When PayPal recently announced that its cross-border money transfer platform, Xoom, would now support the PayPal USD (PYUSD) stablecoin, reactions were largely muted. While PayPal’s history with crypto has been somewhat shaky, it’s clear that the company is taking deliberate steps to fuel cryptocurrency adoption.
PYUSD is a stablecoin that is based on the U.S. dollar, and the cryptocurrency was just launched in the latter half of 2023. The stablecoin can be redeemed on a one-to-one basis with U.S. dollars, and the initial focus for the crypto was for use in P2P payments. The company hoped the stablecoin would attract users who have been deterred by crypto’s perceived volatility.
While its release raised eyebrows, the decision to enable the stablecoin for cross-border payments is monumental. Xoom, which was acquired by PayPal in 2015, now supports PYUSD transfers to 160 countries.
According to James Wester, Director of Cryptocurrency at Javelin Strategy and Research, “it’s a pretty big deal for a company like PayPal—a well-regulated, locked-down, risk-averse financial services provider—to use their own stablecoin for cross-border payments.”
New Vistas
The demand for cross-border remittances has increasingly garnered the attention of financial services and payments companies. It has also drawn the focus of crypto and blockchain companies. The fact that PayPal has used its notable resources to create a solution in the space is an intriguing development.
The new model immediately delivers cost-savings for cross-border transfers, which has been a long-time pain point. PayPal cited a report from late 2023 that noted the average cost to send $200 cross-border was around 6%. Xoom won’t charge any fees for transfers to its supported countries.
Another selling point is the absence of crypto sales fees. When users select PYUSD as the sending format, their currency will be converted to crypto at no cost. The sender can also select the fiat currency in which the recipient will receive their funds. Transactions that aren’t conducted in USD, however, will still be affected by exchange rates.
“We had two objectives to achieve,” said PayPal’s Senior Vice President of the Blockchain, Cryptocurrency, and Digital Currency Group, Jose Fernandez da Ponte in a prepared statement, “create something that had a stable value to maximize user confidence and ensure it had utility for commerce and payments.”
Ponte went on to say that the new effort “builds on our goal of driving mainstream adoption of cryptocurrencies while also offering an easy way to securely send money to friends and family at a lower cost.”
Obstacles to Entry
While there is a robust market for cross-border transfers, it also presents significant challenges. It’s estimated that 70% of financial institutions are unsatisfied with the number of cross-border remittances that fail. Those failures have cost companies upwards of $89 billion through the first three quarters of 2023.
One of the main reasons payments fail is problems with verifying the recipient’s personal data. In many cases, humans are still verifying recipient information, and language barriers can play a part in derailing transactions. Cross-border payments are also vulnerable to currency-conversion complexities.
In addition to payment failure issues, there are regulatory issues to combat. Even though stablecoins are touted to be more reliable than crypto at large, the regulatory framework around them has been called into question.
The Financial Stability Institute said that stablecoin rules aren’t enforced equally across the world, and that regulations are “diverse and fragmented.” There are also concerns about how the loosely-governed coins could be susceptible to data breaches, fraud, or money-laundering.
Reach and Scale
Any apprehensions about stablecoin stability haven’t stalled PayPal’s plans as of yet. Crypto has been at the forefront of the company’s initiatives for some time, as proven by the resumption of its UK crypto activities in November.
“PayPal’s efforts with crypto have been interesting so far especially issuing its own stablecoin,” Wester said. “But bundling its crypto efforts with Xoom to go after the remittances market and offer a lower-cost alternative for cross-border payments, it’s important.”
Cross-border transfers have been a target use case for digital currencies for some time. PayPal entering the market signals a significant shift in how money will be sent across borders.
“Given their reach and scale, this could be a very big deal, especially in areas where low-cost remittance alternatives don’t exist,” Wester said.
