PayPal threatened to fine users for "misinformation", but severe backlash caused the company to backpedal.
PayPal caused quite a kerfuffle over the past week when it attempted not only to censor, but also threaten its users. The board and management seemingly thought it was a good idea to update their Acceptable Use Policy (AUP) and publish language stating that users would be fined $2,500 for every instance of spreading what PayPal deemed to be “misinformation,” according to reports.
It may have been the weekend, but the backlash didn't take long, causing the company to quickly backpedal. PayPal chalked it up to "incorrect information,” stating to media outlets:
"PayPal is not fining people for misinformation and this language was never intended to be inserted in our policy.”
By that time, the damage had already been done. PayPal had distanced itself not only from former peers but also customers and investors. While it is difficult to say which response was the straw that broke the camel’s back for PayPal, we can certainly try.
One of the first signs that things had gone awry for CEO Dan Schulman and his board was when “bankruptPayPal” started trending on Twitter. The hashtag earned 59,544 tweets, most of which were sent on 8 October, according to TweetBinder.
Impressive, but that was just the beginning.
On the same day, ex-PayPal President David Marcus exerted even more pressure on the company when he took to Twitter to express his disappointment in his former employer. The tech entrepreneur, who is also an alum of Facebook/Meta, tweeted:
It’s hard for me to openly criticize a company I used to love and gave so much to. But @PayPal’s new AUP goes against everything I believe in. A private company now gets to decide to take your money if you say something they disagree with. Insanity. https://t.co/Gzf8faChUb— David Marcus (@davidmarcus) October 8, 2022
His tweet received nearly 14,000 retweets, one of which came from crypto influencer Udi Wertheimer, who said PayPal’s move to censor users seemed “to go against what used to be the very mission.”
Elon Musk, also weighed in. Musk, co-founder of the PayPal platform (an online bank dubbed X.com at the time), simply responded, “Agreed.” One of Musk's primary motivations for buying Twitter is to flip the culture from one of censorship to free speech.
Even regulators are miffed, with the Consumer Financial Protection Bureau reportedly describing PayPal's behaviour as "new territory."
If that weren’t enough to convince Paypal that it had lost its way, the writing was about to be on the wall. Users and investors jumped on the bandwagon, deleting their accounts and selling their shares. According to Sky News Australia, PayPal’s cancellation page received close to 100,000 visitors in just two days' time. However, that is just a drop in the bucket compared to 400m user accounts on the payments platform.
Investors poured it on thick, greeting the stock with a sell-off on Oct. 10, resulting in $8bn being erased from its market cap and an 8 per cent drop in shares to below the $90 level, where PYPL has been stuck ever since. Wall Street analysts took notice and agree that PayPal messed up. However, any pain is likely to be shortlived rather than long-term in nature.
Ken Suchoski, Equity Research Analyst at Autonomous Research, told AltFi:
"The policy update was certainly a misstep by the company, but we doubt it’s going to have a lasting impact. Our understanding is that the social media uproar was quite limited in the context of PayPal’s 429m active customer accounts. Consequently, we don’t think it has implications for PayPal’s stock price, and it’s unlikely to impact competitors, such as SQ. We didn’t change our PT in light of the news."
With a market cap of $97bn, PayPal isn't going anywhere anytime soon. However, it might want to stick to what it does best—payments—if it wants any chance of salvaging its tarnished reputation.
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