PayPal is pushing retail investors into buying crypto. This is outrageous - and ironic.
A reader sent me money on PayPal. Thank You! I do not use PayPal much anymore, other than for occasional reader donations. I unlinked my bank and credit card accounts from PayPal as I do not trust the platform, and having their shithooks into my finances makes me nervous.
I recounted before how in the early days PayPal was run like it was out of a dorm room. Giggling 20-somethings told me on the phone that they were going to keep $4500 of my money that I got through PayPal when I sold my Mercedes. I finally found an adult (on a Sunday no less!) that cleared up the "lock" on my account. PayPal back then had a limit of $2000 per transaction, and when my buyer tried to pay in multiple transactions they "locked" the account for fraud.
Which is ironic as PayPal was basically founded on - if not fraud - playing fast-and-loose with banking regulations and the truth. Their two biggest offenses, in my mind were (1) renting out their merchant account to users, and (2) claiming to be FDIC insured when they were not.
With regards to the first item, a "merchant account" is an account you set up with the credit card companies to accept credit card payments. They are very strict (or were) about this, and back when I had a merchant account, I had to submit all sorts of documentation to them as well as banking information. They policed the account very strictly. If you had too many "charge-backs" for example, they would close your account.
I had a friend ask me if they could use my merchant account. They were selling something and the buyer wanted to pay by credit card. They would have him pay me through my merchant account and then I would pay them, pocketing $10 for my hassle. I had to tell him "no" for a number of reasons. First of all, if the credit card companies found out, they would close my merchant account, immediately, with no recourse. It was one of their "seven deadly sins" of merchant accounts. It also is, basically, PayPal's business model.
Of course, there were other reasons. If the buyer backed out of the deal and did a charge-back, I would be out the total amount and would have to hope the seller reimbursed me. It was just a hot mess and I wanted nothing to do with it.
As you might imagine, in the early days of PayPal the credit card companies figured out that PayPal was basically renting out their merchant account (by letting users accept credit card payments through PayPal's merchant account) and told them to stop. PayPal, using the standard Silicon Valley technique of "breaking things" and "going large, fast" told the credit card companies to stuff it. You see, while PayPal was breaking all the rules, they were also roping in millions of dollars a month in credit card fees for the credit card companies. Rules are rules, of course, but money talks. So the credit card companies said, "You know what? We're OK with this! Send more money!"
I suppose that you could argue that no one was harmed in this situation, but it illustrates how "breaking all the rules" ends up being the most profitable play in silicon valley - at least some of the time. But then again, it is dishonest and you've read what I've said about dishonest business people. If they lie once, they will lie again, particularly if there is money involved.
The FDIC thing was another early operating-out-of-a-dorm-room kind of thing, where they would take the daily deposits and put them in a number of FDIC-insured savings accounts overnight, in different banks. The FDIC insured accounts for up to $250,000 total. You can't create multiple accounts to aggregate this limit to millions of dollars. But that point is moot - the real deception was in claiming to be FDIC insured (like a chartered bank) when in fact, they just had an FDIC insured account at a bank. Yea, maybe they were insured (to the tune of $250,000) but you weren't.
This sort of left a sour taste in my mouth about PayPal. Sure, it was neat for buying and selling on eBay, but in terms of trustworthiness, well, I was skeptical. And all banking and investing is based on trust - you lose that, you've lost it all. And it should come as no surprise that in the early days, Elon Musk had his dirty hands in it.
So, over the years, I have tried to use PayPal less and less and indeed, there really is no need for it anymore as most online retailers, including eBay, do not require it in order to receive payments. They just take credit cards with no PayPal middleman. I still run into, on occasion, a retailer that only accepts PayPal, which is as quaint as running into someone who is still using an AoL e-mail address.
As a result, I suspect PayPal isn't as lucrative as it used to be. So I guess I shouldn't have been surprised when they moved into crypto and tried to sell their users on it. A reader suggests that they are not even really selling crypto, in that you don't have a real crypto wallet and address. If so, that is even worse.
But what made me laugh out loud was the links shown above, which I saw when I logged onto my PayPal account. "Protect yourself from scams" was un-ironically posted above "Getting started in crypto!" They helpfully suggest I set up my account to automatically "invest" in crypto every month, with the money being automatically debited from my checking account.
I politely declined.
When this whole crypto thing started many years back (has it been a decade already?) many folks cried "scam" and were told by the crypto-bros crypto-trolls that "they just didn't get it" and that this was a "virtual investment." They were right about the second part - it was a virtual invesment in nothing. Investments pay back by earning money which is paid out in interest, dividends, or retained earnings. Anything else is just speculation based on the difference between supply and demand. An antique car is not an "investment" as you are depending on the market to drive up prices based on scarcity. Ask any "dot-com" millionaire in the 1990's how his "investment" in a Ferrari worked out. Once the bubble burst and everyone had to sell their cars, the prices plummeted.
And that is crypto in a heartbeat. The price goes up when it is hyped. It falls when people want to cash-out because they need the money or get nervous when yet another crypto brokerage falls apart. And there are so many. Mt. Gox was the first indication of where this was going. FTX is just the latest iteration (and one of the seven largest crypto collapses - of 2022 alone!). They wanted an unregulated market and their dream came true - as a nightmare.
Sure, you can make a lot of money in crypto - and lose a lot as well. It is a zero-sum game - for every winner there is a loser - or one hundred losers. And the winners are the ones who got in early and got their "coins" for cheap. By some reckoning, only a few thousand people own the bulk of some currencies - and make lots of money selling off tiny slices to gullible buyers. And that's just the "legit" coins - there are plenty of scam coins out there as well.
Shame on PayPal for promoting this nonsense. But then again, maybe this is a sign of PayPal's struggle. The share price peaked in 2021 at over $300 a share, but today languishes at under $60 a share. Incidentally, PayPal owns Venmo, which has had its shares of issues. Seems PayPal just can't escape its scammy past!
PayPal hoped to achieve a staggering 750 million users by 2025 (that's more than twice the population of the United States!) but now has shifted to trying to extract more revenue from existing customers by pivoting to an online shopping experience, crypto, and savings accounts. Good luck with that! Remember what I said about trust and investing?
While I have bought dozens of items a year through e-commerce, I noticed that only a handful went through PayPal during the last two years (which is as far back as PayPal keeps records). The only reason I had that many was because of reader donations. If not for that, my PayPal transactions would be close to zero.
In fact, PayPal is a hassle to use. When you "checkout" using a credit card, Google will automatically enter your stored credit card information - you need only add the CVV2 number and you're all set. With PayPal, it is "please wait while we take you to the PayPal site" and then you have to log in and get an authorization code from your phone. The raison d être of PayPal was ease of use. That raison is no longer d être. PayPal is now the hassle, credit cards are simpler.
So, they have to sell something else. Crypto, anyone?
