PayPal’s Remittance Crown is Safe from Crypto...For Now
PayPal’s announcement in April that it would be hiking all cross-border payment fees to USD 4.99 left crypto enthusiasts overjoyed.
A cost almost 5 times as expensive as the average bitcoin transaction, PayPal’s new fee is seen by many as typical of the greedy, centralized international payment companies who, among other things, facilitate the estimated USD 500 billion in remittance payments made annually by hard-working expats sending money to family members back home.
The cryptocurrency industry, of course, has promised to displace “trusted third parties” like PayPal and Western Union since the publication of the Bitcoin whitepaper in 2008, which posited that cryptographic proof could be substituted for the services of expensive middlemen. The result would be faster, cheaper, irreversible transactions for all.
Ten years have since passed.
Now that bitcoin and other cryptocurrencies are officially cheaper to send than traditional currencies over PayPal, many reason that we are finally nearing the day when cryptocurrency will begin to displace the remittance industry stalwarts. Yet there are other important barriers to displacing PayPal, and it will take much more than cheaper fees to trigger the mass adoption of cryptocurrencies for remittances.
One big show-stopper: crypto volatility. Remitters are typically trying to alleviate their family’s financial problems, not generate new ones. Even one single experience with a 30% price drop can be hard to forget for a cash-strapped family.
The solution to crypto volatility is what commentators label a “stablecoin,” a cryptocurrency designed to maintain close to a one-to-one value with existing fiat currencies like the dollar. Stablecoin users are able to exchange value with confidence, knowing that neither buyer nor seller will suffer unpredictable losses as a result of volatility.
Beyond stable value cryptocurrencies, however, we must also offer instantaneous transactions. These are now possible thanks to proof-of-stake consensus protocols powering new blockchains. This enables users to process and fully settle thousands of transactions per second with fees that are “too cheap to meter.” With this, blockchain platforms can finally provide enterprise-grade transactional throughput that can rival existing systems like the Visa network.
Next, using and sending cryptocurrency must become virtually effortless. What is needed is a extremely intuitive cryptocurrency wallet—mobile and web-based—with human-friendly, decentralized password recovery.
Finally, moving back and forth between cryptocurrency and local fiat currencies must become easier across all geographies and socio-economic strata. While the need for this exchange--and the associated costs--may disappear over the coming years once merchants accept cryptocurrency on a broader scale, today remitters still need an easy way to buy and sell crypto for fiat. An interim solution may be something akin to Venmo, a mobile payment service owned by PayPal--a wallet that facilitates connections between the user and members of a social network to move into and out of fiat more easily through P2P exchange.
In general, cryptocurrencies still have a few crucial pieces of infrastructure to create before they can truly provide superior peer to peer value transfer and eliminate expensive middlemen. While a variety of barriers remain—especially price volatility, subpar transaction speed, and overly complex user experience—these obstacles will soon be overcome as the cryptocurrency industry continues to rapidly mature.