Coinbase now has the heft to go all-in on payments

Coinbase can quickly tap into the funding and brand awareness it raised by going public to develop a wide range of financial services for both crypto fanatics and mainstream consumers.

Coinbase's market cap was $65 billion on Friday, providing the financial power to go build on its 56 million users and 7,000 institutional partners in more than 100 nations. This base primarily uses Coinbase to invest, save and exchange cryptocurrency, but the scale is there to rival the payment industry's largest apps.

"It shows that regulator, institutional capital and professional investors are comfortable with having a crypto specific company listed," said Vytautas Zabulis, CEO of H-Finance, a digital asset trading company, adding Coinbase's crypto card combined with combined with a processing partnership with Visa provides viability in the payments industry. "The vast retail userbase on Coinbase can easily make crypto payments mainstream."

There's a race among large technology companies and payment firms to become "superapps," using a large digitally-enrolled base of users and partners to offer payments, shopping, financial services and digital content.

More than a dozen companies are vying to build this kind of broad menu, and Coinbase's size and influence in the maturing cryptocurrency industry provides a way to compete.

PayPal, for example, recently launched a cryptocurrency checkout feature, enabling payments for bitcoin, ethereum and bitcoin cash held in PayPal wallets, with PayPal managing the conversion to traditional currency. PayPal has about 377 million users, and operates the Venmo P2P app, provides payments for a merchant network and lends to businesses based on future payment flows.

Square now gets more than half of its revenue from bitcoin trading, gaining a financial boost to augment Square's traditional business of supporting small business payments, lending to small businesses and providing products like Square Cash that both consumers and businesses use.

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"Only PayPal will really rival Coinbase's reach," said Richard Crone, a payments consultant, adding Coinbase's funding could fuel a mobile wallet and software development kit that could build an international network for merchants and consumers to support payments and P2P transfers among Coinbase's users, making it an alternative to Venmo, the bank-run Zelle network and others, with an underlying blockchain business to manage multiple currency conversions in near real-time.

"And this isn't just one market. Coinbase can support transactions in more than 100 countries," Crone said.

Coinbase did not return a request for comment by deadline. Coinbase's card is currently available in more than two dozen countries, with a waiting list underway in the U.S. There is both a physical and digital card, and Coinbase obtained an e-money license in the U.K. in 2018. Coinbase's relationships with banks have not always gone well, with a real-time payment processing partnership with Barclays ending in 2019, with Coinbase adding Clearbank as its institutional partner.

Skrill and Paysafe partnered with Coinbase this year to allow consumers in most U.S. states to buy and sell multiple cryptocurrencies. Paysafe provides services to allow Skrill's digital wallet to support P2P transfers in 18 countries, with Skrill planning to expand that map.

"Coinbase has digital account opening," Crone said. "If they add that to support for Google Pay or Apple or Samsung Pay, the next level of competition will be up and running."

The structure of Coinbase's public offering could also broaden its appeal to mainstream investors and subsequently merchant or consumer users. Coinbase used a direct listing rather than a traditional IPO.

Many fintechs are using IPO alternatives such as special purpose acquisitions companies (SPACs) to speed the public listing process and to attract additional investors. Coinbase did not use a SPAC or an IPO, but a direct listing, which differs from an IPO in that investment bankers do not pre-set share prices, but the initial price is based on the market on the opening day of trading.

This brings more investors into the listing, and also generates attention across a broader set of constituencies, according to Eloisa Marchesoni, co-founder of Blackchain Technologies.

"Although IPOs have the power to create a buzz surrounding a company set to go public, the world of initial public offerings are typically more exclusive and restricted more to institutional investors who have the power to buy large volumes of shares in one transaction, as opposed to retail traders who would likely only buy single shares at a time," Marchesoni said, adding a wider range of investors also increases the potential to use cryptocurrencies or a crypto exchange as the base for mainstream payments.

"For some people this list is a sign that the cryptocurrency business is not a dark industry with a dubious reputation. The stigma of cryptocurrencies as a criminal currency is fading and the DPO is a serious step forward in this way," Marchesoni said.