countless news headlines for their price volatility and other aspects, cryptocurrencies are still considered a niche market.
Only 5% of Europeans own Bitcoin, according to some sources, although the pseudo-anonymous nature of the currency makes it impossible to get exact figures.
PayPal has confirmed that they want to “increase consumer understanding and adoption of cryptocurrency” and provide educational content for their account holders to read through.
What Does the Future Look Like for Consumers and Businesses?
The big issue here is around who will actually want to use this new service. For consumers, it may be seen as adding an investment angle to their online purchasing. If the price of their chosen cryptocurrency varies between buying it and spending it, they could either gain or lose money.
There will be no such risk for businesses, as the cash they receive will be in their own national currency. The main issue for companies could be if PayPal also offers them the chance to hold a cryptocurrency account too at some point.
At this point, they would have to decide whether they wanted to risk putting the funds they receive into a volatile currency. This could depend upon their opinion of the different benefits of using the blockchain.
There is no doubt that this PayPal initiative has sparked a lot of interest in the cryptocurrency world. Yet, for the time being, it isn’t clear exactly what benefits will be seen by businesses which are paid in this way, other than reducing the risk of currency rate fluctuations affecting their profits.
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