1998: The Birth of PayPal - Pivotal Moments

Welcome to our first Pivotal Moments blog. If you follow us on social media, you'll know what this is all about. To paraphrase Confucius, it's only by knowing where we've been that we can understand where we're going.

“Study the past, if you would divine the future

—Confucius

Given the ease of online shopping, it’s strange to think of a time when sending and receiving payments online wasn’t as simple as a couple of clicks. Back in the 90s, it wasn’t such an easy process, and the concept of straightforward transactions was bizarre despite most banks having the means to conduct them.

Most of us have a PayPal account or have at least heard of the online payment giant. But once upon a time, instant payment systems weren’t standard.

Spotting that gap in the market was a stroke of genius—or the work of several geniuses. Here’s how it went down.

PayPal founder Max Levchin playing Guitar Hero game

The Beginning

Max Levchin was born to a Ukrainian Jewish family in 1975 Kyiv, Ukraine. After moving to Chicago in 1991, Levchin launched three start-up companies before his graduation, one of which was NetMeridian, and sold to Microsoft for $100k.

While waiting for the deal to go through and almost entirely broke, Levchin travelled across the country to Silicon Valley, where he stayed with a friend and wondered what to do next. Whilst there, he attended a lecture at Stanford University by an American businessman named Peter Thiel.

Levchin proposed an idea to Thiel. He described a library that encrypted schemes that could be licensed. Thiel found the idea so intriguing that he agreed to invest some pocket change into the company - say a few hundred thousand dollars.

The fledgeling company was named Field Link, but it wasn’t long before Levchin concluded there was no demand for the level of security they provided.

Around this time, Thiel threw out the suggestion of storing money. And just like that, filled with inspiration, Levchin was off. His mission was to create a cryptographically secure “I Owe You” note that would function as an informal document acknowledging a debt.

The note could be sent from user to user via a personal digital assistant (think Palm pilot). They named the venture Confinity. The year was 1998.

PHOTOGRAPH: ASSOCIATED PRESS

Peter Thiel (left) and Elon Musk (right) pose proudly in front of a vintage computer with the PayPal logo on the screen. They are now affectionately known as the “PayPal Mafia”.

The ‘Pivotal’ Moment

Together with two others (Ken Howery and Luke Nosek), Confinity was founded by Levchin and Thiel with the premise that it would create low-cost, effortless digital payments.

Soon after, Levchin pointed out that personal digital assistants were unnecessary. He remarked that he could sync the software with emails and the Internet to transfer money without one. This product was quickly renamed PayPal.

The founders’ idea was efficient because of its sheer simplicity. Customers would share their emails, bank, and credit card information, and in return, they could make low-cost payments quickly.

As no one had been focusing solely on the burgeoning digital market between consumers and businesses, PayPal took off quickly.

Then, in 2000, Elon Musk—who had a similar business, X.com—became interested. He orchestrated a merger between the two companies and quickly realized that PayPal was far more profitable.

Before PayPal's creation, early retail sites had no choice but to accept payments in cheque or money order form. Levchin and Thiel’s idea is genius partly because of its innovativeness and partly because no other company has noticed the gap in the market for an online payment system.

Unsurprisingly, small businesses, online merchants, and consumers quickly joined PayPal. Within three years, PayPal had handled more than $3 billion in payments from over 10.2 million individuals and 2.6 commercial customers.

In 2002, PayPal became a publicly traded company, and its stock grew to 55% on the NASDAQ. It was a massive success in a short time, and few could have predicted it.

PayPal logo on a blue background

PayPal Today

If you’ve ever used eBay online, you’ve likely heard of PayPal. In July 2002, eBay Inc. acquired PayPal for the low, low price of $1.5 billion - which makes perfect sense. PayPal has been and remains the first choice of payment for most eBay users.

This acquisition only served to help PayPal’s exponential growth.

In 2005, PayPal acquired VeriSign Payment Solutions, then Braintree Payments in 2013.

But in 2014, Carl Icahn, an investor in PayPal, had had enough. He spearheaded a vast public campaign demanding PayPal split from eBay to enjoy further growth and provide more valuable services. By July of the same year, PayPal was once more a public company.

On its first official trading day as a public company, PayPal's market value reached $49 billion. And to top it off, the new market value exceeded that of eBay!

Since then, PayPal has only continued to grow. Of course, it has. Did you know that PayPal enables users to withdraw funds in 56 currencies, hold them in 25 and receive them in over 100?

Today, PayPal has around 346 million active accounts worldwide. In 2019, 12.4 billion payments were made through the company, and the numbers only go up each year. E-commerce is going nowhere, and while it's the first choice for consumers, PayPal will continue to boom.

What do you think about PayPal? Do you have an account?

Informative video on How PayPal Became the Internet's Payment System by Business Casual