How sustainable is Paypal? We take a closer look into this multinational financial technology company and their efforts to reduce the carbon footprint.
Long regarded as the trailblazer for peer to 2 peer and online payment technology, Paypal is now firmly established as one of the world’s ubiquitous service providers. But, the online behemoth is fast facing challenges from the burgeoning fin-tech sector amidst criticism over its high fees.
Green focused commentators have also questioned Paypals eco-credentials. In this post we will take a closer look at what Paypal is, how it works and its prospects for the future.
What Is Paypal?
Paypal is a US-based, multinational financial technology company. It serves as an online payment gateway that allows users to quickly and securely send or receive money using their Paypal account. To use Paypal, account holders just have to register using their credit or debit bank card.
Paypal is available in the majority of countries that support online payments making them one of the world’s biggest financial services providers.
Founded back in 1998 by worlds richest man Elon Musk (amongst others dubbed ‘The Paypal Mafia’) Paypal was one of the earliest .com financial services companies to capitalise on the burgeoning online marketplace. Paypal was acquired by eBay in 2002 at which point it became the online auction site’s premier and preferred payment method. This helped establish Paypal as an indispensable global service and sent the company on its way to household name status.
How Paypal Works
Paypal’s business model works by taking a basic 2%- 4% cut of all sale transactions. Considering that Paypal handles around $311 billion in net payments per annum, this has made them into one of the richest companies in history.
However, these fees have attracted widespread criticism and resentment from some users. Remember that sellers or contractors invoicing via Paypal already have business expenses and taxes to pay and losing an additional 4% on every transaction can seriously eat into profitability.
Paypal’s Global Transaction Fees
One of the main reasons behind Paypal’s success is its ability to facilitate international payments and handle cross currency payments quickly and seamlessly. For example, a US based eBay seller using Paypal can advertise his wares in USD and receive payment in USD.
All the while, his customers based in Europe can use their native bank cards and be charged in their native currencies – they don’t have to worry about contacting their banks international payment team and they don’t need to worry about calculating the currency conversions as Paypal handles it all for them.
However, whilst Paypals international payment handling facilities are definitely convenient, they do not come for free. Rather whenever Paypal handles an international payment it charges a fixed handling fee. The handling fees vary between $0.99 and $4.99 (depending on funding card, geolocation and whether the transaction is Paypal to Paypal).
In addition to this, when handling a currency conversion Paypal also sets the exchange rate and rather than using the open market rate, will usually opt to set a rate that allows them to make some profit on the transaction at the buyer’s expense.
These practices are not unique to Paypal by any stretch and this is exactly what the banks have been doing for decades. However, in many cases the costs of international payments with PayPal can be even higher than when using the banks which is highly unusual for a fin-tech company.
Because Paypal is considered to be convenient, efficient and safe though, a lot of users accept the costs or else simply don’t know of any other better method to use.
Paypal and Sustainability
When asking whether Paypal is a sustainable business we are really asking two questions; firstly whether the Paypal business model is sustainable, and secondly whether Paypal can be considered sustainable in an environmental sense.
Firstly, Paypal has now been around since 1998 making it the Godfather of fin-tech. It has seen off many challenges and challengers, and it continues to post healthy profits. Whilst competitors like Wise may well be nibbing into Paypal’s market hegemony in some areas like payment transfers, they are not yet considered a serious threat. Furthermore Paypal is now offering both credit cards & payment debit cards and as such, is beginning to provide services usually handled by the traditional banks.
As for Paypal’s eco-credentials, Paypal does consider itself a sustainable organisation that is committed to minimising its carbon footprint. Whilst Paypal does use huge, carbon emitting data centres, this is simply a reality of business in the internet age, data centres account for 2% of America’s electricity usage and as such the company cannot be singled out for this. Furthermore, Paypal’ data centres are powered by 49% renewable energy and has set a target to increase this to 100% in all of its data centres.
There is another element to the sustainability argument too. The existing financial services system relies on paper/plastic cash and cards being printed regularly which takes an enormous ecological toll.
The long term vision of many fin-tech companies is that contactless payments powered by companies like Paypal will eventually replace cash altogether thus massively reducing the environmental impact cash takes on the planet and oceans.
Final Thoughts on Paypal
All things considered, we think it’s clear that Paypal can be conceited to be a green and sustainable product and corporation. Paypal continues to be the world’s largest online payment handler with a huge international presence, an established customer base and it has the ability to respond to challenges in the marketplace.
Furthermore, as a pioneer of cashless payment technology, Paypal is also leading the global charge away from cash and is striving to make its data centres completely green.