PayPal Operating As A Legacy Solution And Other Problems

Aug 11, 2022

PayPal was launched in 1998 by a group that consisted of Elon Musk and Peter Thiel.  It had its beginnings as a solution to pay for products online when most of the population was still purchasing its goods and services by paper check or cash. 

Fast forward to 2021, and the company had amassed over 400 million users. Its famous checkout button continues to be the preferred choice for online merchants to integrate into their websites. 

Moving Beyond The Checkout Page

It has been a few months now that PayPal has been claiming that it wants to become the next global “super app”, much like China’s WeChat and Alipay, as well as Singapore’s Grab and India’s Paytm. What all three platforms have in common is that they are “digital ecosystems” that combine social media, banking, and commerce. 

According to, PayPal has also revamped its app to include a high-yielding savings account. The actual account will be provided by Synchrony Financial. It will offer an annual percentage yield of 0.4% in the next few months.

Now, it has its sights on a $45 billion acquisition of Pinterest.

Sanjay Sakhrani, an analyst with Keefe Bruyette & Woods, had this to say:

“We see how it can make sense for the company. We could see how Pinterest could enhance engagement between consumers and merchants with PayPal being a central facilitator in the commerce journey, thereby feeding into the company’s vision of being a super app.”

PayPal’s CEO Dan Shulman has his strategic reasons for acquiring Pinterest. Acquiring Pinterest means that PayPal will have access to critical data about what consumers are buying. Based on that data, he hopes to provide targeted advertising and even discounts. 

Pinterest currently has 450 million monthly users to PayPal’s 400 million active accounts.

A Bumpy Road Of Acquisitions

In order to reach their new strategic goals, PayPal bought couponing and price-comparison app, Honey Science for $4 billion. This would open the doors to gaining invaluable information on consumer buying habits.

However, it looks like it took PayPal close to two years to fully integrate Honey into its own platform.

Harshita Rawat, an analyst with Sanford C. Bernstein & Co., did not speak favorably about PayPal’s decision. She said:

“One can argue that if PayPal solves commerce (via Honey and Pinterest) along with financial services (which it is trying to do with their new app rollout), PayPal will be unassailable in its super-app quest. We are, however, cautious. PayPal, in our view, has had a very mixed track record of deals.”

New Strategy To Acquire New Customers Fails

PayPal, in an effort to reach 750 million active accounts by the year 2025, has had to bring those efforts to a dramatic halt.  In fact, it had to close a whopping 4.5 million accounts as it was discovered that there were “bad actors” exploiting its incentives and rewards program.

PayPal’s Chief Financial Officer John Rainey said:

“We regularly assess our active account base to ensure the accounts are legitimate. This is particularly important during incentive campaigns that can be targeted for bad actors attempting to reap the benefit from these offers without ever having an intent to be a legitimate customer on our platform.”

In 2021, PayPal began its first “sign-up incentives” program, offering $10 to incite new customers to sign up for an account. 

However, PayPal’s risk management team found that many of the new accounts were actually created by bot farms. Bot farms are essentially a type of system that fraudsters use to “manipulate internet activity.”

In response to the findings, PayPal quickly began to close all of these accounts, while simultaneously trying to recover the incentives from these customers. Now, instead of focusing on gaining new users, they will pivot, refocusing their efforts on boosting the use of its products among customers who are active.  

PayPal’s Ambition: A Bit Of A Stretch?

Even though PayPal is considered a trusted brand in the e-Commerce space, it seems to have bitten off more than it can chew. Although it wants to emulate WeChat’s pay experience, PayPal’s integration of Venmo, Honey Rewards, PayPal Credit, and so much more only complicates matters as these solutions do not necessarily “interoperate.”

Moreover, with all of its current offerings of money transfer, e-Commerce, BNPL, debit and credit cards, cryptocurrency, and more, the fact that it wants to really expand these through its new super app may seem a bit far-fetched.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

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Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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