Technology

How PayPal Becomes the Largest Online Payments Platform

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Paypal’s shiny modern HQ belies its humble beginnings

image by Sagar SavlaCC BY-SA 3.0

There’s always a sense of satisfaction that comes when your original business idea proves to be a success.

However, that satisfaction must be all the sweeter for the creators of PayPal, because while their business was once voted one of the ‘top ten worst business ideas of the year’, it is now in the top half of the Fortune 500 – with profits in excess of $15.5bn.

So how did such a ‘bad idea’ grow to be such a good company, and exactly how big is PayPal in the modern online world?

Four men and Musk

PayPal began life back in 1998 when, for most of us, the internet was still a novelty and the smartphone was still almost a decade away.

It was created by Luke Nosek, Peter Theil, Ken Howery and Max Levchin as Conformity, before a merger with Elon Musk’s company X.com created PayPal two years later.

The company grew quickly, attracting over 5 million customers in just a few months in 2000.

Soaring on the stock market

PayPal was launched onto the stock market in early 2002, and it grew by a staggering 55% on the NASDAQ exchange in its first year – a level unheard of for a start-up company.

SEMrush

Later that year, the rapidly growing auction hub, eBay, saw the potential for an in-house payment system, and PayPal was acquired for the princely sum of $1.5bn.

Not a bad price for one of the worst business ideas around. It remains the default eBay payment system to this day, despite being spun off from the company, at the insistence of stock holders, in July 2015.

Eat the competition

One of the keys to PayPal’s success has been its smart strategy of buying out its rivals to broaden its reach while reducing the competition.

The company bought out Verisign in 2005, starting a pattern of purchases that would include the Braintree payments gateway, the Venmo payment app, Xoom money transfers and Padient.

By the time PayPal returned to the stock market following its split from eBay in 2015 it was worth $49bn, far in excess of eBay’s own stock market valuation.

Freed from its shackles, its revenue soon shot up by a further 16%, vindicating its stock holders’ decision.

Paypal and eBay – the perfect partnership
Paypal and eBay – the perfect partnership

image by KarlisDambrans CC BY 2.0

Just how big is PayPal today?

Today, PayPal operates in over 200 countries worldwide, handling transactions in 25 different currencies. It has 267 million active accounts and is used by three quarters of a million websites across the globe.

In terms of traffic, it is the 73rd most used website in the world. PayPal processed $163.65bn in the last quarter of 2018 alone, creating a staggering annual profit of $15.54bn.

The secret of PayPal’s runaway success has always been its simplicity. Almost anyone can set up and verify a PayPal account and they can be used for so much more than just eBay auction purchases.

These days PayPal is widely accepted for all kinds of transactions, from concert tickets to online casino deposits, providing a swift and safe alternative to traditional card payments.

The benefits of using PayPal

People use PayPal for a variety of reasons.

For many it is simply the ease of using the system, clicking one button to make a payment, instead of laboriously entering a sixteen-digit card number plus your address, postal code and a host of other details.

What’s more, with cyber security and identity theft a growing concern, many more people are reluctant to offer personal financial details online at all.

In this case, PayPal provides a way to make online purchases while keeping your personal information safe.

It also provides a level of privacy and discretion by masking the true nature of purchases and preventing them from showing up on your bank statement.

Profiting from PayPal

In its brief history, many people have profited from PayPal, from stock holders to online businesses.

But few have profited quite as much as Chris Reynolds, the Pennsylvania PR Exec who was credited with $92 quadrillion dollars by PayPal in 2013.

To put that in perspective, the CIA Factbook counts all the money in the world as adding up to just $80trn, and he was credited with a thousand times that. Sadly for Chris, they soon realised their mistake and took it all back. Let’s just hope he wasn’t charged a percentage transaction fee!

About the author

Rahul Setia

Rahul Setia was born and raised in the Kaithal, Haryana. He worked at brands like Jabong, ProProfs etc. He was also in the List of Top 100 Social Media Influencer's 2019 by Status Brew. He lives in Delhi/NCR and is a Digital Gig & Founder of Websites i.e TechBlogCorner.com, ViralMasalla.com, DealorCoupons.com.
Follow me on: LinkedIn, @rahulsetia007 and Facebook.

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