Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Greek Crisis Shows Limitations and Possibilities of Online Payment Solutions

The crisis in Greece is putting the spotlight on both the limitations and the possibilities of online payment solutions.

Greeks are being blocked from access to PayPal accounts for a very old fashioned reason, Quartz reported. PayPal has no way of taking money out of Greeks’ bank accounts because of restrictions imposed by the nation’s government. Currently the only way Greeks can transfer money out of the country is with the approval of a group of bureaucrats called the Banking Transactions Approval Committee, NBC News reported.

“Due to the recent decisions of the Greek authorities on capital controls, funding of PayPal wallet from Greek bank accounts, as well as cross-border transactions, funded by any cards or bank accounts are currently not available,” a PayPal press release stated.

The situation in Greece shows that new-fangled payment solutions like PayPal, Apple Pay and Venmo can be effectively blocked by old fashioned banking restrictions. Quartz noted that most such solutions really facilitate access to the banking system; if the system gets blocked, they shut down. It also shows that such solutions are highly vulnerable to financial and banking crises.


Drachma’s Return Causes Greeks to Turn to Bitcoin

There is a way that Greeks can legally get around the Banking Transactions Approval Committee and transfer funds outside the country: Bitcoin. Some Greeks, afraid that Euros could soon be converted into worthless drachmas (Greece’s defunct currency, which could soon rise again), are using Bitcoin to transfer their cash outside the country.

Greek monetary authorities apparently have no way of stopping people from transferring Euros out of bank accounts using the cryptocurrency, Reuters reported. That is causing panicked Greeks to turn to the service in growing numbers. Thanos Marinos, the founder of Greece’s only Bitcoin exchange, BTCGreece, told the news service that his customer base grew by 400% in May and June.

Thanos Marinos demonstrates Greece’s first bitcoin ATM.

One has to wonder how long the Greek government situation will allow this to continue. Will authorities try to shut down the exchange or pull the plug on the Internet and smartphones to keep money in the country? What happens to the money converted into Bitcoins then?

It looks like Greeks are following the lead of Argentines, who already use Bitcoin to get around their nation’s cumbersome banking restrictions. If the drachma returns, it won’t be long before black money launderers that specialize in converting cash into Bitcoin start flourishing in Greece.

PayPal Buys XOOM

One has to wonder if the situation in Greece is one of the reasons why PayPal has purchased the money transfer service Xoom (NASDAQ: XOOM) for $890 million. Xoom lets people send money to other countries for a flat fee of $3 to $10. It is essentially a next generation wire transfer service.

PayPal is trying to diversify its business and become a full-fledged financial services company to reduce its exposure to the risks inherent in the online payment sector. The best way to do this is to offer a full range of financial products. PayPal’s stock is expected to start trading under the ticker symbol PYPL in mid-July, CNET reported.
Expect PayPal to make more acquisitions in the months ahead, possibly another payment solution like GreenDot (NYSE: GDOT), a lender like Prosper or Lending Club (NYSE: LC) or even a bank like Bank of Internet (NASDAQ: BOFI) or EverBank (NYSE: EVER). A bank would be the most logical acquisition for PayPal.

The crisis in Greece is likely to drive further growth in both Bitcoin and other digital payment solutions like PayPal as faith in traditional currency and banking erodes. It is also likely to trigger battles between PayPal and traditional central bankers that want to preserve their control over the economy and the money supply. Greece could be the first battlefield in that potentially destructive war.

Disclosure: The writer behind this blog owns shares of eBay Inc. (NASDAQ: EBAY), some of which will be converted into PayPal later this month, to his great satisfaction.