PayPal launches UK crypto service

Laith Khalaf
23 August 2021

•    New PayPal service will allow UK consumers to trade and hold crypto 
•    Facilitating crypto transactions between consumers and businesses is likely to follow
•    Crypto transactions could become just a digital fig leaf, and a costly one
•    Paypal clearly views the UK as a hub of crypto activity

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“The ability to trade cryptocurrencies is nothing new, but the significance of PayPal’s entry into the UK market is its potential to process crypto transactions between consumers and businesses. This isn’t a service which will be offered at outset in the UK, but it’s already up and running in the US, where PayPal’s crypto ventures only began last October, so we can expect pretty rapid development on this side of the pond too.

“Of course, there’s still the issue of consumer and business demand to transact in crypto. What’s more it’s questionable how many businesses that do accept crypto will want to hold onto it after the transaction has taken place, rendering such a transactional facility little more than a sales gimmick. Crypto is clearly hugely volatile, and while businesses have bills to pay in dollars, pounds and euros, they’re unlikely to want to store lots of crypto on their balance sheet, lest prices take one of their habitual nosedives. Of course, currently consumers get paid in traditional currencies too, so if crypto is being exchanged at both ends to facilitate a transaction, it’s really just a digital fig leaf covering up a payment that could have been made without it, minus the costs of conversion, not to mention the additional energy used in mining crypto.

“It’s also significant that this crypto expansion is PayPal’s first outside the US, which suggests the tech giant thinks the UK is a hub of crypto activity worth tapping into. A survey conducted by AJ Bell earlier this year found that many UK investors were leapfrogging traditional forms of savings and diving in at the deep end by investing in crypto. Our survey found that six out of ten crypto investors don’t have an ISA, and half don’t have a pension. (Survey of 1134 cryptocurrency holders by findoutnow on behalf of AJ Bell conducted in Jan 2021).

“It’s certainly an area the FCA is taken a keen interest in, thanks to the rising popularity of crypto trading, and the potential for high levels of consumer harm from volatile prices. PayPal has doffed its cap to regulatory concerns, highlighting the educational content it will host alongside its crypto service, including the risks. That’s to be welcomed, though there are already concerning signs of reckless behaviour by consumers. An alarming statistic is that 14% of UK crypto buyers funded their purchases using debt, according to figures released by the FCA in June. While many are no doubt using crypto as a bit of harmless fun with small amounts of money they can afford to lose, some consumers are at risk of getting sucked in and spat out by the crypto craze. Within the crypto market itself, PayPal’s presence is positive in that it is a high profile, publicly listed company which is already subject to regulatory scrutiny. But overall the crypto craze remains a worry for consumer advocates and regulators, as well as inveterate luddites.”

Laith Khalaf
Head of Investment Analysis

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business. In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC.

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