
Why Is PayPal So Successful Yet They Treat Merchants Like Crap? - jkuria
https://capitalandgrowth.org/questions/1524/why-is-paypal-so-successful-yet-they-treat-merchan.html
======
theamk
Because they provide security for the users.

With paypal, I can buy from any random sellers, and know that in the worst
case, I am risking just a purchase amount.

Security is hard, and even if someone makes great products, that does not mean
they are great programmers. For a small or a medium store, I always assume
that their website will be hacked and entire database will be stolen (it is
really sad how often this happens). Entering credit card directly just means
more problems for me down the line.

This means some sort of trusted checkout service. Stripe has no extra
security, so this leaves Paypal or Google Checkout. I think the latter has
died (I have not seen it for a while), so this leaves Paypal.

~~~
cpncrunch
>Because they provide security for the users.

And for the sellers too. I've been using paypal for 13 years, and I've never
had a single issue with anyone using a stolen card, and I don't think I've
even had any chargebacks during that time. I previously used Worldpay and
regularly had issues with chargebacks and fraudulent transactions.

Paypal goes to extreme lengths to ensure a transaction is not fraudulent. It
can be somewhat annoying as they occasionally reject customers' cards for no
apparent reason, but overall I appreciate their security measures.

Tip for anyone in Canada, Australia, EU or UK accepting US$ transactions
through paypal: withdraw your money through Transferwise and you'll pay 0.5%
instead of 1.5% or 2.5%.

~~~
ttty
How do you withdraw with TransferWise?

~~~
matthewheath
Sign up for their borderless account:
[https://transferwise.com/gb/borderless/](https://transferwise.com/gb/borderless/)

It enables you to receive money from over 30 countries without any fees. You
get bank details for:

* Australia * UK * Eurozone * US * New Zealand

So you can take payouts from any of those countries (e.g. USD goes to your US
bank account attached to the borderless account, GBP to your UK bank account,
and so on.)

~~~
ttty
But how do you add the account to PayPal, you can only put sort and account
number, not the American USD bank account details. I can only put a 6 digits
sort code, not the ACH which has more than 6 digits.

~~~
cpncrunch
In the "add bank" page, the first field is country. For me (in Canada) I have
the option of choosing Canada or United States.

------
christocracy
I’m a merchant and I once won a PayPal chargeback.

I sell a software product. Customer generates a key to unlock the code. Once a
key is generated, that key will unlock the product forever; it cannot be
revoked, thus no refund at that point.

In the dispute form, I wrote “It’s like buying a DVD from Walmart — once the
cellophane is torn open...”

PayPal judged in my favor and refused the chargeback of $349.

I’ve had 2 or 3 chargebacks from Visa and never won those.

~~~
kalleboo
We had a credit card charge back on our PayPal account and PayPal managed to
successfully argue it to the credit card company so we won (!)

------
bitcoinbutter
It's a combination of factors. As mentioned in the original link, PayPal has
an advantage because a portion of transactions are done internally using
PayPal balance.

This results in an instant and free transaction. They also have a network
effect which is compounded by saving the buyers'payment information, meaning
the buyer doesn't need to resubmit their payment information on each
transaction.

The company treats its merchants terribly and treats buyers like royalty. This
is a winning strategy because merchants have no choice but to use the payment
methods the buyer prefers. Otherwise the buyer will simply go to a competitor
who does take PayPal.

PayPal is an essential service to most merchants. The way they close and limit
accounts can basically determine which businesses in a specific industry are
successful. They seem to selectively enforce their own policies among
merchants. This will create monopolies or oligopolies simply through having a
functional PayPal account.

Considering this huge power they hold, it is unfortunate that their policies
are so opaque and inconsistent. A merchant is in a constant state of fear that
one day PayPal will just permanently close their account, and will have no
option to discuss or appeal the decision. It happens constantly and is the
reason many businesses eventually fold.

~~~
aboutruby
> The way they close and limit accounts can basically determine which
> businesses in a specific industry are successful

I think it used to be this way but now with the concentration of e-commerce
with Amazon and Shopify (and most other sites using Stripe / Braintree), it
seems to me that Paypal is becoming more and more irrelevant.

~~~
jkaplowitz
PayPal owns Braintree (and, relatedly, also Venmo).

~~~
aboutruby
Still those are different services (I was talking about the service becoming
irrelevant, not the company). And they probably bought Braintree to make
e-commerce companies use Paypal (Braintree is pushing everybody to integrate
Paypal into their payment methods).

------
lykr0n
Because for a silent majority of their users have no issues. I've been using
paypal for 5+ years and have never had a single issue with them.

~~~
jseliger
Like many people, though, you never have an issue till you have an issue. And
then you're screwed. [https://jakeseliger.com/2011/12/09/december-2011-links-
paypa...](https://jakeseliger.com/2011/12/09/december-2011-links-paypals-
bogusness-ribbed-tees-literary-friendships-literary-research-alex-tabarroks-
new-book-and-more/). And you will then write a piece bemoaning about how awful
Paypal actually is, and you'll be confronted by other people shrugging and
saying, "Never had a problem myself."

~~~
jdietrich
There's a very simple quid-pro-quo with Paypal - they'll let basically anyone
accept payments, they offer very strong protections to buyers, but they'll
freeze any account that smells even slightly iffy. If your transactions could
plausibly look like fraud, then there's a strong likelihood that Paypal will
freeze your account; there's an even stronger likelihood that a mainstream
merchant account issuer will politely decline your business.

Go to your bank and ask them _" I'd like to accept donations on the internet
via credit card. No, I'm not a registered charity"_ or _" I'm planning on
holding an event next year. I don't have enough funds to cover the cost of
running the event, so I need to pre-sell tickets."_ See if they offer you a
merchant account.

Paypal aren't perfect, they aren't the best fit for every business, but they
offer a genuinely unique service.

~~~
nitwit005
The issue with PayPal isn't that they freeze accounts, but that have a history
of preventing people from getting at their money for months without
justification. That is a bit too much like theft and they've had to pay to
settle related lawsuits: [https://blogs.findlaw.com/decided/2016/02/paypal-to-
settle-i...](https://blogs.findlaw.com/decided/2016/02/paypal-to-settle-
improper-account-freezing-class-action.html)

------
oblib
I've been selling on PayPal for at least 17 years now and never had a problem.
My case may be rare but I think the reason is pretty simple, whenever anyone
has requested a refund I've issued it asap, no questions asked.

PayPal makes that very easy and last time I looked they made it clear that's
what they expect.

In their defense, I don't think I can or should expect them to arbitrate a
claim for a refund and I can certainly understand why they wont.

Paypal really only has two options. They can either say the money stays with
the vendor and buyer beware, or the money always goes back to the buyer and
the vendor must deal with any issues that arise from a complaint.

I have a PayPal debit card so I also use PayPal to make purchases. I like
having that protection.

------
rossdavidh
1) PayPal is a pain sometimes, but they do usually seem to be trying (my wife
is a small business owner), and refereeing fraud disputes is a Hard Problem 2)
their old-school competition was not always great 3) my (anecdotal) impression
is that Square and Stripe both ARE doing well (marketshare-wise, anyway), so
the idea that PayPal owns this whole space is not accurate

------
marcinzm
If it's a choice between giving my CC to a random web merchant that likely
doesn't know technology (so non-trivial chance that they or their third party
payment processor are compromised) or using Paypal to pay then I know which
one I'll choose.

~~~
zeroimpl
I look it at the opposite. As a user, the only thing Paypal protects is your
credit card info. Your personal information (name and address) gets passed on
to the merchant regardless. There's zero risk to us consumers for stolen
credit card numbers, so why would I care about that? Instead, Paypal costs
more for the merchants, and I'd prefer the merchant stays in business so I'll
use their preferred payment system. Plus, why do I want Paypal keeping their
own record of everything I purchase? Thus I only use Paypal when there are no
other options.

~~~
felipelemos
> There's zero risk to us consumers for stolen credit card numbers

Care to elaborate on this?

~~~
techsupporter
If you're using a credit (NOT DEBIT) card number in the US, you have zero
liability for unauthorized and fraudulent transactions. You can even get your
credit card issuer to--usually--go to bat for you in the case of "not as
described" transactions, too. So there's theoretically no risk to you as a
buyer using a credit card because if it doesn't work out, you just tell your
credit card issuer to go get the money back.

This is, supposedly, one reason why PINs on chip cards weren't adopted widely
here. The customer can, with relative ease and usual success, reverse the
charge so what does it matter if someone makes off with a card?

The key is credit cards instead of debit. Your chargeback rights are much more
limited with a debit card and a debit card means your money has been held up,
not the card issuer's.

~~~
smelendez
I agree with you for myself but not for everyone.

Many people only have one credit card so having it temporally unavailable due
to fraud issues is a hardship. If you're not good with computers it can also
be a challenge to reconfigure all your automatic payments.

If you don't have language skills or phone skills reporting the fraud can also
be scary.

~~~
AnthonyMouse
> Many people only have one credit card so having it temporally unavailable
> due to fraud issues is a hardship.

"Get the Amazon card and get A% on your Amazon purchases." "Get the X card and
get X% on your X purchases."

The average American has 2.6 credit cards. People with less money typically
have more credit cards. So that's generally not a problem if you're making a
purchase in real time.

And they're pretty good about turning your card back on once you sort out the
issue, and will actually notify existing merchants of your new card number if
it changes, so it's basically the same level of inconvenience sorting it out
with the credit card company as sorting it out with Paypal.

------
mannykannot
Two of the first questions to ask are "could a competitor do better in this
regard?" and, if the answer is in the affirmative, "Could a competitor replace
PayPal by doing better in this regard?"

For a number of the most successful e-commerce fields (those having a large
market that can be served in an almost completely automated way), the answer
to the first is probably yes, but only in a tiny fraction of all transactions,
and only by spending a lot more on human customer service. Consequently, the
answer to the second question is probably no.

There is also the asymmetry with regard to whether PayPal leans towards the
customer or the vendor in a dispute. The former attitude tends to lubricate
commerce, while the latter applies the brake, so it is actually to the benefit
of vendors as a group, as well as customers (and also, of course, itself), if
it does the former. If customers regard PayPay as the preferable way to do
business, the pressure is on vendors to use it, while vendors who spurn it in
favor other methods risk losing business to competitors.

Because PayPal made a number of smart choices, it offers benefits to both
sides of a transaction in the vast majority of cases, and that is pretty
unusual (compare it to, for example, the credit rating agencies.) It is in a
sweet spot where it would be difficult to compete either by reducing costs or
by improving service, and that sweet spot is defined by what it is currently
technically feasible to automate. That sweet spot will move with technological
developments, and PayPal will need to adapt accordingly to stay in it.

------
leowoo91
If my understanding is right, their security measures are over-engineered even
that means losing profits. As an individual I told them (about 10 times, after
my account recovered) that I own them couple of thousand dollars. They
responded "no, you are perfectly fine" ¯\\_(ツ)_/¯

------
dpcx
Personally, I think the title of this should have been "Why is PayPal so
successful yet they treat their users like crap?"

I have had multiple people come to me asking why their PayPal payment was
rejected, or why PayPal closed their account, or myriad other questions. My
answer to them is always the same: PayPal does what PayPal wants, and (in
practice) users have little to no recourse to that fact.

------
alexandernst
IMHO PayPal offered 2 things that nobody else offered at the time they were
starting: easy & secure. Nowadays more platforms like PayPal offer the same
features, but once some company has made a big share of the market, it's
really hard for other companies to take that market share away.

~~~
marpstar
agreed. That on top of their eBay partnership (and later acquisition). I think
people forget how popular (relative to the rest of the internet) eBay was 20
years ago.

I remember getting a PayPal account in like...1999 or 2000. That's a long
time. Only within the past 5 years have processors like Stripe and Square have
really gained visibility, and they each have their own niche (developer-
friendly and small-shop-owner-friendly, respectively).

------
confiscate
because PayPal is like any marketplace platform. Demand side is always more
important than Supply side.

If there is Demand (people willing to pay), there will most likely be lots of
folks happy to Supply (merchants willing to sell).

The opposite is not true. If you ramp up Supply (add more good merchants),
it's hard to ramp up Demand to match (getting more customers).

Hence, "the customer is always right".

------
toast0
For a long time, PayPal was the fastest way to accept credit cards. You could
sign up for an account practically instantly vs finding a merchant bank
account, a credit card processor, and a third company to interface with you
and your processor via the Internet.

And the fees are at least towards the bottom of entry level fees with the
traditional method, if not lower. Nowadays there are many more options (ex
Stripe, Amazon payments, Google payments, probably more), so maybe pick the
one or two that are the least terrible, until you have enough volume to get a
better deal?

------
neonate
The quote which forms the body of the post is surprisingly interesting.

~~~
code_duck
It seems like that is the actual content of this submission.

It makes sense, too… PayPal was the only payment processor that stood out as
having their own currency and balance system. I can see why that would save
them a lot of money.

------
kalleboo
PayPal is very useful to me since my main credit card brand (JCB) is poorly
accepted abroad, but if they accept PayPal I can use it anyway. They help
debit card users with their extra layer of protection. They offer a way for
people without credit/debit cards a way to pay. And they are probably still
the fastest and easiest way (but absolutely not the cheapest) to send money
between individuals internationally. They fill in a lot of cracks in payments
that others leave open.

------
notahacker
Isn't the true answer to this _because most payment providers set up much more
onerous requirements to let people take payments via their service and /or
charge merchants more_?

When your payment services have lower bars to entry for scammers and lower
margins, you're going to flag a higher proportion of possible issues with your
merchants and not handle them as smoothly.

------
xchaotic
as a consumer PayPal works well for me - it has extra layer of insurance that
I never used but that certainly gives me 'feel good' thing. I can pay for
things in one currency with a credit card in another. Yes the exchange rate is
not ideal, but much better than a flat fee for every overseas transaction on
my otherwise cost-free credit card.

------
pier25
Because it's convenient for end users

~~~
runxel
So much this.

The convenience must never be underestimated. Paying with PayPal is just
_easy_.

------
chrischen
They treat merchants slightly less crappy than credit card companies.

------
fouc
Nice bit from the first answer:

>“That’s why we created a PayPal debit card. It’s a little counterintuitive,
but the easier you make it for people to get money out of PayPal, the less
they’ll want to do it.

Though technically the first answer didn't answer the question it seems.

------
Tigere
I think its success was initially was from first to market truly web payment
system and then the Ebay acquisition potentially has driven transaction
volumes. Almost every Ebay account has a PayPal account.

------
buboard
Maybe they caught the disease from their friends in banks

~~~
cwyers
Canada's largest Bitcoin exchange has lost $190 million in assets because its
founder died and nobody else has access to the cold storage wallets.

[https://www.ccn.com/190m-gone-how-canada-biggest-bitcoin-
exc...](https://www.ccn.com/190m-gone-how-canada-biggest-bitcoin-exchange-
lost-it)

Traditional banks do not have the "one person died/ran away to the
Bahamas/whatever and now everybody is out their deposits" problem. Banks have
other problems! Banks have loads of problems. But banks have to exist in a
world of piles and piles of regulations, and you have to realize is that most
of those regulations exist not because regulators are bastards but in response
to someone screwing over someone else in the past. Banking regulations and
banking practices have evolved for reasons, and if you don't understand those
reasons and try and invent banking from first principles like all the people
in the wild west of crypto have been trying to do, you are going to learn real
fast that there are things you did not account for.

~~~
buboard
paypal is not crypto, and in fact in europe paypal IS a bank

------
doe88
Ubiquitous.

------
oosjc9a5
As an end user I am happy PayPal treats merchants like crap.

Just think about it: unless you drink the libertarian kool-aid, you know in
any given business transaction there's a minimum of 1 (one) sucker. I'd rather
the merchant be the sucker.

~~~
paulie_a
You should tell that to my friend who routinely tells me about sending 2000
dollars of equipment just to get scammed. It's happened so many times now he
barely gets annoyed. Just a cost of doing business, getting scammed and PayPal
is complicit.

------
cosmin800
I didn't know paypal is still a thing in 2019. Stoped using it about 5 years
ago for the same reasons like in the article (high fees, random payment
rejects, high profile accounts closed for no reason). I am better with good
old credit/debit cards and now with crypto.

~~~
RandallBrown
PayPal owns Venmo, which is pretty huge now in its own right.

