PayPal is one of the earliest and better known digital payment systems used by consumers and businesses alike to make transactions around the world – online, through mobile apps, and in person.
History of PayPal: Timeline and Facts
The terrific idea behind PayPal’s launch in 1998 was enabling people to “email money”. What started as a product without a definite use case and a market grew like a wildfire when it entered the eBay community. At the time, people had to mail a check for a purchase, wait for it to arrive and clear, and wait for an item to arrive.
The already lengthy process was further complicated by lax fraud prevention measures, as a seller could simply not mail an item after receiving the payment. In stark contrast, PayPal let customers transfer money from their bank account to a seller PayPal account in hours instead of weeks and protected the money until the transaction was concluded.
By enabling much faster direct and protected payments, PayPal platform grew from 10 thousand users in 1999 to 5 million by the summer of 2000. Now, the company is valued at over $193+ billion with many successful payment products like Braintree, Venmo, and Xoom under its wing and is expected to surpass a market cap of $1 trillion by 2030.
After 20 years of providing excellent service, PayPal continues to succeed for the same reasons – it provides faster and more convenient ways to pay for consumers and merchants alike.
With digital payments increasingly becoming the norm, many people are wondering what does it take to build a digital payment platform like PayPal?
Why is PayPal so popular?
It’s easy to start with
One of the biggest advantages of PayPal is its low barrier to entry. Anyone can create an account and start using it in under 10 minutes. Compared to opening an account at a traditional bank or a financial institution that requires a visit to a physical branch and tons of paperwork, PayPal is much more convenient. All you need to do is sign up and input your information online – no lengthy queues and unnecessary bureaucracy.
Connecting an existing bank account or a credit card is very easy. As a result, all types of businesses and everyday consumers have quick access to a broad payment ecosystem. From splitting a bill at dinner to selling products online, PayPal gives people the ability to send and accept money with just a few taps.
Once you set up a PayPal account with your bank account or credit card, you can keep using it wherever you shop. Instead of entering credit card information time after time, all you need to do is log in with PayPal to make a purchase. Not only does this save you time, but it also keeps your bank information safe during transactions.
It’s caters for ecommerce
Retailers, e-commerce stores, and even restaurants who use the platform can attract customers with faster checkout, giving them an advantage over their competition. But that’s not the only benefit for business owners. PayPal’s merchant services are a fantastic way to keep things organized.
Source: PayPal official website
Tracking orders, generating sales reports, and keeping track of invoices is easy with PayPal. Furthermore, the system’s flexibility lets merchants set up new payment links and buttons in virtually any situation. While those tools provide a great foundation, PayPal also has partnerships with many third parties to help you grow and manage your business.
From website and store builders like Squarespace, Wix, BigCommerce, and Shopify to partners like Magento that enable you to further develop your business, multiple quick and easy integrations make Paypal platform a one-stop-shop solution for many companies worldwide.
Despite how popular and commonplace online shopping has become, concerns over the safety of consumer data and payment information remains as relevant as ever. PayPal’s solution is to act as a mediator between buyers and sellers to resolve disputes and any order discrepancies. Although the resolution process may take some time, it is good to have an additional security layer to prevent fraud.
These features make digital payment platforms like PayPal incredibly attractive to customers and merchants for their functionality, convenience, and user-friendliness, all of which stem from the versatility of PayPal’s core payment system.
- 392 million active accounts (as of 2021)
- 29 million active merchant accounts (as of the end of 2020)
- $21,4 billion in total revenue in 2020 (20,9% growth compared to 2019)
- $4.2 billion net profit in 2020 (75% growth compared to 2019)
- 15,4 billion payment transactions in 2020
- $936 billion transaction volume in 2020
- 41 million transactions (on average) are done via PayPal every day
- Supports 100+ currencies
Why payment platforms like PayPal are in demand?
According to McKinsey, the global payment market revenue in 2019 was $1.9 trillion and is expected to grow by 6% per annum to $2.7 trillion in 2023. Customers are increasingly turning to nonbank financial providers like PayPal for functionality traditional banking services do not provide.
The incumbent banking system relies on physical branches to open accounts, make transfers, and service customer requests, which is highly prohibitive for some customer groups. Those in rural areas or those working long hours have to make special arrangements to travel to a physical branch only during office hours just to make use of their account. Even then, traditional banks cover their high overhead by passing the costs onto the consumers in the form of high and unexpected fees.
Payment providers, in comparison, offer unparalleled convenience and transparency. With just a smartphone, customers can interact with their money whenever and wherever they want. For example, consumers use PayPal for cheaper and often free account-to-account (A2A) payments that are quickly rising in popularity in Europe and Asia. Low and transparent fees are easy to understand and enable customers to reap the benefits of vast financial ecosystems.
Quick loan approvals and a myriad of business management tools and integrations make payment providers like PayPal vastly more beneficial and cost-effective to merchants when compared to traditional payment providers. As the conventional sources for growth in retail payments change and become more digital, the market will shift towards payment providers who rely on efficient technology infrastructure to deliver superior features to consumers.
Why banks can’t keep up with PayPal?
The reason why traditional providers like banks cannot implement new functionality lies in their closed legacy systems that require a lot of time and resources to upgrade. Some of them are struggling to integrate even the most basic functions like currency exchange. Modern payment platforms, on the other hand, rely on a much more flexible and stable API first architecture to roll out new features in a fraction of the time.
These factors make payment platforms like PayPal attractive not only to underserved customers but to those with accounts at traditional banks because they can drastically increase their payment options in under 10 minutes.
What it takes to develop a PayPal white label alternative?
PayPal was built and rebuilt multiple times over the last 20 years. Although building a payment platform is a complicated process, here we highlight the most vital components which are mandatory to create a payment platform similar to PayPal.
Core payment platform
The most important part of any digital payment platform is the core software. It is the engine behind the creation and management of accounts, balances, transactions, journal entries, and the storage of customer data, receipts, and other reporting tools.
A good core platform relies on a composable architecture that is connected via APIs and allows sales channels, products and customer data to be decoupled. This particularly agile architecture enables rapid change while providing a continuous digital customer experience.
Onboarding, payment processing and KYC services must then be integrated into the platform. Developing a core platform in-house is a complicated and time-consuming process that can overwhelm teams and delay product launches. For this reason, very few payment providers have their own platforms.
Many PayPal alternatives have outsourced creating their core payment platforms to fintech providers. New cloud-based platforms with pre-integrated key features help assemble best-in-class products and bring them to market much faster and with less capital expenditure.
100% dedicated team
It cannot be overstated how important it’s to have the right team in place to build a digital payment platform like PayPal. The team should be made up of people who’re genuinely interested in seeing your vision through to the end. A development team should resemble a special unit on a mission. Their success is based on shared responsibility, trust in each other, and lack of doubt about their purpose and goals.
A small team may have the following structure:
Vision & growth hacking
Developing and sharing your vision with your team will help them understand what they are working to achieve and encourage them to work with passion. PayPal’s first goal, for example, was to determine their use case and find an opening in the market which they achieved by adapting their product for eBay.
Using a growth hacking strategy, you can then deliver your unique vision to consumers. This scientific approach consists of choosing and testing a single hypothesis at a time to see whether it works or not.
Fast features delivery
If a startup wants to succeed in a new market, it needs to innovate much faster to outperform the competition. Releasing new versions is important to provide customers with a superior product, and that’s exactly what PayPal has done.
For example, compared to a traditional payment provider’s app that only gets a few updates a year, PayPal releases a new version every few weeks. The constant updates and fixes allow PayPal to satisfy its growing customer base and stay ahead of the curve.
The problem with traditional payment providers is that the journey from an idea to launching a feature can take months or even years. The same idea can be implemented within weeks by a payment provider running on a modern technological infrastructure.
The difference lies in the overall business processes and product development lifecycle.
White label software to build a PayPal alternative
There are many worthy next-generation fintechs competing in the payment services market. SDK.finance with its white-label digital wallet platform has been quite successful at helping businesses get their payment systems up and running fast and without too much time and money investments.
SDK.finance offers a highly secure white-label digital wallet software that allows building a PayPal-like platform and fulfill the need for it in the markets where it is lacking much faster, than in case with from-scratch development.
If you are looking for a solution to develop a FinTech app like PayPal, reach out to us and let’s discuss how we can be useful to you.
When did PayPal start?
PayPal was originally established by Peter Thiel, Luke Nosek and Max Levchin, in December 1998 as Confinity.
How does PayPal make money?
Every transaction that is routed through the payment gateway infrastructure is charged with a transaction processing fee known as the Transaction Discounting Rate, or TDR, expressed as a percentage of the transaction value.
The TDR differs based on the mode of payment selected by the customer, such as credit/debit card, Internet banking, digital or prepaid wallets.
How to start a company like PayPal?
SDK.finance offers a highly secure market-ready white label payment platform to build a PayPal-like solution and take the lead in the digital payment world. Learn more here: https://sdk.finance/digital-wallet-solution/