Why has PayPal launched a USD stablecoin?

• The announcement that PayPal launched its own US dollar-backed stablecoin was met with mixed reactions.
• To address the questions around why PayPal has launched PYUSD, FXC Intelligence has today published a deep dive report into PayPal’s potential strategies. 
• The project is likely being enacted to enhance the company’s current crypto play and lay the groundwork for longer-term benefits that may emerge.

On 7 August 2023, PayPal announced the launch of its own US dollar stablecoin, dubbed PayPal USD, or PYUSD. 

PYUSD is the first stablecoin that PayPal customers will be able to buy, sell and hold within their PayPal wallet, and is only available to US customers at present. However, with the crypto industry facing unprecedented levels of regulatory scrutiny and reputational blows, as well as the knock-on impacts of the collapse of Silicon Valley Bank, many are questioning why PayPal has decided to enter the space now. 

To answer this question, FXC Intelligence has today published a deep dive report that explored the motivations behind PYUSD and how the move fits into PayPal’s wider strategy.

Lucy Ingham, Head of Content and Editor-in-Chief at FXC Intelligence, said:

“There have been many theories as to why PayPal has chosen to launch PYUSD or why it is being launched now, amidst the recent turmoil in the crypto space. Our report shows that there is unlikely to be a singular driving force behind the announcement, but instead a multifaceted strategy at play that could unveil multiple potential benefits for the company in the short and long term.

“It’s our estimation that this project is in part being enacted to bolster the company’s current crypto offering and lay the groundwork for longer-term projects, such as establishing a foothold for mainstream adoption of web3.”

One of the possible benefits for PayPal is the ability to attract new customers that are curious about crypto but wary of the volatile market. This is because stablecoins are pegged to a conventional fiat currency, meaning they maintain a one-to-one value with them. For PYUSD, this means each token will always be worth $1, unlike cryptocurrencies that are not backed by fiat currencies, which can vary significantly in price. 

Although PayPal's crypto offering is far from the cheapest on the market, it does offer a safe way to make purchases on a platform that is both familiar and trusted by its customers. This is likely to make it appealing to interested consumers who lack the technical confidence to engage with the complex wider crypto space. 

Beyond this, offering stablecoins as a means of making cross-border payments, especially remittances, may also be an area of potential business for PayPal. Digital currencies enable money to be transferred and settled in real-time – an increasing expectation of many cross-border payments, which, while increasingly common, is not always available through conventional money transfers. 

Interestingly, PayPal has not linked PYUSD’s use to its own remittance brand Xoom. As there have been reports that PayPal is looking to sell Xoom, it is possible that PayPal is exploring ultimately replacing Xoom with a stablecoin-based remittance service via PYUSD.

A nearer-term benefit for PayPal may be adding additional capabilities to the company’s app to encourage customers to use the platform and thus spend more money via the company. 

In the longer term, the launch of PayPal’s stablecoin now may in part be a strategy with a much longer-term yield, in the form of web3. A term covering the wide range of blockchain-related solutions, this is an area that has been developing for some time but has yet to reach its fruition.

PayPal may be looking to establish an early foothold in the space so that it has time to build sufficient presence and scale. 

This is also reflected in how the company presented web3 in its initial release about PYUSD. PayPal said that the stablecoin was “building the bridge between fiat and web3 for consumers, merchants and developers”, pointing to the “already large and growing community of external developers, wallets and web3 applications” in the space.

Further information 

• To read more about PayPal's stablecoin strategy, read FXC Inteligence’s report here. 
• FXC Intelligence is the industry leader in cross-border payments data and intelligence. Our data is used by a number of intergovernmental bodies, including the World Bank and the Financial Stability Board.
• The world's biggest banks, payments and big tech companies use our critical data to make vital decisions that shape their day-to-day operations, product development and strategy.
• We track pricing, market size and product changes as they happen and update our dataset at high frequency, giving our clients the competitive edge they need to stay on top in a rapidly changing market.
• Our clients can also access datasets on card and ecommerce pricing. We also provide cryptocurrency costs and market data in recognition of its growing significance in the global payments mix.
• Our data gives us a unique understanding of cross-border payments, and we share our analysis and insights every week with subscribers to our newsletter, the most widely read in the cross-border payments market globally. Interested and want to find out more? Sign up to our newsletter here.