PayPal warms up to Bitcoin

paypal agreementOnce seen as a direct competitor, PayPal has warmed up quite a lot to Bitcoin. Last year, PayPal’s president David Marcus stated that his company was “thinking about” bitcoin. Then, just recently, PayPal announced bitcoin integration through one of its smaller projects – Braintree. And today, PayPal has partnered with three major bitcoin payment processors – BitPay, Coinbase, and GoCoin, to allow PayPal’s digital goods merchants to accept bitcoin payments.

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PayPal Payments Hub

The PayPal Payments Hub is the company’s alternative payments platform used exclusively for digital goods such as in-game currency, music, videos, ebooks, and more. Starting today, Payments Hub users can create a BitPay, Coinbase, or GoCoin account and provide API credentials into the Payments Hub admin. After the relatively simple and straightforward integration is complete, customers can use bitcoins as well as credit cards and Bitcoin to buy the digital goods. PayPal’s partnership with the three bitcoin payments processors allows existing Payments Hub merchants to easily accept bitcoin payments without having to completely overhaul their own systems.

Testing the Waters

However, it’s important to note that PayPal is not announcing 100% bitcoin integration with all of its services, such as their digital wallet. Instead, today’s announcement is simply another cautious step for PayPal into the bitcoin industry.

“PayPal has always embraced innovation, but always in ways that make payments safer and more reliable for our customers. 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 is still experimenting with bitcoin little by little before considering complete integration. The Payments Hub can only be used for digital content, and bitcoin integration is currently only available in North America. Scott Ellison, senior director of corporate strategy at PayPal, stated that “Digital goods were an easy way to [test bitcoin integration] first… People are comfortable paying online for those things.” PayPal will also not work with merchants who pre-sell products.

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“Pre-selling is when a business asks for money up-front for a product or service it will deliver in the future. Customers may not get their money back if the business goes out of business before the product is shipped but after a buyer protection period expires. Again, our decision not to support pre-sales is shaped by our desire to protect our customers.”

Other Limitations

PayPal doesn’t actually process any bitcoin payments. Instead, payments are rerouted through BitPay, Coinbase, or GoCoin, depending on the merchant’s account setup. However, PayPal will still receive an undisclosed fee per referral, which may or may not hinder the new system. Furthermore, bitcoin payments aren’t enabled automatically, and instead, it’s up to merchants to set up bitcoin integration with PayPal’s Payments Hub.

PayPal has been arguably slow about adopting bitcoin, compared to other, smaller, e-commerce competitors, and the company often cites regulatory concerns as one of the main hindrances.

“PayPal also needs to follow the laws and regulations in every market we operate. For this reason, virtual currency exchangers and administrators interested in working with PayPal in the future must secure the appropriate licenses and put anti-money laundering procedures in place.”

However, PayPal is a giant when it comes to online payments, and many are optimistic about PayPal’s (albeit cautious) steps into the bitcoin space.

“We’re excited to continue building this relationship with PayPal, and look forward to helping develop a simple, seamless way for its customers to purchase digital goods with bitcoin.”

-Coinbase

“We are excited to reveal our relationship with PayPal to increase the adoption of bitcoin worldwide.”

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