PayPal is one of the most widely used and trusted online payment systems today. Since its founding in 1998, PayPal has transformed how people and businesses send and receive money online.
PayPal‘s history is filled with innovations, acquisitions, controversies, and rapid growth. Let‘s take a closer look at the key events and milestones that have shaped PayPal into the fintech powerhouse it is today.
The Early Days: Confinity and the Birth of PayPal (1998-2002)
In 1998, Max Levchin and Peter Thiel founded a company called Confinity in Palo Alto, CA. Their original plan was to develop encryption software for handheld devices.
However, in 1999, Confinity launched a money transfer service called PayPal, which allowed users to send money to each other via email. This new service quickly gained traction among eBay users who needed a faster way to pay for auction items beyond mailing checks or money orders.
By early 2000, PayPal was growing exponentially. The company reached over 1 million users in just a few months. Given PayPal‘s success, Confinity decided to focus entirely on its online payment service and changed its name to PayPal in 2001.
In February 2002, PayPal went public on the Nasdaq with over 12 million accounts. Later that year, eBay acquired PayPal for $1.5 billion. Thisacquisition proved hugely successful, propelling PayPal‘s growth to over 100 million active users by 2007.
Rapid Growth Under eBay (2002-2014)
After eBay‘s acquisition, PayPal operated as a wholly-owned subsidiary. This allowed the payment platform to continue expanding rapidly under eBay‘s wing.
Key milestones during PayPal‘s eBay years include:
- 2006: PayPal Mobile launched, allowing users to send payments via mobile phones
- 2008: PayPal reached 150 million users
- 2011: PayPal announced it had over 100 million active user accounts
- 2013: PayPal acquired payment gateway Braintree (including peer-to-peer app Venmo) for $800 million
By 2014, PayPal was processing billions of dollars in mobile payments annually. However, tensions began mounting between eBay and PayPal‘s management team. This led to a major shake-up.
Spinning Off from eBay (2014-Present)
In 2014, activist investor Carl Icahn pushed for PayPal to be spun off from eBay into an independent publicly traded company. Icahn argued this would unlock tremendous value for shareholders.
In July 2015, PayPal formally separated from eBay and became an independent company again. On its first day of trading, PayPal‘s stock price soared, valuing the company at nearly $50 billion.
As an independent entity once more, PayPal continued expanding through strategic acquisitions:
- 2015: Acquired Xoom for $890 million to bolster PayPal‘s cross-border payments capabilities
- 2018: Acquired iZettle for $2.2 billion to expand into in-store payments
- 2019: Acquired fraud prevention company Simility for $120 million
PayPal also rolled out new products to extend its reach:
- Peer-to-peer payments app Venmo experienced massive growth, reaching over 40 million active users by 2019
- PayPal launched small business lending services through PayPal Working Capital
- PayPal began expanding into cryptocurrency, allowing users to buy, sell, and hold Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.
Today, PayPal has over 400 million active user accounts globally and processes billions of dollars in payments each year. The company continues to innovate and identify new ways to evolve with the times.
PayPal‘s Founders and Leadership Over the Years
PayPal‘s journey from scrappy startup to global payments leader is thanks in large part to the vision and leadership of its founders and executives over the years.
Max Levchin and Peter Thiel
Max Levchin and Peter Thiel co-founded Confinity and PayPal in 1998. Their original vision was to “create a new internet currency to replace traditional forms of money.”
Levchin served as CTO and developed core PayPal fraud prevention technology, while Thiel was CEO. Thiel had already co-founded Palantir Technologies and would go on to become an influential investor in companies like Facebook.
In addition to Levchin and Thiel, entrepreneur Elon Musk was an early member of the PayPal team. He co-founded X.com, which later merged with Confinity to form PayPal in 2000. Musk served briefly as CEO before being replaced by Thiel.
Reid Hoffman joined PayPal in 2000 and was a key executive leading growth initiatives. He later left to found LinkedIn. Hoffman served on PayPal‘s board after the eBay acquisition.
Scott Thompson was PayPal‘s CEO from 2008 to 2012. He oversaw much of the growth under eBay. Thompson left PayPal to become CEO of Yahoo in 2012.
Dan Schulman took over as PayPal‘s President when eBay acquired the company in 2002. He left for a few years then returned in 2014 to serve as PayPal‘s second CEO after the spin-off from eBay.
Under Schulman‘s leadership, PayPal‘s user base has more than doubled, and he has overseen key acquisitions and product launches.
PayPal‘s Innovations That Transformed Payments
Over its 25+ year history, PayPal has introduced several innovations that fundamentally transformed digital payments and financial services.
Online Payments Via Email
PayPal‘s earliest product innovation was enabling users to easily send each other money via email. Before PayPal, the main ways to pay online were mailing checks/money orders or entering lengthy credit card details.
By tying payments to email addresses, PayPal streamlined the process of paying online. This helped eBay buyers and sellers complete transactions much faster.
In 2006, PayPal launched a mobile payments product, allowing users to send money via text message. This was years before Apple Pay or Google Pay.
PayPal helped kickstart the mobile payments industry, setting the stage for every smartphone to evolve into a digital wallet.
PayPal pioneered easy peer-to-peer payments by linking payments to emails and mobile numbers. This laid the foundation for P2P payment apps like Venmo.
Venmo, acquired by PayPal in 2013, later exploded in popularity with features like social newsfeeds and emoji for payments. P2P payments have become a key pillar of PayPal‘s business.
PayPal offers robust developer tools and APIs for integrating PayPal payments into third-party apps and services. These tools have enabled PayPal to expand to millions of merchants globally.
Two examples are PayPal‘s online checkout tools for merchants and its Braintree SDK for in-app payments.
Buyer & Seller Protection
Trust and safety have been critical to PayPal‘s success. PayPal introduced buyer and seller protection programs early on to instill confidence in sending money to strangers online.
These protection programs shield both buyers and sellers from fraudulent transactions and have helped accelerate e-commerce growth.
PayPal‘s Biggest Acquisitions
PayPal has grown over the years in part through acquiring innovative companies that expand its capabilities. Here are some of PayPal‘s largest and most strategic acquisitions:
Braintree (2013) – Acquired payments gateway Braintree and P2P app Venmo for $800 million. Gave PayPal access to Braintree‘s merchant clients and Venmo‘s millions of users.
Xoom (2015) – Acquired international money transfer service Xoom for $890 million. Bolstered PayPal‘s cross-border payments business.
iZettle (2018) – Bought European mobile payments company iZettle for $2.2 billion. Allowed PayPal to expand further into in-store payments.
Honey (2019) – Acquired deal-finding browser extension Honey for $4 billion. Added coupons and deals to PayPal‘s services.
Paidy (2021) – Bought Japanese "buy now, pay later" company Paidy for $2.7 billion. Expanded PayPal‘s reach in Asia.
These strategic acquisitions have allowed PayPal to gain technology, talent, and users – fueling the company‘s continued expansion.
PayPal‘s Role in Spawning the "PayPal Mafia"
Many former PayPal employees and executives have gone on to become hugely successful tech entrepreneurs and investors. This influential network became known as the "PayPal Mafia."
Here are some notable PayPal Mafia members:
- Elon Musk – Founder of Tesla, SpaceX
- Reid Hoffman – Founder of LinkedIn
- Peter Thiel – Co-Founder of Palantir, early Facebook investor
- Chad Hurley, Steve Chen, Jawed Karim – Founded YouTube
- Jeremy Stoppelman – Founded Yelp
- David Sacks – Founder of Yammer
- Keith Rabois – Executive at LinkedIn, Square, Khosla Ventures
After PayPal‘s acquisition by eBay, many early employees left and used their newfound wealth and experience to start new successful companies. The PayPal Mafia has had an outsized influence on Silicon Valley.
PayPal‘s Revenue Sources
PayPal generates revenue through the following main streams:
Transaction fees – Charges a fee to merchants and consumers on payments processed through PayPal. This fee varies but is often 2.9% + $0.30 per transaction.
Interest on consumer balances – Earns interest on funds held in user accounts and from consumer credit products.
Lending fees – Origination and interest fees from PayPal Working Capital, PayPal Business Loan products.
Other value added services – Subscription fees for PayPal products like fraud protection and in-store checkout systems.
In 2021, PayPal generated over $25 billion in total revenue. Transaction fees accounted for approximately 69% of revenue, while interest and fees made up roughly 25%.
PayPal‘s Impact on E-Commerce
It‘s hard to overstate PayPal‘s impact in shaping modern e-commerce.
Before PayPal, paying online was slow, cumbersome, and lacked consumer protection. PayPal‘s digital payments platform made transacting online easier and safer for both buyers and sellers.
This helped e-commerce grow exponentially in the early 2000s. PayPal became the preferred payment method for eBay and smaller online merchants.
When Apple launched the iPhone App Store in 2008, PayPal became the first widespread in-app payment system. This helped kickstart the app economy.
And when shopping moved to mobile, PayPal‘s mobile wallet and merchant apps allowed users to pay with one touch.
By powering key online and mobile commerce innovations over the past two decades, PayPal played an integral role in enabling trillion-dollar digital economy we have today.
PayPal‘s Future Outlook
As PayPal celebrates over 20 years in business, the company still has big ambitions for the future.
Here are some trends and growth areas that analysts expect will shape PayPal‘s future:
Cryptocurrency – PayPal aims to become a major platform for crypto trading and payments. It recently began supporting Bitcoin, Ethereum, Bitcoin Cash and Litecoin.
International expansion – PayPal is growing rapidly in countries like China and India where digital payments are accelerating.
In-store payments – PayPal wants to be a payment option at millions of brick-and-mortar retailers, competing with the likes of Apple Pay and Google Pay.
Buy Now, Pay Later – PayPal plans to expand installment-based credit through Bill Me Later and Pay in 4 to capitalize on this popular payment trend.
Business financial services – Products like working capital loans and invoicing help PayPal monetize its growing base of merchant customers.
After multiple reinventions, PayPal has proven its ability to adapt and remain relevant through enormous industry change. PayPal‘s next chapter will likely involve leveraging blockchain, mobile technology, and expanded financial services to continue leading the digital payments revolution.