PayPal started as Palm Pilot security — the Palm idea failed, payments saved it

In December 1998, Max Levchin, Peter Thiel, and Luke Nosek founded Confinity (originally called Fieldlink) in Palo Alto, California. The company's mission was to develop cryptography software for handheld devices — specifically Palm Pilots, which were the dominant personal digital assistants of the era. The idea was to let Palm Pilot users send encrypted messages and conduct secure transactions.

The Palm Pilot cryptography idea had no success. The Palm Pilot was an organizer, not a payments device, and nobody wanted to use it for secure transactions. Confinity was running out of money. In a desperate pivot, the team built a digital wallet that let users beam money from one Palm Pilot to another using infrared. That feature also failed on its own. But the team noticed that users were asking to use the feature over email instead of infrared.

In March 2000, Confinity merged with X.com, an online financial services company founded by Elon Musk. The merged company had two competing products: the Confinity digital wallet and X.com's own online banking platform. Musk favoured the X.com brand and technology. But users overwhelmingly preferred the Confinity money transfer feature, which was simpler and more focused. The team dropped the other products and bet everything on payments.

The company was renamed PayPal in June 2001. It went public in 2002, listing on NASDAQ at $13 per share and raising over $61 million. On October 3, 2002, eBay acquired PayPal for $1.5 billion in eBay stock. A company founded to build Palm Pilot cryptography had become the world's leading online payment platform — and the Palm Pilot idea was the mistake that made it all possible.