Why Has PayPal Only Partially Embraced Bitcoin?

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PayPal is going slow when it comes to Bitcoin, limiting its current focus to emerging channels and relying on partnerships with virtual-currency processors in North America.

For the eBay subsidiary, the virtual currency is still too young for a full commitment, but is also significant enough to merit some level of support.

"One of PayPal's key objectives is to ensure that early merchant and consumer experiences with Bitcoin through PayPal are good, which is why we are taking a step-by-step approach," said Scott Ellison, PayPal's senior director of corporate strategy, in an email interview.

These steps include working with Bitcoin processors BitPay, Coinbase and GoCoin to accept payments for digital goods in North America through integrations with PayPal Hub. PayPal has also partnered with Coinbase to enable Bitcoin payments via Braintree, a PayPal subsidiary that provides payment services to developers.  

"Braintree is a key component," Ellison said. Businesses working with Braintree can integrate Bitcoin as a payment option with Braintree's v.zero software development kit.

The PayPal/Bitcoin processor integrations provide access to all payment options in the PayPal Hub. "The only thing the merchant has to do is negotiate a contract directly with the Bitcoin payments processor of their choice to enable Bitcoin acceptance," Ellison said.

PayPal has been watching Bitcoin since early 2012, Ellison said, adding the payments company hopes to "do more" with Bitcoin as the digital-currency ecosystem evolves. It also is considering markets outside North America, Ellison said.

"PayPal has always embraced innovation, but always in ways that make payments safer and more reliable for our customers," Ellison said. "Our approach to Bitcoin is no different. That's why we're proceeding gradually, supporting Bitcoin in some ways today and holding off on other ways until we see how things develop."

PayPal's lingering concerns about the virtual currency's maturity include risk, transaction execution and regulatory uncertainty.

"We're taking into consideration what happens to our customers, such as the risk in losing Bitcoin, since it's irretrievable, and whether consumers understand that if they lose Bitcoin, refunds are likely not available," Ellison said. "In general, Bitcoin still has evolving regulations. It's very early in its adoption and once it matures a bit more, we plan to bring that process along."

The high amount of digital goods such as games, music, videos, news, e-books and other content available to purchase is a good fit for virtual currency, said Tony Gallippi, BitPay's founder.

"You're selling something that's one or two dollars. It's not practical to use credit cards to do a micro payment," Gallippi said.

The PayPal Payments Hub will also be useful for BitPay and merchants, Gallippi said. "The hub is a place where there's more than 200 payment methods," he said. "The last thing you want to do is have 200 different negotiations with different payment providers."

PayPal did not elaborate on what makes the three particular processors attractive for its initial foray into Bitcoin, calling BitPay, Coinbase and GoCoin "leading" Bitcoin payment processors, with a similar philosophy to PayPal with respect to legal, compliance and customer service.

BitPay enables transaction tracking and enjoys a global reach. It also is a partner with Global Payments, which provides merchant acquiring heft.  Coinbase offers insurance against lost currency and GoCoin assumes all risk for Bitcoin transactions.

PayPal still has time to go slow, since relatively few consumers use virtual currency to shop. "The mainstream consumer is not yet interested in adopting a new currency that is not backed by any government, that fluctuates wildly in value and can be used in very few places," said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research.  "A lot of the popularity is with speculators looking to make a profit on the volatility, and with people looking to complete illicit transactions."

But there is also potential, Oglesby said.

"The value proposition for merchants is pretty good, providing a transaction that is very low-cost and without chargeback repercussions, so it's not surprising that merchants would want to make it a payments option," Oglesby said. "It would be surprising, however, if lots of consumers started lining up to use the currency in the short-term."

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