PayPal is bringing its cryptocurrency services to continental Europe, where there are several factors that are working in its favor despite the overall challenges this year for digital assets.
The payments company has expanded its crypto buy, hold and sell services to Luxembourg, adding that country to the U.K. and the U.S. where it offers similar crypto options for consumers. Luxembourg provides a location where PayPal can expand to the entire European Union while complying with existing and pending regulations. It can additionally use a local bank license to attract users that have been turned off by crypto because of large sell-offs and the struggles of crypto companies over the past year.
"There is not really a downside since PayPal is just facilitating transactions and not investing or otherwise taking positions," said Steve Murphy, director of Mercator Group's Commercial and Enterprise Payments Advisory Service.
Payments companies such as PayPal and Block allow customers to buy, sell and store cryptocurrency balances. While these companies do not support cryptocurrency payments directly at the point of sale, the crypto products allow consumers to build balances that can be converted to traditional currency and used for other payments through PayPal, PayPal's Venmo, or in the case of Block, its Cash P2P app.
The new PayPal service will allow customers to buy, sell and hold bitcoin, litecoin and bitcoin cash in their PayPal accounts through the website or mobile app in Luxembourg, which is also PayPal's European headquarters. Users can choose predetermined purchase amounts or enter their own amount and follow prompts to complete the sale. Customers can start by buying about $1 in cryptocurrency.
PayPal is debuting its crypto service in Luxembourg, but it could be a gateway to many more markets in the region.
David Paul Morris/Bloomberg
The expansion is coming at a difficult time for cryptocurrency overall. Crypto investors have lost more than $2 trillion since the market peaked in 2021. The resulting sting has caused investors to frown on crypto. Bank of America, for example, recently reported it has lost more than half of its crypto investing clients. And in an earlier interview, Amanda Orson, Curve's U.S. CEO, said consumers have become "less enthralled" with crypto over the past year. Orson is leading an expansion of Curve's all-in-one card in the U.S. and the fintech's crypto business.
"PayPal can remove one cause of the recent troubles with cryptocurrencies, which is the exchange," said Enrico Camerinelli, a strategic advisor at Aite-Novarica.
The FTX bankruptcy could invite legislation that seeks to create rules for the cryptocurrency industry and limit the spread of harm to other crypto companies. "PayPal represents a far more secure and reliable place to store cryptocurrencies," Camerinelli said.
The crisis could present an opportunity for financial institutions that are more heavily regulated, such as banks, to gain a larger share of the cryptocurrency industry.
PayPal is licensed in the U.S. as a money transmitter, and has a bank license in Luxembourg. PayPal is additionally licensed in Luxembourg as a virtual asset service provider, which means it is regulated under local rules for crypto.
The pending Markets in Crypto Asset regulation (MiCA), which would govern a wide range of cryptocurrency companies, transactions and use cases across the EU, permits "passporting," or the right of a financial company licensed in one EU country to operate in other EU nations.
This would give PayPal the ability to operate a regulated crypto business in 26 EU markets.
"Crypto services have been an important component of PayPal's announced super-app strategy," said Zil Bareisis, head of Celent's retail banking practice. "However, to introduce these services globally, companies must navigate a diverse regulatory landscape. Luxembourg is 'PayPal's home in Europe.'"
PayPal did not provide comment by deadline. In PayPal's announcement, Jose Fernandez da Ponte, senior vice president and general manager of blockchain, crypto and digital currencies, said "adding Luxembourg is an important step in PayPal's mission to make digital currencies more accessible. We are committed to continuing to work closely with regulators and policymakers in Luxembourg to meaningfully contribute to shaping the role digital currencies will play in the future of global finance and commerce."
PayPal has a wide-ranging interest in digital assets and has stuck to its strategy during the past year's market turbulence, which has also included the failure of the Terra stablecoin. PayPal is considering building its own stablecoin, hoping to create a stablecoin transaction system that's large enough to manage a large volume of payments and accessible to mainstream users. PayPal additionally offers a checkout feature that allows conversion from crypto to traditional currency at the point of sale, part of a product set that enables millions of merchants to accept crypto payments while settling transactions in U.S. dollars.
"Unless there is some new legislation coming that adds some risk to PayPal, they are simply [expanding] what they're doing in crypto," Murphy said.
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