Elon Musk’s attempt to remake the Social Security system appears to be deeply informed by his time at a company that helped him become a leading figure in Silicon Valley: PayPal (PYPL).

His tenure at the digital payments upstart more than two decades ago was marked by a fight against fraud, which he and his then-colleagues considered an existential threat to their enterprise.

"Fraud wasn't just a storyline at early PayPal — it was the storyline," said Jimmy Soni, an author of a book about the company that turned into a tech star in the late 1990s and early 2000s. "It represented survival or catastrophe."

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How Musk and his PayPal cohort tried to deal with financial cheating in that era has clear echoes today as Musk's DOGE team has embarked on a search for fraud across the federal government and in the Social Security system in particular.

While available data shows that fraud is a much smaller relative issue in the federal government now than at early PayPal — where losses indisputably represented a sizable piece of the startup's balance sheet — Musk rarely offers commentary these days that doesn't make charges of widespread wrongdoing around the government.

"This is happening all day, every day," he said just this past week during a Fox News appearance, adding, "It's because of all the fraud loopholes in the Social Security system."

In that interview with Musk and his DOGE colleagues, fraud came up 28 times, according to a search of the transcript, with Musk adding his view that if the issue is not addressed "we're going to go bankrupt."

Similarly, when Musk talked about his time at PayPal for Soni's 2022 history of the company, he recalled thinking that "if the fraud thing is not solved, we're going to die."

'A payment system at its core'

Musk's PayPal history began in 1999 when he co-founded a company called X.com that had a mission of becoming an online bank for an early internet adopter audience. 

X.com later merged with a competitor that called its payments application PayPal. Musk briefly led the combined entity but was pushed out shortly afterward, with the company eventually renaming itself PayPal.

The connections between PayPal and Social Security may be tenuous — both in their history and documented levels of fraud — but it's a connection many Trump allies have eagerly embraced.

Social Security began in 1935 and is a weekly part of life for millions of citizens; in 2025, the agency sent out about $1.6 trillion in benefits to around 69 million Americans.

A hearing this week for Trump's pick to lead Social Security was notable for repeated descriptions of Social Security as — in the words of one senator — "a payment system at its core." 

Nominee Frank Bisignano called the agency he aims to lead "fundamentally ... a payment-based customer-facing program" in language that could also describe PayPal. 

The PayPal connection is one that Commerce Secretary Howard Lutnick, a close Musk ally, has drawn most sharply.

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In recent comments on the podcast "All-In", the Commerce secretary floated the idea of cutting off Social Security payments as a potentially good means to find fraud because he feels that most Americans, unlike fraudsters, "wouldn't call and complain."

"All the guys who did PayPal, like Elon, knows this by heart," Lutnick added. "Anybody who's been in the payment system and the process system knows the easiest way to find the fraudster is to stop payments and listen."

Soni said that his work suggests a different lesson from PayPal's fights against fraud — more about the value of exploiting the evidence that fraudsters leave.

"PayPal's brilliance was in building sophisticated detection systems that could identify those suspicious patterns while minimizing disruption to legitimate users," Soni added, saying PayPal succeeded by "finding that sweet-spot balance between fraud prevention and user friction."

Indeed, PayPal's work to combat fraud was ahead of its time. The company pioneered things like challenge-response tests to tell computers and humans apart (known as CAPTCHAs) and other methods, like random deposit verification for bank accounts, still in use today.

Musk has also used his time at PayPal as a bona fide for his current access to highly sensitive government data. In February, he posted that if he wanted to sift through personal data, "I could have done that at PAYPAL. Hello???"

'The biggest fraud in history'

Lutnick's idea of cutting off payments is not something that Musk himself appears to have embraced, and he has also talked about applying technical solutions to many of the government's fraud problems.

Musk — who likes to brand his DOGE effort as "tech support" — often says technical solutions like closing fraud loopholes and creating better-connected computer systems will take care of many problems.

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But Musk has also often repeated claims of widespread stealing at the agency, charges President Trump also regularly echoes.

Musk has said Social Security may represent "the biggest fraud in history" and added in a Fox Business appearance that waste and fraud in entitlement spending is "the big one to eliminate."

By contrast, the Social Security Administration's internal inspector general has studied fraud at the agency and recently released an audit of improper payments that found a much more limited picture.

It found fraudulent payments amounted to about 0.84% of total benefits paid from 2015 to 2022, which nonetheless totaled nearly $72 billion in that span, given the large financial footprint of the agency.

Bisignano embraced the inspector general's findings during his recent hearing — subtly downplaying Musk and Trump's claims of bigger fraud — and repeatedly said that even the 1% level of fraud is much too high.

Bisignano, who has called himself "fundamentally a DOGE person," also said during the hearing he was open to working with Musk's team but that he would be willing to reverse decisions made by them.

Another lesson learned from PayPal: Frustration with government

Musk's time at PayPal also appears to have been a precursor to Musk's disdain for government inefficiency.

In his history, Soni recounts an episode where PayPal discovered a fraudster operating just miles from their headquarters.

"We got all the evidence necessary," Musk told the author, adding for emphasis: "Crime in progress!" But Musk also remembered that it took "forever" for authorities to act on what he recalled as an open-and-shut case.

"This wasn't just parallel frustration with fraud and government — these frustrations were fused," Soni noted this past week.

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Soni said that the experience led many of PayPal's leaders to "develop a particular institutional skepticism now embedded in tech culture: a wariness of processes that value procedural consistency over rapid adaptation."

The alumni of the company — now often referred to as the "PayPal Mafia" — include multiple prominent figures in Trump's orbit, such as White House AI and crypto czar David Sacks and venture capitalist Peter Thiel, who was the CEO of PayPal until its sale to eBay (EBAY) in 2002.

Indeed, this frustration with government — and suspicion of fraud — has become a driver for Musk throughout his career.

As Musk put it in a 2013 tweet, he says he got rich during this early stage of his career, which included PayPal, and he did it with "zero govt anything."

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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