The Rise of PayPal
Introduction: Max Levchin and Peter Thiel
In Summer 1998, Max Levchin met Peter Thiel at a lecture he was giving at Stanford on the “dangers of concentrated governmental power”. Levchin pitched him multiple ideas, and the one Thiel liked most was a company that would produce encryption software for handheld devices. At the time, this seemed like an excellent idea for both of them, but it failed miserably. Having gained no traction in a few months, they decided to rebrand to “Confinity” and create a digital wallet rather than encryption software.
Chain 1: Confinity and PayPal
There was one big problem with developing a digital wallet which allowed for the digital transfer of funds – speculation. People were reluctant to swap to a digital service at the time. Regardless, they decided to press further. The PayPal service was developed, which allowed to send money electronically. Confinity attracted $3M in investments from Nokia Ventures for the launch party. This investment was sent to Confinity through the PayPal service.
Everything seemed to be going well, but the service severely lacked customers. In addition, the marketing approach Confinity had wasn’t working. It was then that they saw a potential goldmine – eBay. Quickly, they remodelled their service to allow payments through eBay. This made it much easier for users to purchase products off eBay, and the number of customers increased. In March 2000, a few months after PayPal’s launch, the X.com corporation merged with Confinity.
Chain 2: X.com and Elon Musk
The traction of the PayPal service matched with the new and aggressive marketing from X.com, led to a massive increase in users. An aspect of this aggressive marketing was PayPal was offering a $10 sign-up bonus for new customers. As a result, from January 2000 to August 2000, the company went from 12,000 customers to over 2.7 million.
A new type of account was created for Businesses. As a result, customers could pay far lower fees using PayPal than with any credit card. In addition, other premium features were given to owners of business accounts. This new type of account and the growing e-commerce industry led to an even more significant customer boost. By the end of 2000, over one-fifth of PayPal’s 12.8 million accounts were business accounts.
In February 2001, X.com rebranded to PayPal, the name of the service.
Chain 3: IPO
On September 28, 2001, PayPal announced it would go public in January 2002. This was an unexpected time as the 9/11 tragedy was believed to be fuelling a US recession. The IPO was unnecessary, but it was more of a test to see if PayPal lived up to the hype it had at the time. However, the IPO had to be pushed back to February 15 due to various legal issues.
For the IPO, PayPal offered 5.4 million shares for an opening price of $13. The IPO was a huge success. The stock price skyrocketed, reaching a high of $22 and closing at $20. The IPO raised just over $61 million for PayPal, which proved to help PayPal’s expansion plans.
Eight Months later, in October, eBay acquired PayPal for $1.5 billion. Elon Musk, the largest shareholder of PayPal, made just under $176 million from this sale.
Chain 4: eBay and after
With eBay’s support, PayPal started to expand rapidly beyond eBay transactions. Ten currencies were added in 2006, increasing PayPal’s global reach. Additionally, PayPal launched an app for mobile devices, boosting its reach. In 2006, PayPal surpassed 100 million users. By the end of 2007, PayPal’s revenue had reached $1.8 billion.
In 2013, PayPal acquired one of its major competitors, Braintree Systems, which owned Venmo for $800 million. Venmo’s valuation in 2020 was $38 billion.
In 2014, eBay announced it would spin off PayPal into a separate public company. When PayPal went public again in 2015, it was valued at $50.8 billion. Since the split, PayPal has functioned as a public company and has partnered with many platforms to provide payment services, such as Shopify and Instagram.
In 2020, PayPal made its largest acquisition to date – Honey, for over $4 billion.
Today, PayPal is valued at roughly $70 billion.
