Introduction: “Decoding the Inner Logic of Paypal Stablecoin Payments and the Evolutionary Thinking Towards Mass Adoption”
Author: Will Wang
On May 31, 2024, PayPal announced the launch of its stablecoin PayPal USD (PYUSD) on the Solana blockchain. This marks another significant milestone since PayPal introduced PYUSD on the Ethereum mainnet in August last year, providing its users with a new and efficient payment method while offering valuable insights into the future trends of the payment industry.
While writing the Web3 Payment Research Report and engaging in discussions with industry companies, I have been pondering a question: is stablecoin payment really necessary? With the launch of PYUSD on Solana, PayPal, from a very pragmatic standpoint, provided an answer about payment freedom:
“People want to be able to pay as they please, current payment networks struggle to meet these demands. Crypto can meet these demands and is practical. Therefore, as a financial technology company committed to promoting payment innovation, we are launching a stablecoin payment solution to meet people’s current desires for flexible payments.”
With this in mind, this article will attempt to analyze PayPal’s shift towards Crypto, the stablecoin payment solution launched on Solana, and PayPal’s evolutionary thinking towards Mass Adoption of PYUSD. It is hoped that this analysis will provide insights for the industry and encourage further discussions.
I. Why PayPal is Turning towards Crypto
As a global leader in payment services, PayPal has over twenty years of global payment experience. During this time, with the maturation of e-commerce, PayPal has not only established itself as a trusted beacon, providing users with the endorsement of transactions but has also achieved widespread adoption of Internet digital payment networks.
PayPal’s core mission has always been to promote payment innovation, enabling everyone to pay as they wish.
However, so far, payment innovation has been built on the same basic financial tracks as when the Internet emerged. While the industry has been striving to provide global, instant, and seamless transactions, the reality often shows its shortcomings:
Settlement times for online payments remain long (an average of 2-3 days in the US), markets, banks, and service providers operate on business days, further extending settlement times; employers struggle to pay an increasingly distributed workforce; the growing global population finds it challenging to make cross-border remittances in a cost-effective and efficient manner; businesses are most affected by these frictions, while consumers continue to wait long in what they perceive to be a fast payment environment.
In short, people today cannot pay the way they want to.
This is why PayPal is turning towards Crypto – the answer is simple: it meets the demand and is practical.
Cryptocurrencies and blockchain technology bring people closer to achieving their payment desires: fast, inexpensive, global payments. This new generation of financial/payment infrastructure can help PayPal better serve its 40 million users, enabling everyone to pay as they please.
Therefore, over a decade since the emergence of cryptocurrencies and blockchain technology, PayPal has once again arrived at a crucial moment in payment history, much like the early days of the Internet in 2000, full of potential and opportunities.
Just as PayPal brought payments online before, PayPal is now taking payments onto the chain.
II. Global Payment Predicament in Need of Improvement
Current payment channels and information transmission protocols (such as ACH, SEPA, and SWIFT) make up the global payment network. They allow us to conduct large-scale transactions across regions and time zones, ensuring relatively smooth payments. However, current payment technologies also force us to balance between 1) payment settlement speed and 2) cost-effectiveness, such as:
The flow of funds incurs costs, and there need to be pre-arranged cooperation agreements and liquidity requirements among various intermediary parties;
Crossing time zone operational limits (business days) and batch processing means payments may take days to settle;
Arrangements for net settlements struggle to meet the needs of small, high-frequency transactions.
However, as adults, we want both – low-cost, efficient settlement.
People want to pay more easily. Businesses want to pay suppliers without worrying about settlement times; individuals want to remit money to far-off family members without paying high fees and waiting for days. Today’s financial infrastructure cannot quickly meet people’s need for fast transactions, and PayPal does not want users to lose value in this waiting.
Today, cryptocurrencies and blockchain technology offer a brand-new payment channel that can simplify payment settlement processes, making payments fast, inexpensive, and easily accessible.
Thus, we need to utilize cryptocurrency and blockchain payment technology solutions to address the legacy issues of traditional payments: 1) slow settlement times; 2) high transaction costs, and 3) incompatibility with underbanked and unbanked regions globally.
III. PayPal’s Stablecoin Payment Solution
Stablecoin Definition: Most cryptocurrencies have significant price fluctuations, making them unsuitable for payments, as Bitcoin can experience large swings in a single day. Stablecoins are a type of cryptocurrency designed to address this issue by maintaining a stable value, usually pegged 1:1 to a fiat currency (such as the US dollar). Stablecoins offer the best of both worlds: they maintain low daily fluctuations while leveraging the advantages of blockchain – efficiency, cost-effectiveness, and global usability.
The stablecoin PYUSD introduced by PayPal is a new stablecoin payment solution aimed at achieving the next generation of financial technology innovation. Built on PayPal’s extensive payment industry experience and the high-performance Solana blockchain, PYUSD enables efficient instant settlements, reduced transaction costs, high security, and truly global payments.
PYUSD, launched by PayPal, is a blockchain-based stable value storage tool (1:1 USD exchange), designed to address the aforementioned issues in the global payment industry. Eligible US users can buy, sell, send, receive PYUSD, and use it for payments:
Buy, transfer PYUSD within the PayPal and Venmo ecosystem, enabling smooth cash in and out experiences;
Use PYUSD as a payment method for online transactions, such as checkout and payment for millions of PayPal merchants worldwide;
Cross-border P2P payments on Xoom (cross-border payment tool) using PYUSD;
Outside the PayPal ecosystem, PYUSD can be used on cryptocurrency exchanges (e.g., Crypto.com) and wallets (e.g., Phantom);
PYUSD can also be used for various innovations, such as serving as a quick, low-cost financing tool for risk investments like Mesh.
PYUSD is building a truly stablecoin business scenario, offering mainstream consumers and merchants the almost frictionless and trustworthy payment experience they expect.
IV. PayPal’s Stablecoin Payment Towards Mass Adoption Evolutionary Thinking
Based on PayPal’s nearly 20 years of global payment compliance experience and the highest compliance standards of PYUSD, the combination of PayPal + PYUSD can elevate stablecoin transactions to what we truly need – stablecoin payments.
When PayPal was founded, its responsibility was not only to promote payment implementation but also to introduce and disseminate a new technology – digital payments, which have now become ubiquitous in our lives. This successful experience can provide guidance and fresh insights for the launch of PYUSD stablecoin payments. Specifically, PayPal divides the evolutionary thinking towards Mass Adoption into three stages:
Awareness through Introduction
Payment Utility
Ubiquity
Concept Introduction brings Awareness through Introduction
As mentioned earlier, payments are omnipresent and deeply rooted in habits and practices, so the transition needs to be gradual and stable, not overnight. Introducing a new payment method is both a behavioral change and a technological or financial transformation.
The first step towards Mass Adoption is awareness – simply introducing the fact that a new technology exists to people.
In this stage, early adopters are the target audience, namely cryptocurrency holders – a group that accounts for about 15% of the global population and is relatively easy to reach. This is also why PayPal launched PYUSD on Ethereum in late 2023, ensuring access to early adopters.Cognitive Awareness Awakening
Launching on Solana, the second largest blockchain by market value, PYUSD aims to reach the most enthusiastic and active participants in the crypto ecosystem, letting the world know that “PYUSD is really here.”
In addition, the integration of PYUSD with PayPal and Venmo applications will introduce it to over 100 million users in the United States. Moving forward, collaboration with crypto exchanges and payment partners will expand PYUSD’s influence beyond the PayPal ecosystem.
PayPal understands from past successful experiences that a cognitive awakening is the necessary first step in introducing a new payment mechanism to the masses.
4.2 Utility through Integration
The next step in adopting new payment technology is to achieve utility through payments, transforming the initial cognitive awakening into practical payment utility, similar to how PayPal established itself as a trusted transaction platform between strangers early on through eBay.
Today, people require payments that are fast and inexpensive. While PayPal’s introduction of PYUSD on the Ethereum mainnet provided significant visibility, it did not fully meet all the standards required for PYUSD to serve as a digital commercial payment tool – efficient, cost-effective, and globally accessible.
Therefore, PYUSD has turned to Solana to achieve payment utility.
Solana, a high-performance blockchain network built for finance, payments, loyalty programs, and more, is one of the most widely adopted blockchains. By the fourth quarter of 2023, it was processing an average of 40.7 million transactions per day with 2,500 active developers in its ecosystem. Additionally, its open-source, programmable, and composable blockchain can provide significant scalability and network effects.
Solana brings PYUSD faster settlement speeds, lower transaction costs, greater scalability, and global network support compared to other blockchains. With Solana’s advantages, users can truly realize payment utility while using PYUSD:
Real-time settlement: Most PYUSD transactions settle efficiently within seconds.
Low transaction costs: Transaction costs on the Solana chain are just a few cents, regardless of the transaction amount.
Transaction finality: Merchants do not have to worry about customers canceling payments due to insufficient funds or other reasons.
24/7 availability: Available round-the-clock, 365 days a year.
Interoperability: PYUSD can be used outside the PayPal ecosystem, enabling interoperability with other gateways, networks, and wallets.
Programmability and composability: PYUSD is developed on the widely adopted SPL token standard. This means any product that supports the standard automatically supports PYUSD. Developers can freely experiment and build within and outside the PayPal ecosystem. Consumers, merchants, and institutions can enjoy a wide range of third-party developer experiences, utilizing PYUSD for payment and financial use cases.
Large user base of PayPal: PYUSD is available to existing eligible U.S. PayPal customers.
Therefore, launching PYUSD on Solana will help drive the long-term adoption of stablecoin payments, transitioning PYUSD from the cognitive awakening phase to the practical payment utility phase.
With PYUSD available on both Ethereum and Solana, more developers and ecosystem partners will participate. Combined with the practicality on the PayPal and Venmo applications, PYUSD will offer users more feasible and user-friendly use cases.
Ubiquity through Assimilation
The final stage in adopting any new payment technology is ubiquity, seamlessly integrating the technology into everyday life. At this stage, people can effortlessly use the new payment technology without even noticing – they just pay according to their convenience.
For PayPal, it made digital payments a way for people and businesses in over 200 countries to transfer money to each other securely, reliably, and standardized, becoming ubiquitous as digital globalization progresses.
PYUSD Stablecoin Payment Use Cases on Solana
Turning dreams into reality and enabling people to pay effortlessly requires more than slogans. Let’s take a look at some real-world scenarios for PYUSD.
Cross-border Peer-to-peer Remittances (P2P)
In today’s globalized world, personal economic ties between individuals are tighter than ever before. However, cross-border money transfers between individuals represent a massive and growing market full of opportunities. Legal remittances to low and middle-income countries reached a volume of $669 billion in 2023 (World Bank data), but cross-border transfers are not cheap.
With PYUSD, payers can use Solana wallets to remit funds directly to recipients, almost instantly settling transfers with close to zero costs.
Even for recipients without Solana wallets, payers can collaborate with PYUSD payment service providers to save costs on cross-border remittances. Payment service providers connect to local partner banks through PYUSD, allowing recipients to easily convert PYUSD into bank deposits or cash, enjoying near-instant, low-cost global remittance services.
Business-to-Business Transfers (B2B)
Due to the complexity of cross-border payments, involving multiple intermediaries and cross-national agent banking networks, most B2B payments may take several days to settle. Additionally, depending on the method of cross-border fund transfers, payment fees can be high.
By leveraging the programmable features of PYUSD, businesses can build their services, seamlessly creating near-instant, cost-effective cross-border transfer methods with relatively low technical requirements. Teams can also create smart contracts to manage the flow of PYUSD between accounts, accelerating the speed and accuracy of supplier payments (or any other B2B payments governed by contract agreements).
Moreover, utilizing PYUSD transfers does not necessarily require businesses to own or interact directly with PYUSD. Payment service providers can build B2B payment products, offering end-users a fiat currency experience.
Global Payments and Receipts (B2C)
PYUSD can significantly simplify global payments. PYUSD does not require complex networks (including unique regional bank accounts, different currencies, agent banks, and digital wallet tracks) but can be paid to any compatible wallet address. Furthermore, using PYUSD’s programmable smart contracts can enable business payers to automate payment processes more effectively, even enabling real-time wage payments.
Microtransactions
Due to high transaction costs, traditional payment processing systems struggle to support microtransactions. Therefore, platforms processing microtransactions typically batch payments, involving complex payment engineering, increasing risks, and preventing platforms from accepting microtransactions.
However, PYUSD on Solana will enable merchant platforms to easily handle microtransactions in near real-time and at low cost. Microtransactions support various use cases, such as tips, in-game purchases, and paying content creators based on readings or views.
Web3 Payments
Many Web3 businesses (such as NFT markets and blockchain-based gaming platforms) lack connections to traditional fiat bank accounts, requiring robust, non-custodial payment solutions, which PYUSD + PayPal can provide.
In Conclusion
Jose Fernandez da Ponte, Senior Vice President of PayPal’s Blockchain, Cryptocurrency, and Digital Currencies Group, stated, “The creation of PayPal USD is aimed at providing a fast, simple, and cost-effective payment method for the next phase of the digital economy, once again revolutionizing commerce. Offering PYUSD on the Solana blockchain further achieves our goal of creating a stable, value-designed digital currency specifically for business and payments.”
Since the launch of PYUSD on Ethereum last year, it has been operating more in the PayPal Super App than anything else. Now, with the launch on Solana, whether breaking barriers or delving deeper into exploration, it is undeniable that the killer application of Web3 may have arrived – payment!
As we discussed in our Web3 Payments Research Report, the greatest opportunity of cryptocurrencies may not be as cryptocurrencies but as a new set of payment methods.
Payments bear the significant mission of bridging the gap between the on-chain cryptocurrency system and the off-chain fiat currency system. Through tokenization transformation with blockchain technology, it will bring new value to the traditional monetary system, overcome previously insurmountable boundaries, and potentially change the world economy forever.
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