In the early 90s, sending and receiving money online for payment of goods and services rendered was not easy. Individuals couldn’t imagine how possible it would be to carry out such transactions, even though other financial institutions like banks had ways to carry out an online transactions.
Today, everybody who does business online knows about and is likely using the largest and most popular online payment gateway, PayPal.
Currently, PayPal operates in more than 200 countries worldwide, with over 400+ million active users. It enables consumers and merchants to receive money in more than 100 countries, withdraw funds in 55+ countries and hold balances in their PayPal accounts in 25 countries. It has executed payment volume in excess of 1 trillion in last 12 months.
Now, let’s look into the history of PayPal and learn about its early success.
PayPal was originally established by Max Levchin, Peter Thiel, and Luke Nosek in 1998 as Confinity, fusion of words confidence and infinity, a company that developed security software for handheld devices. It had no success with that business model. Hence, they switched their focus to a digital wallet — low-cost, almost effortless digital payments for consumers and businesses.
Founders adeptly leveraged an opening in the payments market, as nobody was really focusing on a digital payment platform between consumers and businesses, a gap which they exploited brilliantly as Confinity took off at the start of the new century.
In 2000, Confinity was acquired by X.com, an online financial services company founded in 1999 by Elon Musk. Musk was optimistic about the future success of the money transfer business Confinity was developing. He was so confident that he terminated his plans of X.com and started focusing completely on Confinity. He resigned from his CEO position and appointed Peter Thiel as CEO of X.com.
The company was renamed as PayPal and the product was officially launched in 2000. The founders’ idea was to convince customers to share their emails, banking and credit card information in return for fast, low-cost payments. Initially, they found it difficult to bring in traffic. However, it gained massive success mainly due to its referral system and small charges of USD 20, USD 10, and later USD 5 for sign up. During this time, PayPal achieved almost 10% in daily growth. Between March 2000 and the summer of the same year, PayPal had gotten over 5 million new clients. The business skyrocketed; PayPal was spreading around the world like wildfire.
In 2002, PayPal went public. The IPO was a grand success. Stock price rose by over 50% and closes its first day of trading at USD 20 per share. Shortly after PayPal’s IPO, the company was acquired by eBay for USD 1.5 billion — a highly touted “marriage” between digital auction and online payment services.
Why didn’t anyone else notice that consumer and business payments on early retail sites like eBay were being paid by checks and money orders via the U.S. Postal Service, resulting in delays for products to be delivered and for checks to clear? That answer is unclear, but the PayPal founders certainly cracked the code and set up the company as the leading light for online payments. Peter Thiel and his co-founders foresight and Elon Musk believed in that idea helped them build a billion dollar business. Sale to eBay helped all stake holders make a fortune. Elon Musk made USD 180 million (after tax) and Peter Thiel made USD 55 million by selling their stake to eBay.
Ignore the conventional wisdom. If everybody else is doing it one way, there is a good chance you can find your niche by going in exactly opposite direction.
― Sam Walton