PayPal CEO Says Gov't-Backed Digital Dollars Are Inevitable

By Dean Seal
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Law360 (November 4, 2020, 8:16 PM EST) -- The establishment of government-backed digital currencies is "a matter of when and how they're done, not if," according to the president and CEO of PayPal, which recently received clearance to let users buy and sell cryptocurrencies.

The comment came Monday evening during an analyst call on PayPal's third-quarter earnings, in which the company's top brass reported that the turn toward e-commerce during the coronavirus pandemic had led to more than $1 billion in revenue growth and the addition of 15.2 million new active accounts compared to the previous quarter.

Last month, the digital payments giant announced that thanks to a first-of-its-kind "conditional Bitlicense" from New York state's financial regulator, it would soon offer a digital wallet service to U.S. users that will be compatible with popular cryptocurrencies Bitcoin, Ethereum, Bitcoin Cash and Litecoin.

When asked to discuss the effect that cryptocurrencies would have on PayPal's ecosystem, President and CEO Dan Schulman said that digital assets — including government-backed digital dollars issued by the central banks, known as central bank digital currencies or CBDCs — are expected to become ingrained in the payments and financial services space in the years to come.

"My conversations with central banks, with the regulators, with a number of folks in the crypto field — there's no question that digital currencies are going to be rising in importance, having increasing functionality and increasing prominence," Schulman said. "CBDCs, from my perspective and all my conversations, are a matter of when and how they're done, not if."

Cryptocurrencies have not yet caught on as a mainstream means of conducting transactions, but Schulman said that is likely to change in light of the more than 100 million adults who have been "moved into extreme poverty" in the past nine months, underscoring failings in the modern financial system that can potentially be addressed through a combination of emerging technologies, like cryptocurrency, and financial platforms like PayPal.

Schulman contends that given PayPal's scale, the platform's digital wallets will help shape the utility of cryptocurrencies while allowing the platform's users to manage and move money more efficiently and at a lower cost.

Central banks have taken notice of this rise in innovative financial technologies and "are seriously exploring or even trialing forms" of their own digital currencies that would be issued directly, Schulman said, adding that PayPal would embrace these CBDCs.

"It's also clear that digital wallets are a natural complement to all forms of digital currencies," he said Monday. "These trends create an opportunity for us to work with central banks and regulators to shape a modern and inclusive financial system built on more efficient digital infrastructure designed for the future."

The company announced two weeks ago that in addition to being allowed to buy, sell and hold major cryptocurrencies with their PayPal accounts, users would be able to use their digital currency as a funding instrument to shop at any of PayPal's 28 million merchants starting early next year. Users' digital currencies will instantly convert to fiat currencies in order to finalize transactions, Schulman said on Monday evening.

"This solution will not involve any additional integrations, volatility risk or incremental transaction fees for either consumers or merchants, and will fundamentally bolster the utility of cryptocurrencies," he said.

PayPal's expansion into the cryptocurrency space came after the New York State Department of Financial Services granted its first-ever conditional Bitlicense. Under the department's framework, companies can seek a conditional Bitlicense by partnering with an existing company that is already authorized by the Empire State's finance regulator to do virtual currency work.

According to DFS, the authorized partner would support the conditional licensee, and the conditional licensee would eventually apply for its own full DFS license or limited purpose trust charter independently.

"DFS will continue to encourage and support financial service providers to operate, grow, remain and expand in New York and work with innovators to enable them to germinate and test their ideas for a dynamic and forward-looking financial services sector, especially as we work to build New York back better in the midst of this pandemic," DFS superintendent Linda A. Lacewell said when it announced the Bitlicense last month.

In the U.S., the regulated cryptocurrency service provider Paxos Trust Company will undergird the app's new infrastructure, PayPal said in October. Buying or selling cryptocurrency won't involve fees — at least through the end of the year — and its digital wallets are also free of charge for now, the company said.

The app will additionally offer "educational content to help [users] understand the cryptocurrency ecosystem, the risks and opportunities related to investing in cryptocurrency and information on blockchain technology," the company noted at the time.

"This is just the beginning of the opportunities we see as we work hand-in-hand with regulators to accept new forms of digital currencies," Schulman said during Monday's earnings call. "We are at a moment in our history where all of our past efforts, our scale, brand reputation and regulatory relationships position us to play an expansive role in our customers' lives."

--Additional reporting by Emilie Ruscoe. Editing by Alanna Weissman.

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