
Redditor burnt by Paypal's "Rolling Reserve" feature - mwill
http://www.reddit.com/r/reddit.com/comments/l4q2y/please_help_me_expose_this_newest_paypal_fraud/
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ck2
The way PayPal risk management works is to dump the whole problem on the
customer, never on themselves. This is why the "guarantees" on ebay are
useless and actually a hassle for all parties, except paypal/ebay.

Try getting a false charge on your paypal card - the moment you notify them,
they instantly cancel the card - but to get the money back you have to file a
written snail mail report - and then they do not send you a replacement card
automatically, they allow it to remain canceled and never support you
otherwise unless you specifically ask for another card which will take at
least two weeks to receive.

They have no problem with people leaving them as there is an endless supply of
newbies and near zero competition with easy entry, because they aren't
competing as a bank and don't have to obey banking laws.

~~~
hnsmurf
As a merchant account provider PayPal has lots of competition.

~~~
EwanG
I suspect OP (both here and at Reddit) would be interested in pointers to some
providers who share PayPal's low cost of entry with hopefully much better
service. I know I would be :-)

~~~
StavrosK
The only contender seems to be (as it's linked in the reddit thread)
<http://www.stripe.com>.

~~~
dedene
Unfortunately, they're still US-only (so far).

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tzs
I don't see how he got burnt. He decided he wanted to accept credit cards
directly, instead of having customers use their PayPal accounts to pay him,
and so started using a PayPal service he had not been using before.

That means he's going to be subject to the same kind of things other merchants
who accept credit cards have to put up with (everywhere, not just at PayPal),
including acquiring banks deciding to hold a reserve to offset their risk.

The acquiring bank is on the hook to the credit card associations and issuing
banks for any chargebacks that he can not cover. Worst case would be if he
goes out of business leaving no money, and a year's worth of his customers
chargeback. The acquiring bank is on the hook for all of that.

From a risk point of view, an acquiring bank is in about the same position as
a bank that is giving you a loan, collateralized by your business, in the
amount of a year's worth of your credit card sales.

~~~
DaveMebs
I think there are a few key points that highlight why offsetting risk is not a
valid justification for this behavior:

-A 30% default rate is absurdly high. There is no way 30% of the cards being used over the phone are stolen.

-Even if usage of the service stops, the Rolling Reserves are a permanent change to they way PayPal handles his account. He cannot turn this off, even if his risk profile goes to 0.

-PayPal is not even authorized to act as a bank in the state he lives and operates in.

~~~
cperciva
_PayPal is not even authorized to act as a bank in the state he lives and
operates in._

Does this matter? I use a bank which isn't authorized to operate in the
_country_ I live in (Harris Bank, operates in the US; I'm in Canada).

~~~
dangrossman
I don't think it matters. Some don't seem to realize that when you sign up for
any of the PayPal Pro features you're getting a real merchant account
underwritten by a real bank. PayPal isn't underwriting it, it's usually JP
Morgan Chase or Wells Fargo. You are asked to accept a separate agreement
specific to that bank your account is assigned to when you apply for the
upgrade.

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bcl
PayPal did something similar to me earlier this year. They instituted a 21 day
hold on incoming payments because they suddenly decided my business was prone
to chargebacks. This is after 8 years of service with _zero_ problems. Never a
complaint or chargeback and 10's of thousands of dollars through my account.

I no longer have anything for sale (I open sourced my AIS Parser SDK late last
year) so it didn't have a dramatic impact on my income. I decided to drop my
PayPal and eBay accounts without argument -- if that's the way they want to
play the game then I'll just take my business elsewhere.

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rms
It is still clear to me that all of the people complaining about Paypal as a
merchant account provider have not dealt with regular merchant account
providers.

~~~
pbreit
Regular merchant accounts are actually not as bad as people think. One major
difference is that merchant account providers make getting started a pain.
That's when they do all of their analysis to determine if they are comfortable
processing for the merchant. PayPal on the other hand does little vetting up
front, making the signup process smoother, but can come down unexpectedly
later in a merchant's life when it detects risky activity.

This also affects how each implements reserves. While merchant account
providers may institute a 5% or 10% reserve over 3-6 months, it is more of an
insurance policy spread across all of its accounts since it doesn't have a
good handle on which individual account will blow up. Whereas PayPal
implements reserve only after it has detected risk, it immediately places a
larger reserve.

It never ceases to amaze me how negative the sentiment is towards PayPal from
an audience that I would expect to be much more understanding of how difficult
it is to process payments in real-time. And that PayPal became successful
_because_ of its actions, not _despite_ them.

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philjackson
On the complaint he raised - "Oh no, I hand delivered it and wrote it with
help of a lawyer. The complaint itself is about 50 pages long outlining
everything from deceptive advertising to several violations of their state
license."

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coverband
Square (<https://squareup.com>) is pretty cool. I have an account with them
and can charge credit cards through my iPhone. They even sent me a small
swiping device for free, which you plug into the headphone slot. No monthly
charges and mobile capability are great, but I haven't had big sums processed
with them yet so can't compare the customer service.

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davidw
They don't do everything that Paypal does, but Amazon Payments is working out
very well for me with LiberWriter, so far. Anyone who wants to publish with
Amazon is going to have an account already, so that makes for a very natural
overlap that not everyone would have with their service, but... so far so
good.

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sambeau
Another shot in the arm for <https://stripe.com/>

I guess that, to take a phone order over Stripe you would need a small app to
talk to the API, live. Someone should build that!

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driverdan
When will people realize what a terrible company Paypal is? They've been
screwing their users in the name of security and fraud prevention since day 1,
myself included. I've lost track of how many class action law suits there have
been against them.

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dmak
This needs more attention. I want to hear a response from Paypal.

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jrockway
"We don't have any physical presence in Illinois, so we don't really care
about their laws," is what I'm guessing.

~~~
pbhjpbhj
I was thinking "We're rich, sucks to be you.". But lying that the physical
presence determines the location of a transaction would be high on the list.

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djhworld
I feel sorry for the guy, however from the looks of the story he signed up to
a new service with the company...probably without reading the terms and
conditions

~~~
pbhjpbhj
If something is illegal in your state then it's reasonable to assume that it's
not in the T&C isn't it?

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lsc
huh. I thought 'rolling reserves' were fairly typical for merchant accounts
for people with bad credit. I don't remember what the rolling reserve was when
I accepted credit cards directly (a loong time ago) but it was significant.

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torontos
Part of the reason why I think the new entrants Stripe and Samurai will kill
it.

<http://samurai.feefighters.com>, <http://stripe.com>

~~~
blantonl
If either of these new groundbreaking services gets very popular and attracts
the eyes of the scammers, they'll be backed into the same corner that Paypal
and every other merchant provider is in.

~~~
tomjen3
To sign up for paypal you must supply an email address (actually somebody else
will have to).

But what if some other service required you to provide a copy of a goverment
issued id as well as the address associated with that id?

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nkassis
Is Paypal considered a bank and subject to similar regulation? I find that
they seem to be getting away with a lot of things that wouldn't be acceptable
with other financial institutions.

~~~
DaveMebs
No, the article makes it clear that PayPal is not a licensed bank in the state
of Illinois and this behavior is presumably illegal. The author claims to have
filed a complaint with the state's attorney general.

~~~
dangrossman
The author of the article doesn't really understand the situation he's in. He
signed up for a merchant account underwritten by a licensed bank (Chase or
Wells Fargo) when he upgraded to PayPal Pro to get the virtual terminal. He
accepted an agreement with that bank. That bank has the right to hold a
reserve as outlined in that agreement.

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brackin
My site runs deals every couple of days leading to big sales influxes when a
new product goes live and is sent to our customers. We've had these problems
before meaning we haven't been able to refund clients or pay merchants. It's
lead to a lot of stress.

~~~
rhizome
So, care to describe some ways of dealing with it?

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brackin
There aren't many, we just have to email our merchants and say they'll have to
wait a few until paypal has released the revenue.

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SandB0x
One sure way to earn my sympathy is to litter your post with image macros and
troll faces.

~~~
rdtsc
Hmm, strange, seems to works pretty well. So far about 3000 upvotes and 2000
comments.

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smackfu
Well, 90% of the comments are "yeah, Paypal sucks!!", and it really has about
25000 upvotes and 22000 downvotes. And the dude is just ranting more in the
comments. I'm not surprised he didn't name his product.

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iamelgringo
This is why people should use Wepay.com

I've been using them for years.

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lachyg
WePay.com does not do what PayPal does (yet), unfortunately.

