PayPal appeals for regulatory clarity in Australia, hints at future blockchain application plans
Large, mature companies are rarely the first to adopt new technology. But if you want to get a sense of what areas of innovation these incumbent giants view as promising, if not deeply strategic, it pays to look at where they direct their lobbying muscle.
This has certainly been the case with bitcoin, as large retailers, payments platforms, and financial services companies continue to weigh into the ongoing regulatory process with carefully crafted messages either in favor of or in opposition to the burgeoning virtual currency. In September, it was Amazon, Walmart, and Western Union that submitted comments to the New York Department of Financial Services BitLicense inquiry.
The latest to weigh in, and in doing so offer a glimpse into its long-term play book, is PayPal, which petitioned the Australian Senate (of all authorities) in late December to draw clear distinctions between general-purpose digital wallets (of which it already operates), bitcoin payments (which it supports through a third-party integration), and blockchain applications (for which it appears to have future plans).
PayPal begins its self-described inquiry by writing:
Digital currencies are changing the global payments landscape and will play an important role in the future, particularly in global trade and the broader global economy and ecommerce environment. While digital currencies are yet to become mainstream, for companies such as PayPal which embrace innovation and efficiency in the global digital economy we will continue to monitor developments in this ever-evolving arena.In other words, PayPal is one of the good guys. We’re your friend, and a friend to our consumer and merchant customers. Lets us clarify how you can be most helpful to us as you think about this new area of regulation. The company plays hard to get, at first, presumably fearing scaring regulators by doing too much, too quickly.
PayPal’s first area of emphasis is straightforward. As the original and most widely adopted digital wallet in the world, the company very clearly wants to ensure that its ability to continue operating as such is not compromised as regulators seek to understand and adapt to new payment technologies. In other words, PayPal is asking that Australia (and presumably the rest of the world) not throw the digital fiat payments baby out with the digital currency bath-water.
It is important to understand that a PayPal account (sometimes referred to as a Digital Wallet) is NOT a digital currency and therefore should not be captured under any definition of what constitutes a digital currency.The company later looks to make the distinction between digital currencies which are controlled by a single issuer – effectively government-backed, fiat currencies in digital form – and those which are not, like bitcoin. It writes:
Those regulations, however, should be adapted to recognise the specific details of how different digital currencies work, particularly ‘decentralised’ digital currencies that are not controlled by a specific issuer.To the second point, PayPal straddles the fence by facilitating bitcoin payments via an integration of the Coinbase and BitPay bitcoin wallets into its subsidiary platform Braintree, but by keeping these transactions at an arms-length, preventing either merchants or consumer from storing bitcoins directly within its platform.
As I’ve written in the past, PayPal barely dipped its toe in the digital currency waters when it announced that it would allow only those merchants selling virtual goods – like digital media, app downloads, in-app stickers and themes – to accept bitcoin as a form of payment. Judging by this latest lobbying effort, it’s clear that PayPal’s reasoning for the lukewarm adoption was a fear that going further would result in its entire digital wallet platform being swept up in future regulations.
On this, PayPal writes:
It must be emphasized to the Senate Inquiry that PayPal’s announcement does not mean that PayPal has added Bitcoin as a currency in our digital wallet in the US or that Bitcoin payments will be processed on the PayPal payments platform. At this stage, consumers will not be able to store Bitcoins in their PayPal digital wallets. The rationale for this is that PayPal wants to ensure that while embracing innovation we remain committed to making payments safer and more reliable for customers – all users of PayPal are linked to a specific named PayPal account, with consumer protection for buyers, but identity and consumer protection are not built into Bitcoin today. Therefore, we are proceeding gradually,with some support for merchants in the U.S. who want to accept Bitcoin, while holding off on other aspectsThe use of expressions like “at this stage,” suggest that PayPal hasn’t ruled out further bitcoin support in the future, only that it’s treading cautiously at this still early stage. Remember, sudden movements might spook the regulators.
Perhaps most interestingly, given that this is the first we’ve seen the company weigh in on the matter, is PayPal’s comments around non-bitcoin blockchain technologies. These so-called Bitcoin 2.0 applications which are becoming an area of rapid innovation and excitement among entrepreneurs and investors alike, offer developers a way to facilitate decentralized ledgers and trust for such uses as smart contracts, asset tracking, data storage, and identity management. PayPal describes these blockchain uses as “non-payment applications” and advises the Australian regulators to similarly separate them from any forthcoming bitcoin and digital currency regulations.
PayPal explains its thinking by writing:
With respect to Bitcoin and other decentralized digital currencies, it is also important to note that the blockchain technology which provides protection against counterfeiting and double spending of the currency also has many potential applications that do not involve payments. The government should clarify that non-payments applications will not be subject to payments regulation.In this case, PayPal demonstrates even more interest in limiting regulation around blockchain applications than it does around bitcoin payments. This would suggest that the company sees meaningful applications of this technology to its business outside of simply more efficient payments. PayPal hasn’t offered many clues as to where exactly its interests lay, but transaction services like escrow, title, and smart contracts would be natural extensions of its payment business.
Headlines around bitcoin of late have centered on the currency’s rapidly declining price and on the latest high-profile of exchange hacking. But for those thinking deeply about the sector, it’s becoming clear that bitcoin the currency is just an opening act to the blockchain headliner. Judging by the above Senate Inquiry, PayPal clearly agrees with this line of thinking and is doing its best to make sure that, when it decides to pull the trigger, global regulations are accommodating.