IDEA No 54
THE DIGITAL WALLET
‘Paper money is an ancient technology. You can run out of it. It wears out. It can get lost or stolen. In the twenty-first century, people need a form of money that’s more convenient and secure, something that can be accessed from anywhere with an internet connection.’
With these words, Peter Thiel launched PayPal, an online payment system that changed the way the world does business. A year earlier, in December 1998, Thiel had co-founded Confinity, a remote payment platform for Palm Pilots. At the same time as Confinity launched its website, an online financial services company called X.com was launching its own site. Both companies were located on University Avenue in Palo Alto, California. In March 2000, the two companies merged. Confinity was too cold. X.com sounded like a porn site. The company name was changed to that of its most successful product – PayPal.
Two years later, eBay bought PayPal for $1.5 billion. It had beaten BillPoint, eBay’s online payment system, at its own game. BillPoint was exclusive to eBay; PayPal could be used anywhere. And it offered $10 for every introduction. BillPoint was processing 4,000 transactions a day. PayPal was averaging 200,000. As eBay grew, so did PayPal. By April 2000, over a million eBay sellers were promoting PayPal. The masses had spoken.
Today, PayPal is available across 26 currencies, has over 100 million active accounts and processes almost $5,000 every second. As the digital wallet moves beyond the desktop to the smartphone, this dominance is under threat. Banks, credit-card companies, mobile-phone networks, Google, Amazon and radical new paradigms like Bitcoin are competing to be the payment platform of choice.
Whatever the future holds for PayPal, its legacy is immense and goes beyond reshaping global commerce. When venture capital dried up following the dot-com crash, the PayPal founders stepped in. They used money from the sale of PayPal to fund the second wave of Silicon Valley start-ups. eBay’s money was used to finance Facebook, LinkedIn, Friendster, YouTube, Flickr, Digg, Last.fm, Spotify and many more Web 2.0 companies. Such is their influence that they collectively became known as the PayPal Mafia.
PayPal continues to work towards its ultimate ambition, to be a global currency in a cash-free future. If past performance is anything to go by, I wouldn’t get in its way.■
‘PayPal is available across 26 currencies, has over 100 million active accounts and processes almost $5,000 every second.’
The Paypal Mafia, so called because of the number of Web companies funded by the original PayPal team.