PayPal

US Online payment pioneer with disastrous customer feedback
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Key Data

Background

PayPal is a global digital payments company founded in 1998 and headquartered in San Jose, California. It operates in over 200 markets worldwide and enables the transfer of funds between accounts in more than 100 currencies. PayPal holds licenses in various jurisdictions and is subject to regulations such as anti-money laundering (AML) and know-your-customer (KYC) requirements.

The company offers a range of services for individuals and businesses, including online payments, mobile payments, cryptocurrency trading, and the recently launched PayPal USD (PYUSD) stablecoin. PayPal has acquired several companies over the years, including Braintree, Venmo, and Xoom, expanding its offerings and user base. With over 325 million active accounts globally, PayPal continues to innovate and adapt to the evolving digital payments landscape.

Financial Situation

In its latest financial report for the first quarter of 2024, PayPal announced a total payment volume of $403.9 billion, marking a 14% increase compared to the previous year, which exceeded analyst expectations. However, the company anticipates a decline in earnings per diluted share for the full year, projecting approximately $3.65, down from $3.84 in 2023. This forecast is attributed to ongoing cost-cutting measures and business streamlining efforts.

The second quarter report, released on July 30, 2024, further elaborated on these trends, indicating a focus on restructuring and optimizing operations to enhance profitability amid competitive pressures. Overall, while PayPal continues to experience growth in transaction volume, its profitability outlook is cautious as it adapts to the evolving financial landscape and increased competition from other tech giants.

The Offering

PayPal currently offers a wide range of payment services and solutions for both individuals and businesses:

Personal Accounts

  • Online payments: PayPal allows users to securely send and receive money online for purchases, peer-to-peer transfers, and more. The PayPal mobile app enables payments, money transfers, and access to PayPal Credit.
  • Buyer Protection: PayPal’s Buyer Protection program safeguards customers when purchasing through its platform.
  • Cryptocurrency: PayPal users can buy, sell, and hold cryptocurrencies like Bitcoin and Ethereum. In August 2023, PayPal launched its dollar-backet stablecoin PYUSD that users can transfer to external wallets, use for online purchases, and engage in peer-to-peer transactions.

Business Offerings

  • Online payments: PayPal offers a variety of payment processing options for online businesses, including credit/debit cards, digital wallets, and BNPL
  • In-person payments: The PayPal Business Debit Mastercard allows businesses to access their PayPal balance for in-person purchases
  • Business financing: PayPal provides access to business loans and capital for cash flow needs

PayPal integrates with numerous e-commerce platforms, accounting software, and other business tools. It offers seller and fraud protections for online transactions.

Other Services

  • Venmo: PayPal’s mobile app for social payments, popular among younger demographics
  • PayPal Credit: A line of credit that allows customers to pay for purchases over time
  • Xoom: PayPal’s international money transfer service

Overall, PayPal continues to expand its offerings to meet the evolving needs of consumers and businesses in the digital payments space, with a focus on mobile, social, and alternative payment methods.

The PayPal Stablecoin

In August 2023, PayPal launched PayPal USD (PYUSD), a US dollar-backed stablecoin that is fully backed by US dollar deposits, US Treasuries, and similar cash equivalents. Initially available to eligible US customers, PYUSD can be used for purchases, transfers, and conversions within the PayPal ecosystem. The stablecoin is integrated into PayPal’s platform, allowing users to buy, sell, hold, and transfer PYUSD within their PayPal wallets. Originally launched on the Ethereum blockchain, PYUSD has also expanded to the Solana blockchain, enhancing its flexibility and reach. Through strategic partnerships, PayPal continues to build a robust ecosystem for PYUSD, aiming to increase its adoption and utility across various platforms.

Compliance Check

PayPal is regulated as a bank or financial institution in many jurisdictions with a wide range of entities and thus has a green flag. A separate analysis must be carried out regarding its regulation as a stablecoin issuer.

PayPal and other fintech firms have requested the maximum transition period to prepare for MiCA compliance. This indicates that while PayPal is actively engaged in the EU market and holds licenses, it is not yet fully compliant with MiCA regulations, as the framework itself is still being implemented and will not be fully operational until late 2024.

Customer Feedback

PayPal has a disastrous customer feedback rating on Trustpilot, with a rating of 1.3 stars and a corresponding bad trust level based on more than 30,000 reviews. This rating is scam-level and clearly gives us a red flag. Customers complain about unethical behavior, withheld funds, failure to comply with buyer protection, and miserable customer service.

Rating Conclusion

PayPal has a large number of regulatory licenses and has not previously come to our attention for violating compliance regulations. We are therefore placing the company on our Green Compliance List.

On the other hand, PayPal has such poor customer feedback that we feel compelled to place the company on our Red Risk List and advise private customers and merchants to exercise the utmost caution when working with PayPal.

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Rating Summary

Risk Signal

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