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PayPal Starts Accepting Bitcoin, But With Limits

PayPal (NASDAQ:PYPL) has started accepting payments made with online cryptocurrency Bitcoin in North America. However, functionality will be limited as the company tests the waters for consumer and merchant interest. Scott Ellison, Senior Director of Corporate Strategy at PayPal, says that the company has partnered with BitPay, CoinBase and GoCoin in accepting payments for digital goods with Bitcoin. “Starting today, these agreements let PayPal digital goods merchants accept Bitcoin with a simple integration through the PayPal Payments Hub,” he writes.

Some limitations

The new functionality will be available to merchants and users in the United States and Canada, initially, with PayPal exploring coverage in other countries on a gradual basis. Ellison clarified that users will not exactly be able to keep Bitcoins as a separate currency in their digital wallets, as the system only interfaces with the three Bitcoin payment processors in handling transactions.

In addition, payments will only be valid for digital content, and not for pre-paid physical goods. “Customers with a bitcoin wallet will be able to pay participating merchants in bitcoin for games, music, videos, news, ebooks, and other digital content,” writes BitPay founder Tony Gallippi. This is largely due to the irreversible nature of Bitcoin transactions. Unlike traditional PayPal payments (either through digital wallet balance or credit card), which can be disputed, reversed or charged-back, Bitcoin transactions are final. Thus, PayPal is avoiding the risk of having transactions go awry and require refunds.

Good for Bitcoin?

PayPal counts 143 million active user accounts and is present in 193 countries and 26 currencies. The eBay-owned company processes at least US$55 billion per quarter in transactions, although this mostly involves funds drawn from bank accounts and paid through credit cards. While the more traditional payment sources would still make up the lion’s share of PayPal transactions, Bitcoin processing is a good sign of innovation and potential for both PayPal and the cryptocurrency. Ellison writes that the “innovations taking place in payments these days” will result in “[m]ore choices in how people create value, share it, buy, sell and trade it.”

As for BitPay, CoinBase and GoCoin, the three Bitcoin payment processors will remit PayPal a referral fee for new business it gains from PayPal Payments Hub, which means no added cost will be passed on to merchants or customers who pay via Bitcoin on these platforms.

Bitcoin is among the chief cryptocurrencies and is considered to be the only one that has achieved significant scale — enough to warrant the interest of PayPal. However, some concerns include the lack of a centralized structure for regulation and oversight, as well as issues that arise with payment processing outfits. One such concern is the status of Bitcoin as legal tender, vis-a-vis as tradable commodity. For this reason, PayPal’s Ellison says the company will ensure compliance with laws and regulations in each market it operates in. “[V]irtual 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.”

As the interest in Bitcoin and the volume of transactions rise, companies like PayPal are likewise keen on exploring how these can further take advantage. “We hope to do more with Bitcoin as its ecosystem continues to evolve,” Ellison writes.