There's very little thought put into a discussion on "why" PayPal froze those funds. PayPal says "based on what we've seen in the past there's a high probability that you'll collect a lot of money for an event and then not execute that event. If that happens, we PayPal will be on the hook to make those payments to those disgruntled end users. So we can either 1) Simply refuse to work with you or 2) risk share with you by keeping enough in your account so that we can reduce our exposure to those types of claims"
If you chose a business model with an elevated level of risk then you'll have extra expenses associated with that.
I really dug that email. It's encouraging that it triggered what sounds like a very real internal discussion amongst multiple people there vs being getting completely ignored.
I know I sound like a PayPal apologist - I'm not! I know there are some very real horror stories out there. It's just that they're probably one of the few payment companies that would enable this business to actually be a business and asking $20K in surety when you're _on the hook too_ isn't as mean spirited as it first appears.
This is totally fair. We knew this was something we might have to deal with given the nature of the business.
Still, things change when they then turn around and offer you a business loan. It's hard to argue that they need to freeze your funds for collateral when they then deem you credible enough to lend you money.
It's not so much that our accounts got frozen that makes this interesting. It's the fact that they froze our accounts and then offered us a loan.
See my separate comment -- a hold plus a loan is not the same as just not holding the money, from a risk point of view. Although it would look the same to your bank balance, the two look nothing alike to PayPal's accountants and auditors. If you think there's a potential liability between two parties, it's much better to formalize it as a loan agreement than to just carry it as a risk.
This is why, for example, the cable and cell phone companies show up on your credit reports. When you pay them in arrears for your service each month, you are in effect borrowing money from them.
Interesting point. From that perspective, you could argue that giving a loan against the collateral is a way to account for some of the risk on Paypal's side while still giving us some funds.
Still, we've been with Stripe since then and have had no problems.
Exactly. To give another example, I was at Lucent in the late 90's, just before the telcom collapse. Ultimately, Lucent stock collapsed by 90% and the company was bought by Alcatel (which was just bought by the remaining parts of Nokia that Microsoft didn't grind into dust, but I digress). A big part of what brought Lucent down was not just that sales of communications equipment plummeted, but also that Lucent had extended financing to its customers so they could buy more equipment, and then those same customers defaulted on their loans.
Ultimately, it's important to make sure that a loan-granting organization is run separately from your core business, to avoid people making poor-quality loans just to goose sales numbers.
Still, we've been with Stripe since then and have had no problems.
yet ...
There was a recent article on how hoverboard sellers have suffered massive fraud losses, that specifically talked about how Stripe is trying to chase people to recover hundreds of thousands of dollars in chargebacks. That can't happen too many times, given the thin margins of payment processing, before they have to do something to protect themselves.
>In one case, hoverboard vendor IO Hawk had a reported $900,000 negative balance. Stripe’s documents call it “one of our largest losses ever.”
You'd think there'd be some way to delay shipping for a couple of days while someone checks if the card is stolen. Maybe they could have some way of just calling the card owner and asking if they ordered a hoverboard?
So now Stripe has that risk on their books? Don't you think they'll eventually need to do the same as Paypal did?
Maybe Stripe won't freeze your assets first, but they could notify you that they will only support a certain transaction volume unless you take a loan.
> If you think there's a potential liability between two parties, it's much better to formalize it as a loan agreement than to just carry it as a risk.
Such a clear and excellent point. This is the basis of the idea people are thinking when they tell someone to "get it in writing."
I have never seen a cable, cell phone, or utility account reported on my credit, other than the initial credit check to open the account. But it seems everyone around me thinks paying a power bill late will affect their credit.
Do companies in other areas typically report such accounts to the credit agencies?
Do companies in other areas typically report such accounts to the credit agencies?
Generally the companies themselves do not report to credit agencies. However, once the account is turned over to a collections company then that company will nearly always report the delinquency to the credit agencies. So from the consumer point of view, the statement "If I don't pay my bill, it will show up on my credit report" is true, but there is a middleman in the process.
I don't know. For a while, I'd forget to pay my electric bill every other month or so, and SDG&E never did anything but send a polite reminder with my next bill.
Utilities generally consider your account to be in good standing so long as you don't fall more than two or three payments behind. They may use a late fee and/or a deposit return agreement to incentivize on-time payments, but they're not going to go after you (such as disconnecting service) until usually the 3rd month that you fail to pay, sometimes (especially for municipal utilities) much longer.
Essentially, accounts paid late just aren't a big deal for them. They almost always get the money anyway.
It's basically a secured credit card. And you get the primary holders SSN (credit report) to have a credit relationship with. It actually makes a lot of sense.
Howdy again! (I think I met you personally in Tokyo if I'm mapping nicks to names correctly.)
Does it make a little more sense if you consider this decision as being generated by two separate entities? For marketing purposes, that loan appears to be originated by Paypal, but it actually comes from Webbank in Utah. They are one of the more tech-forward companies which actually has a banking license. It's tough to tell externally which tail is wagging which dog, but I'd bet you that a) Paypal the low-margin-fraud-kills-us AI company is institutionally very, very risk averse but b) Webbank is primarily thinking of not your business model but rather your existence in a pool of pre-vetted credit risks, and their risk model says "Approved without further need for clarification; this is probabilistically profitable."
(To the extent that a bank would view Paypal having a reserve against your account as a plus or minus in deciding to grant you a loan: it's an obvious plus, right? Heads you pay them back; tails they have recourse against an identifiable pile of money sitting at an affiliated entity!)
Assuming that the monetary terms they offered you were roughly in line with what Paypal offered me back in the day: they make substantially more money lending to you than Paypal does through payment services (one's expensive, risky to them, and cheap to you; one is inexpensive, not terribly risky to them, and not terribly cheap to you).
It doesn't change the analysis much if you think of it as two groups with competing imperatives within Paypal, either. (And who knows, perhaps Webbank has substantially delegated decisionmaking authority to a model developed by Paypal. I'd bet somewhere in the midpoint -- Paypal provided a model, Webbank agreed to robostamp most loans consistent with the model insofar as regulations allow them to do so, and then Webbank got Paypal to agree that if performance across the pool was below $FOO then Paypal would pay Webbank $BAR.)
I didn't tackle the apparent contradiction because I think others here did a good job. But let me try then based on your follow up:
1) Your business, without a balance of funds, is an unacceptable risk and not worth them supporting
2) Your business, with the appropriate balance of funds in reserve, is now not risky to them
I understand it seems contradictory/hypocritical. But it's all about whether you view it as a "freeze" (which has much more dramatic connotations) or simply a risk mitigation strategy on their behalf. Once you solve for the risk mitigation they're comfortable doing normal business with you.
The issue is that they generate the need for you to take out a loan with them by securing "the appropriate balance of funds." If they did not hold the 20k, his business would not need a 20k loan. Would paypal be on the hook if the business withdrew the 20k and they were hit by a bunch or refunds? Sure, but thats the risk they take by being a "bank." They make interest off your capital. Thats the exchange they agree to. This is them trying to make double interest off your capital by locking your funds and offering a loan for the same amount.
Put another way, would you be okay with your bank holding 20k to make sure you can pay for housing/bills, and then offering you a 20k personal loan that generated them interest? No, because that would be unreasonable. Its your money. If they think you are a risky client, they should stop working with you.
Its a conflict of interest, and a blatant one that could be heavily abused.
Taking money that isn't yours isn't a risk mitigation strategy; it's theft. Calling it a freeze is pretty mild. It is not PayPal's money. The customer didn't intend that money for PayPal, but for the merchant. By freezing that money, PayPal is endangering the transaction that they should be enabling.
> Still, things change when they then turn around and offer you a business loan
> It's the fact that they froze our accounts and then offered us a loan
How? Those are surely separate departments at PayPal (possibly even another [sub]company).
Not to mention loaning you money has other strings attached to it which makes it less risky-ish on PayPal's part (they have a clear legal proceeding to take if you default on the loan). If you screw over all your customers and run with the money, PayPal will take the major hit (because your customers will go after PayPal to get reimbursed).
Freezing your funds, and offering you a loan are very clearly "apples and oranges".
Nonetheless, you should have known this was a risk and was likely to occur before it became a critical issue for your business. Clearly you were not prepared nor did your homework on how to operate in this climate.
This sounds harsh, but it needs to be heard. It's difficult to feel sympathy for someone who put all their eggs in a single basket, and was too naive to understand the risks.
Lesson learned - don't put every penny you have into a single account administered by a company you have only recently begun a relationship with. You are a high risk customer for any banking institution. If it wasn't PayPal, surely a similar situation would have occurred elsewhere.
I don't understand why customers would go after PayPal if the merchant doesn't deliver. They should be going after the merchant. PayPal should not be the merchant here. If PayPal does insist on acting like the merchant, then real merchants should use a different payment provider.
I've got to admit, though, I'm not American. The way payments work in the US often seems completely backwards to me. But I really dislike that that backwards way of handling financial transactions gets exported by companies like PayPal, Visa and Mastercard to Europe, where banks do offer reliable payment infrastructure: when I pay someone money, the money ends up with them, not with some middleman.
It's just an automated ad promoting a product. I'm sure that company saw other ads when logging in on different days. Is it silly that they advertise it on high risk accounts? Maybe.. but it's nothing nefarious.
According to the article, PayPal claimed that it was not an automated ad and they were in fact eligible for it.
"To paraphrase: “It may seem weird that we’re holding collateral on your account and offering you a loan, but that was not a mistake! You’re still eligible. Contact me if interested.”"
They didn't claim it wasn't automated. They just claimed that it isn't a mistake. The better explanation is that the criteria for a hold and the criteria for a loan are not one and the same.
Whilst the risk to PayPal may be deemed acceptable to PayPal, the only reason you would need the loan is because they froze Tor funds. They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves!
> They are not just managing your risk, they are increasing it whilst mitigating the effects it has on themselves!
Well, they're passing the risk on. The risk is in chargebacks from people who bought things from the OP's company, right? If they weren't using PayPal or some other third-party payment processor, that would be their risk.
Yes, but PayPal gets a (high) transaction fee in exchange for assuming that risk. The company borrowing from PayPal is charged interest for the privilege of taking that risk away from PayPal. That's insanely exploitative on PayPal's part.
My point is, I don't believe they are offering the loan because the company is in financial trouble (due to the hold). I believe they are offering the loan because the company meets certain requirements in terms of transaction volume.
Companies can reach the required transaction volume without having holds on their account.
I don't see why it matters whether it was automated or not. Either way, PayPal has a huge conflict of interest by A) creating a situation where a business needs a loan and B) selling loans.
I think the freezing is unethical. It's not PayPal's money. The customers didn't intend that money for PayPal, but for the merchant. Taking money that isn't yours is theft in my book.
Does PayPal even pay interest over the money it denies their customers?
Why would PayPal be on the block when the merchant doesn't deliver? The merchant should be on the block. PayPal should just be payment infrastructure. The fact that PayPal pretends to be the merchant, at the same time pretends to represent the customer in a way the customer never asked for, and undermines the payment between the real customer and the real merchant, makes PayPal unreliable as payment infrastructure.
PayPal has a history of denying people access to their money, and I'd certainly never allow any of my money in the hands of PayPal. They operate as thugs. They take money they're not entitled to, make commercial transactions unreliable, and endanger the companies' ability to provide the services that customers paid for. PayPal is the biggest source of risk here.
If this is true, shouldn't Paypal give you the option to receive your $20,000 back and then quit using Paypal? Or perhaps be a bit more explicit with this up front (_before_ they froze your account)?
Unfortunately, it's too late by that point. Paypal have taken on the risk, if they just let you get your money and leave, then that's what all the fraudsters would do.
In the US, if the merchant doesn't pay, or is fraudulent then Paypal would have full liability. Same situation with Stripe.
From the perspective of a Paypal or Stripe, letting someone accepting credit cards is very similar to extending someone a loan. In the early days of Paypal, fraud almost killed them several times. I've been involved in a smaller credit card processing business and fraud almost killed us a few times.
In the current system in the US, legit merchants ends up getting beat up the most, and taking the most liability, in exchange for the convenience of accepting plastic.
If someone uses a stolen credit card to purchase goods online or in person, it's their, and they have to pay. And often lose the items sold too.
If the Paypals can't pay, then the upstream banks have to pay. Of course this would never happen, so the upstream banks never have to pay. Their risk is totally covered along the chain; so they don't really care THAT much about fraud.
Meanwhile, the end users of credit cards enjoy pretty good liability protection, and get paid in miles and cash rewards. So, they're fat and happy.
I have a friend who ran a computer store. He accepted credit cards and sold used Windows 7 Pro PCs for $150USD.
Some of the customers bought a PC and then did a chargeback on their credit card to get it for free. Enough of them did that so that he got blacklisted by his bank and his credit card machine no longer worked.
People do the same thing with Paypal when I sell something on eBay. Even if it is the right item, they do an item not as described to get their money back. For example I sold a used Macbook that was an older model and could only run 10.7 and buyer knew it was used and old and could only run 10.7 but filed an item not as described claiming it was old so he wanted half off. Macbook was worth $500 and he bought it for $350. I told him Macbooks keep their value unlike PC Laptops. Paypal froze my funds and eBay investigated. Eventually eBay sided with me because the listing said old and used and limited to 10.7 etc. It took like two weeks of freezing my account until they resolved it. It was not even my fault, the buyer wanted half off for no good reason and item was as described. He could have sold the Macbook for $500 and made a profit.
From my experience I'd be surprised if a legitimate business that had proper checks for fraud and delivered their service as advertised ended up getting a high enough rate of charge backs to lose their account.
I used to run a computer store. Did not take credit cards as we couldn't afford the service. Got hit with a lot of bad checks. People take advantage of small businesses in that way. We couldn't afford a fraud scanning service or credit check in 1995-1997 and went out of business as a result.
My friend with the computer store that took credit cards, the card scanner was supposed to check if the card was used in fraud and all of that. He got hit by people using the chargeback to get free computers so many times that he got black listed. Getting the checks for fraud is hard as one can do a chargeback multiple times and it doesn't count as fraud.
The problem with most people's complaints seems to be that PayPal doesn't look at your business and say they'll need a $20K surety. They just seem say nothing and then grab the money without warning, leaving people to scramble for cash. If they made a deal in advance it would be much more civilized.
I'm just starting to need a real solution for taking regular payments and Paypal didn't even cross my mind as a serious contender. The business model they've cultivated engenders similar levels of trust to car salesmen and the people who charge lost equipment fees at Comcast.
I'm looking at Paysimple for their integrated invoicing and transaction handling but I'd love to hear what other people use.
I used to help run a rather large fan convention. For our first 5 years (starting in about late 2003 or so), PayPal was the only option we offered for registering online. At the time, they were really the only option for implementing online payments easily without the complexity of a full merchant stack (and it was just me doing the programming, volunteering to help them while I was still in college).
By the time we finally switched away from them, we were probably clearing $60k or so a year through them, with a very large percentage of that coming over the course of a week or so just before the event. People like to wait until the last minute. :)
We never had any issues, but we were very vigilant about transferring funds out of PayPal every few days just in case. We did finally stop using them, probably about 2009 or 2010, when stories like OP's started to become widespread.
For us, having them "hold" our funds for 6 months would have bankrupted us. The hotel wants to be paid on Monday after the event. Vendors need to be paid within 30 days. Things like that would have been impossible for us to do if they decided to sit on the money. We were a volunteer fan convention; we didn't have the financial cushion to withstand something like that.
Not to mention the fees were higher than a standard merchant account. We finally did switch to a merchant account through Elavon and, after I left, I think they switched to Stripe. Either way, they don't accept PayPal now because the financial risk to them that could result from PayPal freezing the funds is significant.
The last project I worked on required integrating with clients' existing payment infrastructure, including merchant accounts, and processing their customers' payments for them in addition to billing them a small monthly fee (we didn't take any piece of customer payments). We used Chargify. It was pricey, I think about $120/mo to support ACH for a few hundred clients, but the API is solid and well-documented. They've got several employees whose job it is to work on the official libraries, as well.
I am no longer a Chargify customer because that project never really panned out. I don't have any official relationship with them.
The one-stop-shops are definitely slick and easy to get started. But when you start doing serious amounts of transactions you really have to shop for competitive rates and consider other less sexy gateway providers.
I don't know anything about chargify but even stripe will negotiate with you if you reach a certain volume. Once you start paying tens or hundreds of thousands in fees, those percentage point fractions become a big deal!
Absolutely! One thing I liked about Chargify was that you used whatever payment gateway[0] you wanted, including Stripe.
I don't know if you can negotiate with the gateway directly at large volume even if you're going through Chargify - I suspect not, but it'd be worth a shot.
I'm working at a startup that processes millions of dollars per month in payments. If you don't offer PayPal, you're shooting yourself in the foot. In many countries, PayPal is the defacto way people conduct online transactions. As much love as Stripe gets because of how developer friendly it is, in the real world people use what they know. And what they know is PayPal. I don't see a compelling reason not to offer it as an option.
This is what pains me the most: the fact that PayPal is considered the biggest standard, when they are really terrible.
Netherland has proper internet payment infrastructure called iDeal: it goes directly from one bank account to the other, with no sleazy middlemen in between. That's what the rest of the world should be using, but Netherland just doesn't have the weight to push its solutions on the rest of the world, so we're stuck with crap like PayPal, Visa and Mastercard.
(I suspect many other countries also have well-working payment systems within their borders, but none have any international reach. I'd expect that SEPA would lead to a reliable internet payment system on a European scale, but that hasn't happened yet.)
Agreed, we offer Credit Card and Paypal and have close to half our customers using PayPal.
In terms of the horror stories I think it depends a lot on your business. For someone like us sending relatively predictable large volume through in the mostly $25-$150 range we have never had an issue. At most we probably only ever had a $50k exposure to PayPal as you can withdraw as often as you want.
Waking up one day to find that "your" money is no longer yours is not a compelling reason? I myself had nothing but bad experience with Paypal going back almost a decade, hell with them.
Luckily I need to accept payments mostly from government customers, which means mostly ACH and debit card. I think PayPal would be seen as pretty mickey mouse actually.
I do some work with a non-profit. We use paypal to collect fees/dues from our about 400 members. It works fine. In the 7 years we've been using them we've yet to experience any problems. We aren't high volume.
I think the internet echo chamber makes Paypal seem out to be really bad, when the truth is all payment processors have their bad days.
People have heard of paypal and trust them. We had a few questions about it when we started (Do you really get the money if I use paypal).
Yeah, I use them all the time without problems. The trick to that is being sure I can probably trust the person on the other end. I reduce risk where possible, esp with reputation tools.
Of course not everybody has problems with PayPal. If they did, PayPal would have been dead by now. But there have been way too many cases where PayPal clearly took money that wasn't theirs, and thereby endangered business and customer interests. Even one such case should be enough to disqualify them as payment provider. It is not their money. They should just enable the transaction.
Is PayPal still around simply because, as one of the earliest and one of the biggest payment facilitators on the Internet, it's become ubiquitous enough to not have to worry about being displaced? I cannot for the life of me understand how it's still a thing since every week there's yet another story of "PayPay did Shady Thing that a bank couldn't do and now I have no money and no way to get my money back."
Why is PayPal not dead? In all my research I have never been able to come up with a good answer to that question.
[edited to add] Aside from consumer ignorance of other options, that is.
We've been using PayPal for over 10 years. High volume. No complaints. Their dispute resolution service is better than others we've tried in the past (Braintree, BluePay). Fees are solid. Customer support team are pretty on top of things (if you feel like picking up a phone).
Seems like people like to pick on PayPal because they want to see the new 'startups' win. But PayPal doesn't have to lose for them to win.
To expand. We thought about switching to Stripe once. Implementation was fairly annoying compared to PayPal's which was surprising considering how loved they are by the dev community. Their fees were much higher. Support couldn't answer some relatively easy questions. Stupid turnaround time for bank deposits.
I can understand how getting setup with a Stripe branded payment form is easy and saves some hassle for a new project. But as an established business they don't bring much to the table. We passed and skipped the obligatory 'X Sucks Because Y' article.
We've had pretty much the opposite experience. We've used PayPal for a little less than a year. Setup is magnificently complex and perplexing. They assume that companies are people. There's no way in hell the CEO/owner of a business would spend 1.5 hour on the phone with an account manager, setting up the account. Want PayPal to transfer british pound to an non-british bank-account, then prepare for a world of pain.
Their dispute resolution service is annoying a hell. Not that we don't want to resolve disputes with our customers, but we want to do it using our existing customer support channels. Not via PayPal. Having customers just randomly getting their money back without having contacted the business they bought the product from first isn't acceptable.
It's the most expensive of all the payment solutions we offer our customer. Developer support is okay, but not helpful when their stuff doesn't work. We randomly get 500 errors from their REST api, which doesn't handle any sort of real volume. Black Friday pretty much killed PayPal.
The PayPal web interface is the worst I've ever used. It's slow and almost impossible to search in. Searching using your own order numbers almost never works and you fall back to searching for customers last name, which is pretty much the only search that consistently work.
We wouldn't use PayPal if our German customers didn't expect it.
There's no way in hell the CEO/owner of a business would spend 1.5 hour on the phone with an account manager, setting up the account.
That's actually a legal requirement in many countries, including the US--either the CEO or CFO of the company must directly deal with a financial institution when setting up a financial institution account (i.e., bank account--note that Paypal is a registered financial institution in nearly all of the jurisdictions in which it operates). My clients run into this all the time. It's a hassle, but it's one you simply have to accept as the cost of doing business in the big leagues.
Want PayPal to transfer british pound to an non-british bank-account, then prepare for a world of pain
Legally, yes. Because British law has rules about this, and as a financial institution Paypal is required to follow those rules. Those rules are deliberately onerous because the type of transaction you are describing was once widely used in tax evasion and money laundering schemes.
> That's actually a legal requirement in many countries, including the US--either the CEO or CFO of the company must directly deal with a financial institution when setting up a financial institution account (i.e., bank account--note that Paypal is a registered financial institution in nearly all of the jurisdictions in which it operates). My clients run into this all the time. It's a hassle, but it's one you simply have to accept as the cost of doing business in the big leagues.
As we're talking about cross-border bank accounts, the Patriot Act, when applied to foreign persons (individuals or corporations) attempting to open US bank accounts.
Also, FATCA. Though FATCA technically only applies to the financial institutions and not their customers, its information gathering requirements have the same effect as requiring bank customers to disclose certain information.
There are state level laws that may govern US persons attempting to open US bank accounts, both those vary by state.
I'm from Germany and funny enough the ubiquitous online banking infrastructure here was sleeping for decades not providing a simple unified payment solution for their customers, staying dormant while PayPal took all the market.
It was so bad that the only serious contender is now the bank independent "sofortüberweisung.de" which literally MITM's your online banking session and screen scrapes your data while you enter your PINs on their portal (I'm not making this up).
So its a tragedy that you have to support PayPal for us Germans, but in the end the imbeciles in the German banks are to blame.
Very weird. Perhaps their European service differs?
I've never had to call them to set anything up. Black Friday they handled our volume with no hiccups. I can't remember if there's been a time when their endpoint was down for us.
UI and dispute resolution is personal preference. I think the new interface is nice. Much faster than the old one. Easier to use. Search works. We only search by email address / last name though.
Dispute resolution through other vendors, like Braintree before being acquired, was handled via snail mail and fax. In comparison PayPal's process is amazing. You also didn't have a chance in hell of winning a chargeback with Braintree. At least PayPal offers some protection and will see the process through. If your customer wants their money back without contacting you they can do it anytime they please. That doesn't have anything to do with PayPal.
Same boat. Used it for over a decade now, never had an issue. There's plenty of horror stories because so many people use it. Given a big enough size, any company is going to have customers who experienced something bad.
Because of market saturation.
Stripe just recently started an open beta here in Germany. There is Skrill but besides it being relatively unknown, they implemented fees for accounts unused for > 12 months and have generally more fees than paypal (for the consumer)
And because of their consumer focus.
I have read many stories about paypal and how their actions made many problems… for businesses. I don't see stories about them fucking over consumers, quite the opposite, they try to err on the side of them.
At least that's my opinion. I probably wouldn't use PayPal should I ever start a business needing a payment processor, but as a consumer? It's awesome.
> At least that's my opinion. I probably wouldn't use PayPal should I ever start a business needing a payment processor, but as a consumer? It's awesome.
No, as a consumer PayPal is a fucking nightmare.
Their customer service makes the stereotypical American DMV look like paradise (I don't live in the US, so I have only the image of the DMV from movies and TV).
Seriously, if you have a problem, just try to get their customer service reps to give half a shit about you and your issue. They'll make you fax (it's 2015...) a million forms to prove your identity and your mother's maiden name and your pet rock's birth certificate, and then tell you that they can't help you with this problem, you'll have to resolve it with the seller.
Their email response time is measured in glacial periods.
Oh, and you want to buy something on eBay and you have some account credit? Well fuck you, you can't pay with PayPal. Your existing payment methods (credit card, direct connection to bank account) don't work. Add a new one, scumbag. Oh, but not one that's already on your account. Nope, we've seen right through your clever trick and won't allow it. In fact, you can't pay with a different credit card that's associated with another PayPal account, because fuck you, that's why.
I finally, after endless hours trying different combinations, figured out that I had to consume the account credit before they would let me use my traditional methods of payment to pay for the transaction.
You might say that you've never had the above problems, and that's fine. You've been incredibly lucky.
I avoid using PayPal now whenever possible. They're the devil reincarnated.
> You might say that you've never had the above problems, and that's fine. You've been incredibly lucky.
Not only that, I never heard of such problems and pretty much everyone I know under 50 uses paypal.
That said, it's good to have you horizont broadened :)
But I don't have money on my paypal account anyway, whatever they need they just take directly from my checking account, when an order falls through, I deposit the money back to my account immediately.
I guess pretty much everyone you know doesn't move, then.
You try moving out of the country with a paypal account. They'll make you close your account and open a new one with a different email address. No other way to change country in your billing settings.
And their joke of a 2FA doesn't support the standard 2FA/OTP systems.
They're improving, but at a snail's pace. Personally I wouldn't recommend Paypal to anyone. It's not just about whether or not their customers get screwed.
The problem isn't Paypal. The problem is competing sets of laws. You'd have the same problem with a bank, or any startup that cared enough about what it was doing to actually follow financial institution laws.
PayPal makes you create a new account because each country has different requirements for financial institutions and customer data retention. Often times, laws in one country conflict with the laws of another. In some cases, like moving from the US to Europe, under EU laws it would be illegal for Paypal to maintain the US account data, but under US laws it would be illegal for Paypal (as a financial institution) to delete that account data for a period of several years. The KISS solution: just make the customer create a new account, subject to the laws of the jurisdiction they are moving to (and stored in a system compliant with those laws), and transfer any money in the existing account using existing mechanisms with their existing reporting processes that have been sanity-checked thousands of times by prior transactions.
I'd switch to square, but since I don't have a debit card I can't use it. I can still use paypal (and annoy my friends in the process.)
EDIT:
To answer your question, paypal still exists for the same reasons banks exist when people hate them, and for similar reasons to why you'd hire a tour company or local guide when visiting a different country. They are embedded -- they offer increased access via established agreements with more financial entities. They have more mastery of the regulatory landscape than their competitors (especially startups).
Finance is in many ways very traditional business, and paypal has invested in traditional parts of business. I'd bet they employ more lawyers than any other payment startup out there, for example.
I use PP for my business. It has been 100% foolproof (survivor bias caveat applies). I have not found another service that does not require me to write code beyond basic html, or to maintain a website.
I am aware of horror stories, and remain interested in alternatives.
That's exactly my situation. Oddly enough I love coding, but making it a part of my small business (totally analog product for a tiny niche market) would add a layer of complexity that I'd rather avoid.
Have you looked into Amazon Payments? Also have you taken into account business that you might be losing specifically because you only use PayPal? Again, just asking out of curiosity- I want to know the reasons why PayPal is still being used (both from businesses and from consumers).
It must be a well kept secret. Looks like Amazon has one of those slick new web page designs where you have dig down through a few layers in order to find out what the product actually is, but that's OK. They seem to have created something with a strong resemblance to PP in terms of their fee structure and how it's used by a small time merchant like me.
In other words, it might very well be a solution. I know that there is a certain fraction of people who have concluded that they will never use PP again, and I respect that. Offering two different possible payment plans might not add too much more complexity, and might sweep in some of those customers.
PP may have gotten a lot of people early on, when their offerings were a whole lot simpler. My business is really: Take money, ship gadget. No overseas business -- getting a CE mark is too expensive. I didn't look for any kind of API, and have never needed to speak with a human.
There may also be a trust issue (though Amazon is certainly trusted). A lot of merchants complain that PP tends to side with the customer in disputes, which I actually consider to be a good thing since I've never had any disputes.
Amazon Payments has to be the most under-utilized payment method of the decade. It's insane – everyone and their dog have an Amazon account and you'd have massive user acceptance, yet it's used nowhere.
Why is PayPal not dead? My guess is that it works well enough for most people. Gamble that you won't be the one to get your account frozen, and you might be okay. And I guess a lot of companies aren't aware of the risk of doing business with PayPal.
But PayPal exists primarily because there's no reliable international internet payment infrastructure that allows direct payment from one real bank account to the other. We've for a system for that in Netherland, and every Dutch webshop uses it, but works only for payments within the country. We need something like that on an international scale.
This is not surprising to me at all, nor do I see anything nefarious in this. PayPal operates two different business units, a payments processing business and a commercial loan business. Both operate on separate P&L's, and with different risk requirements.
Let's consider two different situations:
1. PayPal's payments processing group worries about the risk of your account, and thinks about applying a hold on your funds. Just before doing so, they call the loans group, who says that they'd be perfectly happy to give you a loan for the amount of the hold, you're good for it. So, Paypal as a whole decides not to place a hold.
2. Paypal's payment processing department worries about the risk of your account, so they place a hold on your deposits. In parallel, the loan department decides you're a good credit risk, and so you apply for and receive a loan for the same amount as the hold.
In case 1, if those payments do indeed get charged back, Paypal is forced to try to come after you for the balance. Unfortunately, this debt won't have very strong legal standing, because it's not backed by a loan agreement. They might or might not get their money back. It also puts them in the position of having to chase you for the money.
In case 2, if the payments get charged back, Paypal is sitting on the funds already, and can just claim them. This might cause you to default on the loan, but that's your problem now, not PayPal's. They are also making interest on the amount of the loan.
It's pretty clear that Case 2 is MUCH better for PayPal, and only marginally worse for you, assuming that you are right about the payments all being good -- you are only out the interest cost on the money. What you seem to be arguing is that PayPal should be "nice" to you and go with Case 1.
The other fact that you might be missing is that nearly all traditional payment processors would require some kind of reserve account in situations like this, and even if they weren't holding the money, they require that they have withdrawal privileges on the account into which the funds deposit so that they can claw back money if needed. PayPal is by no means unusual or abusive in holding funds, it just seems that way because they don't pitch this as part of their up-front marketing.
Well-put. A parallel here is the pre-approvals for credit cards that people receive in the mail. It's not uncommon for a person to get those who is regularly turned down by offers or even in collections. There's just some algorithm or set of criteria by a certain company that says "send the offer" while others with different information or criteria would refuse it. Simple as that most of the time.
> This might cause you to default on the loan, but that's your problem now, not PayPal's.
Of course it's their problem. Instead of having $20,000 they have an IOU which may or may not ever be paid. Case 2 is exactly the same as Case 1 except for the extra interest which presumably covers the default risk.
It would be a better customer experience to just straight-up charge extra fees for creditworthy customers with high chargeback risk instead of this Rube Goldberg setup which is logically equivalent.
It's bizarre that it's apparently less risky for PayPal to explicitly take on risk by providing a loan, than to let people have access to their own money that was never intended for PayPal in the first place.
I consider scenario 2 a case of PayPal stealing your money and loaning it back to you against interest. It should be illegal. The fact that this is legal is baffling to me.
But it seems like US law offers some perverse incentives for payment providers.
The OP of this story was collecting money in the U.S. for events and lodging that had not yet happened in third world countries, and presumably was remitting a healthy amount of money from those transactions to multiple small accounts in said third world countries.
Their business was brand new and had no extensive transaction history with Paypal or anyone else. The customers providing the funds in question were most likely paying with credit cards and would be able to charge back the funds if the events didn't take place or were unsatisfactory.
I find it impressive that Paypal was willing to work with them at all given the above fact pattern. Many, many payment processors simply wouldn't be usable at all.
I have a small side business that does < $1000 a month in PayPal transactions, but I regularly withdraw money from my PayPal account to my bank account specifically because I don't trust leaving my money in PayPal.
Why don't larger business do more frequent withdrawals from PayPal to a proper bank?
> Why don't larger business do more frequent withdrawals from PayPal to a proper bank?
They should, and do. You can even automate daily withdrawals and send funds back to your actual bank account.
The OP didn't have that foresight, or was overly optimistic about how things would run. In either case, it's fairly naive to leave large amounts of funds sitting in a payment processor's account. Move it to your bank account... or risk it being toyed with.
It's happened to me. The issue is, you aren't allowed to withdraw your money. Like you, when I get paid in Paypal, I want it out of Paypal as soon as possible. I've request the transfer to my bank account the same day and as per usual but then found that the funds were frozen.
In my case, I guess I looked sketchy because I had surges of sales (no sales most months, 5k one month).
We had an account manager from PayPal at a meeting, a rather unpleasant person, not that I blame that on PayPal. He didn't take it to well that I told him that they are the last company I would entrust with my money. We use them out of necessity, not because we want to.
There's kind of a "sour spot" with PayPal where you make enough money to be a serious liability but not enough to have an account manager. I used to work for an organization that went through $100k's per month on PayPal and we had an account manager who could solve problems for us fairly quickly. Also unlike the story here, all of our customers were in Canada so there was probably a lot less automatic risk-flagging happening on our account...
The fraud department at PayPal has to exercise a large amount of caution because if they make a mistake they lose more money.
The lending department at PayPal can be more opportunistic because they can potentially turn a profit with a successful loan.
I'm not saying that either of those actual departments are correct or that their decisions are sound, but even at a perfectly run organization wouldn't this paradox be somewhat present?
I see what you're saying, but I wouldn't expect there to be overlap. I don't know how paypal chooses whose accounts to freeze, but let's say, for the riskiest 5% of accounts.
Now, the lending department can handle a lot more risk than the fraud department (as you note). But I don't think they would be willing to extend that to the riskiest 5% of accounts.
If there is overlap in "too risky to thaw funds" and "trustworthy enough to offer loans", then either their lending department offers loans to some seriously risky clients, or the fraud department freezes a huge % of accounts' funds. Neither seem like an acceptable situation.
I'm looking at it slightly from the other direction. Knowing PayPal's history, and how hard fraud is to nail down on the web, I'm assuming that the 5% is actually much larger, and that the fraud department is overcautious.
If that's not the case, then you're right. But if I work in the loans department and I know that the fraud department tends to blow things out of proportion, because that's what's required to prevent fraud at PayPal scale, then I should expect a little overlap.
I guess overlap might not be expected at a "perfect" organization as I mentioned, but I can imagine how it might happen at PayPal
Friends who do a lot of Ebay transactions have always recommended getting a dedicated checking account for Paypal, and then setting up regular transfers out the account, so that one's ability to pay bills and vendors will not be impacted by a Paypal issue.
Why use PayPal for credit card payment processing above the petty cash level? If you're up to $30K, you should be getting merchant services from a real bank, not an intermediary. If you're not using eBay, PayPal provides few benefits.
I can't comment on the OP, but in addition to the "normal paypal stuff" that paypal does and that we are all familiar with, paypal also has a standard bank-style card processing unit called "payflow".
Rates and policies and fees are very, very good with payflow - they are very competitive - and it made very good sense for us to move from a traditional card processing setup at wells fargo to paypal for this.
We made that switch three years ago and it's all worked out very well - and it saved us a lot vs. wells fargo, who was doing all of the "normal" merchant/bank/processor tricks that distort the costs a lot.
I've avoided having to trust PayPal with any sum of money since I first heard of their freezing practices years ago. Back then (not sure if this has changed) they weren't regulated like a bank so they could get away with some pretty shady behaviors.
I always suspected that they were taking the collateral and making short-term investments, this is the first time I've ever seen them try to do both with the same company at the same time...
Speaking from a nightmarish personal experience moving hundreds of thousands with PayPal over the years, it is astounding to me that it took so long for someone like Stripe to come along.
It is not astounding they have quickly blossomed into a valuable company.
Why did it take so long?
And what about eBay? Someone should consider taking that on.
Letting a huge business being an incumbent without competition for 15+ years in the web world seems so absurd.
My understanding is there are epic regulatory and bureaucratic blocks involved in setting up international payment services - ironic given PP's reputation, but so it goes.
I am in a position to hear a lot of comments on Paypal from freelance artists, and I often hear of them freezing someone's account over some transaction or for no expressed reason at all. I often wonder how they can get away with this, I would imagine if a bank did this they would be in hot water quickly with a regulator. It all seems a bit shady.
This is the key point: PayPal is not your checking account. PayPal is more like a merchant account which voluntarily takes on much more risk than most banks are willing to in their merchant accounts.
Nice of them to loan you your money with interest... if they were an honest company, maybe they'd offer to use the business LOC as collateral and free up your funds, dipping into the credit should the risk become real and your funds get charged back...
Generally good advice when considering PayPal is to recite to yourself "PayPal is not a bank, PayPal is not a bank, ..."
But they do like money, and they like to move it around creatively and create ways to use other people's money to make money for them.
One of the reasons they aren't a bank is they don't do (and are not allowed to do AFAICT) fractional reserve lending. In that sort of scenario this story makes a lot of sense, you freeze(or seize) assets from your customers, and then loan them out to other customers who pay you interest on repaying that loan, and if they default you presumably keep the other customer's money to cover that "loss". Sort of 100% reserve banking.
Do you have any evidence that freezing funds is related to lending? Because that's a pretty massive claim, particularly since they are supposedly two completely separate business units on separate budgets and P&Ls (fraud prevention and lending).
This is frustrating, but not necessarily a conflict of interest.
Any type of events business carries a significant risk to a payment processor. Funds are paid up front before services are delivered. If the event doesn't happen there will be a demand for refunds.
This isn't necessarily due to malfeasance on the part of the promoter. Imagine there was a conference booked in the World Trade Center for September 12th.
Boil it all down and what PayPal is doing is charging a higher percentage fee (aka the base fees plus the interest on the loan) for a business they deem to be more risky. Entirely fair.
Now for the way they presented those fees - absolutely unacceptable customer service.
To clarify the comment about refunds. Participants would first go to the promoter. But if they were unable to resolve the dispute, they could then go to their bank and dispute the charge. My understanding of this is murky, but in the end PayPal does carry a liability for those funds as a participant in the transaction.
Think OP is assuming Paypal has departments that understand how eachothers decisions affect the other, PP is a huge company and I doubt malice was actually intended, but nonetheless pointing it out to them was necessary.
regardless of what division is making the determination, either the company is risky or they're not. charging them interest to access the money that is rightfully theirs is extortion, plain and simple
I am considering on using Paypal in my startup business. How do you feel about it? I attended a startup conference 6 months ago. Paypal was also there claiming that there will be solutions for startup business. I don't know if this is a special case. How can I avoid my capital from being frozen? Singing "Let it go"?
Will you have delivered the product/service at issue at the time you charge the card or within a short period of time thereafter? If so, it is highly likely you will not have any issue with Paypal. If you are accepting pre-payment for something which cannot be delivered in full shortly after payment, it is likely that you'll have to become conversant with Paypal's published guidelines about this.
Spoiler alert: if you are in an events business, "We emailed a ticket" does not constitute delivery of the purchase. Successful conclusion of the event constitutes delivery. Most events businesses structurally need to pre-sell tickets. They will, virtually inevitably, have more issues with collecting payments than e.g. a software company which says "You give us a credit card we give you a working download link." This is not a result of caprice by Paypal -- more than 1% of scheduled events fail to actually happen; when that happens, Paypal gets hit with hundreds of chargebacks.
Partially off topic but what would you recommend for transactions in the 1 to 10 Euros range in Europe?
PayPal and Stripe have fixed costs per transactions that are quite substantials on the amounts at lower bound of that range. Thanks.
Clearly the used car sales department forgot to check with the customer service department whether the customer is actually happy with the ongoing relationship.
I think this is more common than people might realize. In fact, I think it's fundamental to how the predatory lending industry(READ: banking industry) operates. David Graeber's DEBT is a good read: http://libcom.org/files/__Debt__The_First_5_000_Years.pdf
If you chose a business model with an elevated level of risk then you'll have extra expenses associated with that.
I really dug that email. It's encouraging that it triggered what sounds like a very real internal discussion amongst multiple people there vs being getting completely ignored.
I know I sound like a PayPal apologist - I'm not! I know there are some very real horror stories out there. It's just that they're probably one of the few payment companies that would enable this business to actually be a business and asking $20K in surety when you're _on the hook too_ isn't as mean spirited as it first appears.