PayPal announced its entrance into the crypto industry in November of 2020. Their program of buying, selling and holding crypto is available now for US users only (except Hawaii) on the PayPal app, with plans to extend crypto services to select international regions and has recently announced use to Venmo users. The crypto program will also allow PayPal users to pay in crypto at 26 million PayPal-enabled merchants across the globe.
American users can buy or sell four digital currencies, Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH). But they are not able to transfer digital assets out to external wallets. Cryptocurrency “sells” require a user to cash in their crypto through PayPal’s custody service, which then deposits the proceeds in USD into the user’s account. There are no peer-to-peer transactions available for crypto as you find on American crypto exchanges like Kraken or Gemini.
The initial interface for PayPal’s crypto services is extremely simplified, geared toward the average PayPal user, and continually explains the risks in basic terminology. PayPal enabled zero transaction fees through 2020, helping to ease in new users for this product offering. Users must have a PayPal Cash or Cash Plus Account to utilize the crypto buy and sell features.
Licensed in New York, PayPal Crypto partners with Paxos Trust Company as their cryptocurrency custodian. Paxos has applied for a federal banking charter with the OCC. They currently provide custody service for digital assets as well as offering cash and gold custody, securities clearing, and commodities trading.
Soon after the PayPal Crypto announcement, one user reported their experience of making more than 10 crypto buys or sells in a week using PayPal’s new service. It was during a heavy time of trading due to Bitcoin’s sharp movements and amidst a high level of FOMO. The user in question was using the buy/sell feature as a trading tool, to buy at one time and sell later to reap the profits from the price movements. Their account was flagged, put on hold for 180 days, and permanently limited. What was most striking was the user’s description of the support he received from PayPal, during which he learned that some PayPal employees did not know that crypto buys and sells were available. But it became clear that users attempting to perform crypto trading at PayPal would be flagged and reigned in.
The move by PayPal to include crypto services is generally seen as a positive step towards mainstream adoption of digital assets. Crypto enthusiasts and experts, however, point to the “not your keys, not your coin” dilemma.
PayPal has a long history or reported personal account hacks, which may or not be associated with insufficient password management or safe computing habits. One of our researchers had their PayPal account drained of funds in 2018 and quickly discovered that scammers had added 4 bogus credit cards to their account. When they called PayPal to report the hack they were relieved, yet somewhat disconcerted, that PayPal barely questioned the hack and immediately refunded the stolen funds, suggesting that this may be a common occurrence. According to Ahrefs SEO tools platform, there are currently 3700 monthly searches for the phrase, “paypal hacks.”
The lack of peer-to-peer interactions along with the fact that PayPal cash services are not available in all countries goes against the ethos of digital assets, which are built on open source, decentralized blockchains.
Since the initial announcement, PayPal stock jumped 17%. Due to high demand, they have already increased weekly buy limits twice, with the current limit now at $20,000 per week (from $10,000 at the start).
Features are minimal as PayPal has just recently introduced this service. But the basics are below and the plan is to expand on them in various ways during 2021.
Crypto buys and sells are irreversible once they’ve been authorized by the user. Chargebacks will not be allowed for crypto transactions.
Transaction fees are based on how much cryptocurrency you buy or sell and the system is geared toward small buys. An exchange rate is also charged for the conversion from crypto to fiat and vice versa, and includes an estimated 0.50% crypto conversion spread. The actual spread may be higher or lower based on market conditions.
The lowest fees are on the smallest buys of under $25.00, which is opposite to most crypto fee schedules.
Buy and sell limits are extremely low at this time when compared with cryptocurrency exchanges like Kraken, Coinbase, Binance:
There is no separate withdraw function for crypto on PayPal. You cannot withdraw crypto assets, you must first sell them to PayPal via their custodian, Paxos. Then you can withdraw the cash. Users must have a PayPal Cash or Cash Plus Account in order to receive the proceeds of the crypto sale.
The following information is required to access PayPal crypto features:
The user interface displays very clear, concise language about crypto so that anyone can understand the process and some of the risks of buying crypto.
Navigating the PayPal Crypto pages couldn’t be any easier; it’s far more simplified than even Coinbase.
It’s too early to have enough data about customer support for PayPal’s crypto features. However, PayPal traditionally has gotten slaughtered in reviews. Trust Pilot, for instance, shows an average of 1.2 stars on over 15,000 reviews. That’s 84% negative. Many of the negative reviews mention poor customer support and inactivity charges. There seemed to be less spam reviews than you see with crypto exchanges. It’s hard to imagine how this will go once mainstream users are moving into the comlex world of crypto.
PayPal’s Help Center is well developed and includes helpful guides, answers to common questions, and it curates questions for you based on previous inquiries.
The status page for PayPal shows very few issues and those that are there appear to be fixed quickly with zero downtime. Standard maintenance is by far the most common status alert.
Despite the many accounts of people’s personal PayPal accounts getting hacked, the company itself has not been hacked. However, in December 2019, a high security vulnerability that could potentially expose user passwords was discovered. The researcher who reported the bug received a $15,300 bug bounty for disclosing their finding. No breaches were reported in relation to the incident.
PayPal is targeting the mainstream public and will certainly add mainstream attention to crypto markets no matter what. As such, their presentation of crypto services is extremely simplified for easy understanding. Their lowest fees are for the smallest buys, which should help bring aboard many new crypto owners. A high percentage of negative reviews may be foretelling additional customer support issues as newcomers to the space begin to learn about crypto. The partnership with Paxos helps minimize the fact that PayPal accounts get hacked pretty regularly, since Paxos is regulated by New York State, which is famous for having the most stringent crypto regulations.