Tuesday, September 26, 2023

PayPal: what it is, how it works, history and development of the company

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What is PayPal? How does it work? Let’s see together the history and development of one of the international leaders in digital payments

PayPal Holding is a US multinational that offers payment services, sending money and accepting payments all over the world via the Internet in a fast, simple and secure way. Today this service is used by 250 million people who operate in over 200 markets and use 25 different currencies.

PayPal: how the service works

The company is an intermediary that makes its platform available to transfer money from one user to another without the transmission of sensitive data linked to an account. In order to carry out an operation, it is necessary to open a PayPal account, by registering on the site and simply identifying with the e-mail address.

The account can be associated with a credit card and a bank account, which allow you to top up the account and withdraw from it. It is also possible to receive a PayPal card linked to the VISA circuit as a credit card or MasterCard as a prepaid card.

The peculiar feature of the platform is safety. In fact, if an online purchase is made through PayPal and the item is not delivered or is different from the description, it is possible to request a refund of the amount paid. Similarly, sellers have guarantees against possible fraudulent behavior on the part of buyers.

The company does not charge fees for the transfer of funds between users, as well as for the one from the PayPal account to their current account, while it applies a fee for moving money to credit cards. Commercial transactions are subject to a certain percentage rate which varies from country to country.

It is possible to avoid registering a PayPal account by using your credit card as a payment channel where the wording “with PayPal technology” appears, only in this case there is no purchase protection for the seller.

Starting from November 2020 you can buy and sell cryptocurrencies through your PayPal account (link), while from 2021 the company accepts payments in commercial transactions with some digital currencies (link).

PayPal: origin, history and development

PayPal was founded in December 1998 by Max Levchin, Peter Thiel, Luke Nosek and Ken Howery, members of a company called Confinity that developed security software for laptops. As a money transfer company it was only created in 1999 by John Malloy.

The route was actually more complex and bumpy. In 2000 Confinity joined with X.com, an online banking company created by Elon Musk. The latter showed some attention to PayPal and wanted to concentrate all efforts on the new reality, clashing with the other participants. In 2001 Peter Thiel took over from Musk as CEO of X.com, which at that point became PayPal and served the public starting in 2002.

The company soon spread all over the world, serving as an alternative to credit card payments, with the difference that it gave a greater feeling of security. In 2002 it was acquired by eBay for $ 1.5 billion and became the primary means of payment for commercial transactions that took place in e-commerce. Thanks to this partnership, growth was constant for both companies, with transactions regulated through PayPal which went from a value of 18.9 billion dollars in 2004 to 71 billion dollars in 2007.

In January 2005 PayPal set up an operational office in Italy, in Milan. The American holding company issues prepaid credit cards through CartaLis Imel SpA, a joint venture created between Banca Sella and Lottomaticard. Since 2016 it has been subject to the regulation of the Consolidated Banking Act, being considered a credit institution in all respects and subject to supervision by the Bank of Italy.

PayPal: growth outside the US and the landing on Wall Street

In 2007 PayPal became operational in Europe, thanks to the credit institution license issued by the Commission de Surveillance du Secteur Financier in Luxembourg. In truth, the company was a bank but only to provide e-money services and not as a deposit and investment account. The difference is important because the Luxembourg deposit guarantee models were not applied in this way.

The same year, PayPal entered into an agreement with Mastercard, thanks to which the company also began distributing rechargeable credit cards, in order to increase security in online payment activities.

On September 30, 2014, the spin-off from eBay took place, which led to the listing on the stock exchange, with the debut of PayPal at the NASDAQ on July 18, 2015. The collaboration between the two giants, however, did not cease, although in 2018 it was announced that the payments agreement would be terminated in 2020. To be precise, PayPal would remain an option for eBay buyers, albeit in a non-priority way over credit and debit cards.

Meanwhile, the payment giant acquired the fintech Zoom Corporation for $ 1.1 billion in 2015 and 3 years later the Swedish iZettle for $ 2.2 billion. At the end of 2020, the financial company could count on over 300 million customers who used the various corporate services.

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