Pegged: PayPal finally gets an M&A suitor
The bigger question is why it has taken so long for a rival to target the OG digital payments firm. Its shares have been languishing since at least 2021.
Editorial Hello
Stripe is officially after PayPal. I, for one, think it will be fascinating to see what the due diligence uncovers if the two ever come remotely close to a deal. PayPal's shares have languished since at least 2021, yet nobody has convincingly explained why one of the original digital payments giants continues to trade at such a persistent discount.
One possibility lies in a part of the business that receives remarkably little scrutiny: the regulated entity in Singapore that holds and invests tens of billions of dollars of customer funds. For a listed company, this reserve structure (which has a striking resemblance to that of a stablecoin) is surprisingly difficult to penetrate — arguably more so than that of some notable stablecoin issuers.
It’s worth remembering that like most stablecoin issuers, PayPal is, for the most part, not supposed to take meaningful maturity or credit risk with customer funds. Yet none of the company’s disclosures or filings explains exactly what assets back its customer balances. The filings disclose a consolidated investment portfolio, but they stop short of identifying which assets safeguard customer funds or where they sit within the group's regulated entities. That remains something of a black box.
Imagine if a stablecoin issuer published only a consolidated balance sheet showing its total cash and investments, without identifying which assets backed outstanding tokens and which funded the business itself. That is broadly the position investors are in with PayPal.
There’s also the question of how much the wider group depends on liquidity sourced through its Luxembourg subsidiary, which operates under a somewhat unique banking license.
For more, be sure to join Noelle Acheson and me for Tuesday’s edition of the Monetary Forces podcast at 3pm UK Time. This week I will be looking at a new BIS paper examining dollarisation lessons from the rise of stablecoins.
