Anyone with internet access will likely tell you that online shopping is the greatest thing since sliced bread, or at least since the invention of the internet. In most cases it’s quick, convenient and less invasive than brick and mortar shops, but like anything on the internet, it also comes with some risks. In some cases, sharing unsecured credit card or bank account information can lead to hacking and fraud.
In the late 1990s, when the internet was just beginning to gain momentum, risks like these presented a big issue for newly launched ecommerce sites like the auction-based eBay. At the time, online shoppers were still required to send money through traditional transactions like checks and, shockingly enough, money order sent via U.S. mail. As it stood, the internet’s online shopping boom thus lacked an equally accessible method of payment, leaving an opening for PayPal founders Max Levchin and Peter Thiel to change the ecommerce game.
Why is it called PayPal?
Levchin and Thiel, an online security specialist and hedge fund manager respectively, first met in 1998 to discuss a financial investment for a mobile money transfer startup called Field Link. When Field Link floundered among consumers, the duo decided to rename the company Confinity and launch PayPal, a service that that focused on “paying your pal” through peer to peer money transfers. The idea was that PayPal would enable the electronic transfer of money among handheld devices.
Once launched, it enabled users to open accounts linked to a bank account or credit card, reducing the risk of sharing vital banking information over the sometimes slightly unsafe World Wide Web. PayPal challenged competitive startups with its reliance on already widely accepted and established institutions, such as the U.S. dollar, email addresses and banking networks. With this advantage, it only took about a year before Confinity merged with X.com Corporation, a Silicon Valley firm involved in online banking projects led by entrepreneur Elon Musk. In October 2000, Musk decided to terminate the other internet banking operations they were developing and focus all of their attention on Paypal. Since the growing popularity of PayPal, Musk has gone on to found Tesla Motors, SpaceX and SolarCity.
Through aggressive marketing, including a $10 sign-up promotion, the company managed to gain more than 2 million accounts in less than a year’s time. By August 2000, PayPal had garnered more than 2.5 million users, and was amending its services to better support business accounts, which would move higher volumes at lower transaction costs. Simultaneously, eBay payments options increasingly included PayPal for purchases, driving use of the evolving technology. It made certain sense then that shortly after raising over $61 million from their IPO in September 2001, eBay acquired PayPal for $1.5 billion in stock options.
SEE ALSO: Why is Venmo Called Venmo?
Together, the ecommerce moguls made out like bandits. Former eBay CEO Meg Whitman described the growth of both PayPal’s users and volume as three-pronged: “First, PayPal focused on expanding its service among eBay users in the US. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay.”
Both sites saw steady growth through their partnership until the decision to split was announced in 2014 ( the spin-off was complete in July of 2015). Since reclaiming its independence, PayPal has proven its ability to stand firmly on its own mobile devices and stands to raise its own capital and acquire companies with stock and issue bonds without the influence of eBay. However, unlike the past, PayPal is not the only way to Pay-Your-Pal online anymore. Companies like Square (Squarecash), Venmo (payments with a social twist), Snapchat (Snapcash, which is actually powered by Square) and Google Wallet, which allows gmail users to send cash directly via email) have flooded the marketplace. Even Uber has gobbled up some marketshare by giving riders the ability to split fares. What app do you use to pay your pals? Comment below.
Much like the constant evolution of the internet, PayPal itself has seen many changes in its structure. But its mission to give “people better ways to connect to their money and to each other” remains. Furthermore, its unwavering success affirms at least two things: that PayPal is quite possibly the greatest thing since online shopping, and if there’s a void in innovative technology, Elon Musk will help fill it. Thanks for reading why is PayPal called PayPal?!
Annelise Schoups is a contributor at Rewind & Capture. With a degree in journalism, experience in public relations, and an education in travel, she is passionate about cultivating knowledge and storytelling.