
Pre-orders are scams according to Paypal - dmak
http://xenonauts.com/component/content/article/1-latest-news/121-pre-order-issues
======
brass_cannon
PayPal is horrible at providing support, documentation and resolution channels
in these type of situations. They also, at times, can appear to arbitrarily
take adverse action against certain accounts.

However, it's important to note that they hold the risk on these transactions.
If the business goes under before pre-orders can be fulfilled, and the
business doesn't have the funds to take care of all the chargebacks this event
will cause, guess who pays out? PayPal. This scenario is the exception to be
sure, but it happens with enough frequency that PayPal must implement _some_
form of risk mitigation.

There could be other factors in play here, as well. Does the business have a
poor history with other processors? Do the founders have poor credit? Maybe
not, but maybe so. It's difficult to arrive at a concrete conclusion from this
post. That being said, it's a possibility that PayPal has _not_ assessed risk
appropriately in this case. We simply can't tell.

Where PayPal could make situations like this better is by providing clear
expectations up front as to how they assess risk, and what not to do with your
account ahead of time. They could provide reasonable support to work with the
merchant and get additional metrics / a better feel for the account. They
could provide the above context to merchants when this happens. The best
merchant account providers do this. PayPal fails spectacularly at the above,
which is enough for businesses to _strongly_ consider alternatives.

~~~
dangrossman
One issue is that a lot of these developers and small businesses fail to
change their account type from Premium to Business. Doing so does not change
any fees or features, it simply attaches a business name to the account
instead of an individual's name, but it also changes the help UI and gives you
access to the business support phone line. When there's an issue with a
business account, PayPal actually calls you, in my experience. And when I call
their phone line, a human being answered right away.

------
wccrawford
I'm actually surprised that businesses till use PayPal after all the incidents
like this. They've made it incredibly clear that their policies and actions
are arbitrary and they don't care about their customers at all.

And yet, companies still use them.

I can understand customers using them... The customer almost never gets
screwed, that I've seen... But anyone with a balance is taking a risk that
it'll be seized. And if they feel like it, you won't get the money back.

Google and Amazon now both offer excellent payment systems and I've never
heard these horror stories about them. So why don't people switch?

~~~
dangrossman
> They've made it incredibly clear that their policies and actions are
> arbitrary and they don't care about their customers at all.

It seems to me that they're incredibly consistent and care about their
customers exactly as much as any other merchant account provider. This exact
story with a game developer taking preorders then having PayPal problems has
played out a half dozen times on Hacker News alone; in reality it happens
regularly. It would happen if these developers applied for a merchant account
and said they were taking long-term preorders on the application too.

The only problem with PayPal is that merchants don't expect PayPal to act like
every other processor, and have no experience dealing with the
risk/underwriting departments of banks to realize that what they're doing
would be a problem anywhere.

As far as why businesses still use PayPal? Nobody else operates in as many
countries. Nobody else has over 200 million members already signed up and
trusting the payment process. Few MOTO merchant accounts actually beat the
fees PayPal charges, especially once you have >$10,000/mo in volume, when you
actually add up all the transaction fees. And few gateways are as easy to
implement or built into as many other ecommerce products.

It makes no sense from a business standpoint not to use PayPal (which in 2011
does not mean sending someone to paypal.com to pay if they want to pay on
site). They're cheaperc, more reliable, allow you to accept all major credit
and debit cards, bank transfers, eChecks, payments from 200+ million members'
balances, and pay you your funds immediately. If you're that worried about
having a problem, have a backup in place to switch to and don't hold a PayPal
balance -- risk free.

You would think the HN community would look at PayPal and see a success story
to be shared and celebrated. They were the only significant 3rd party payment
processor to make it through the dot com bubble. There have been many
attempts. They all went out of business due to fraud. PayPal was bleeding over
$10 million a month to chargebacks and fraud at one point. They created the
software and systems to make a global 3rd party payment platform possible and
survived. Now they make possible an enormous amount of ecommerce for tens of
millions of people that would not be able to accept payments any other way.

Instead we see the occasional "horror story" that would likely happen whether
the developer was using PayPal or anyone else, and a PayPal Sucks website
that's accumulated barely 2000 threads in over a decade (what fraction of a
fraction of a percent of PayPal users is that?), and certain vocal people pile
on the "why would anyone ever use PayPal" bandwagon...

~~~
InclinedPlane
To add to this, there is a false perception of paypal's actions due to
excessive visibility of one half of the equation. Paypal has to deal with
fraud, phishing, money laundering, international organized crime, etc.
Overwhelmingly every aspect of that is hidden from the public. No fraudster is
going to make a post on reddit of how paypal shut them down. And paypal isn't
going to publicize it because of legal issues. So all we have are these little
glimpses of people who have no experience with merchant accounts being
affected by these anti-fraud policies and everyone sympathizes because somehow
it's become normal to assume that worldwide digital money transfers should be
hassle-free and inexpensive.

Paypal isn't perfect, but the biggest reason why so many people are upset with
it is because there isn't a suitable substitute.

------
mgkimsal
I'm not sure paypal is _that_ much different from other merchant processors. I
spoke to several last year, and they were all fine and dandy until I told them
I take payment for 12 month subscriptions in advance (jsmag.com and
groovymag.com). I also take payments for indieconf.com, an annual tech
conference.

3 processors told me they couldn't work with me at all. A couple said I'd need
to go to underwriting, and I'd pay a higher fee.

I asked why, and was told "possibility for chargebacks is high". I then said
something like "why can a company like Expedia charge me for a ticket 11
months in advance for $2000, but you won't let me sell a ticket to a
conference 3 months in advance?". "Companies like Expedia have millions in
reserve to cover chargebacks" was the answer I got.

I could have received a merchant account through any of those companies by
lying about the nature of what I was selling, but had they found out, my
account may have been suspended or I may have had a certain amount subject to
reserve holding.

I don't see the behaviour of paypal as all that different to most other
processors, except that most people don't tell paypal ahead of time what
they'll be selling.

I have a merchant account through BoA - got to meet with a real person who
answered questions, asked me some, pushed things through underwriting, and it
all went OK, but I still run nearly everything through paypal and google
checkout right now still - both paypal and google checkout have pretty strong
name recognition and people are generally comfortable with them so far.

------
michaelschade
They should use Stripe: <https://stripe.com/>

We were able to get our product off the ground right away with Stripe (we were
in their beta before they opened up to all). It's extremely quick to
implement, their APIs are well-documented, and I doubt they'd prove bothersome
like PayPal is being here. In my experiences, their support actually responds
quickly and goes above and beyond to help.

If someone from Xenonauts is reading this: let me know if you need any help
implementing Stripe if you decide to go that route. You can tweet me at
@michaelschade or drop me a note at hn [-at: @-] mschade [-dot: .-] me and
I'll provide whatever advice I can. I'll also see about sending this
suggestion through their site in case they're not HN readers.

 _Edit: found their email and sent through there too. Hopefully they can get
the issue resolved–I feel bad for them not being able to accept orders right
now, that must be a really upsetting position to be in._

~~~
darylteo
I would love to use stripe, but am not in the US.

Any ideas?

~~~
michaelschade
They're unfortunately not operating outside of the US yet (at least, not
publicly). From what I hear, they're anxious to make this possible. Your best
bet is probably to follow them on Twitter (<https://twitter.com/#!/stripe>) to
find out when they announce international support.

 _Edit: You can asked to be notified when your specific country is
available:<https://stripe.com/global> _

------
apinstein
If you read any merchant agreement for credit card companies, you will see
that you are technically not allowed to charge someone until you ship a
product.

Charging someone before you have actually "delivered" the good is a completely
different level of risk than charging someone for something you've already
delivered. The supplier might not ship, the manufacturer might not ship, or
you could be outright scamming people.

This is not a defense of PayPal, but just explaining why money processors do
not typically allow you to get your money for pre-orders. There's a huge risk
that it blows up in their faces.

~~~
cdh
I wonder if this requirement can be sidestepped by shipping the customer
something, but just not the actual item being pre-ordered. For example,
emailing them a redeemable code or physically delivering a voucher.

If not, it seems like you could go even further and bundle something small but
tangible with each sale. For a game pre-order, maybe access to a demo or
access to private forums?

~~~
apinstein
That sounds like fraud to me.

I would think that you could negotiate this with a merchant bank. For instance
service companies often take deposits and kickstarter clearly charges before
shipment. But in both cases they probably have agreement from their processor
for their business model. I think having to post reserves is one such model
for when you are doing riskier transactions.

But don't think that merchant bank won't cut you off if you violate the terms
of your agreement.

However in practice merchant banks seem very lax compared to PayPal.

------
njloof
Shoulda used Kickstarter. Preorders like this are their bread and butter.

~~~
joshaidan
I was thinking the same.

------
jfruh
Can someone explain what specifically PayPal doesn't like about pre-orders? Is
there something specific in their terms of service that doing pre-orders
violates? I'm seriously considering a future project that will involve pre-
orders so it seems important to get this clarified...

~~~
michaelschade
It probably has to due with the risk involved with how to handle chargebacks
if the company doesn't fulfill their promise of the product, and PayPal
assuming liability if the company doesn't have sufficient funds in that case.

There are plenty of horror stories around pre-orders on PayPal. I'm not sure
how Stripe handles this specifically, but they may be a good alternative:
<https://stripe.com/> (we use and love them).

~~~
saurik
I would love if someone from Stripe talked about how they handled this sort of
stuff. Everyone keeps saying "I use Stripe and love them", but the process
people describe of signing up seems to be begging people to scam them.

There are actually good reasons why merchant accounts work the way that they
do, and Stripe doesn't provide any argument for why they don't: until they do,
I can't imagine trusting them for anything important at my business.

I mean, they are almost sketchy when it comes to talking about "when bad
things happen"; example: when chargebacks happen (and they do happen: I get
one every couple days), can I easily (as in: no human interaction) tie it to
an individual payment? The only mentions on their entire website about
chargebacks are in the painfully informal FAQ/pricing (that it costs $15), and
in their terms of service (which indicates that the $15 doesn't include
mediation, which I'm pretty certain PayPal's $20 does).

The first thing I think, of course, is "they charge more, duh": if you do any
kind of volume at all, or are involved in small transactions, they are a /lot/
more expensive than PayPal: I'd easily be paying them hundreds of thousands of
dollars a year for the privilege of not spending a few hours on the phone
negotiating a merchant account.

(For those not looking at their pricing, their fixed fee is PayPal's worst
case fee; PayPal discounts 1-2% from that for volume, and supports a
fundamentally better fee schedule for payments under $12: 5.0%+$0.05 vs.
2.9%+$0.30. Unless you are handling small numbers of transactions all over
$12, Stripe is going to burn you on fees.)

However, when I think through "where does the risk of credit fraud mostly
occur", I'd imagine it would be reasonable sized transactions (trying to
launder tons of money $1 at a time will get noticed pretty quickly), and I'd
imagine the merchant fraud is mostly small volume (as if you actually have a
functional business, you are able to easily able to cover the risks).

So yeah: I just don't get it... is the Stripe 7 day hold enough? (PayPal
doesn't have any hold for most businesses.) I certainly wouldn't touch it over
PayPal if the only reason is "PayPal seems overly cautious": Stripe simply
seems to be "asking for it".

(And this is just looking at normal chargebacks: pre-orders are a whole
different ballgame, and if Stripe doesn't have a policy forbidding them then
they will probably be out of business, seemingly out of nowhere, in a few
months.)

~~~
pc
Hi Saurik,

First off, we have more detail about the chargeback procedure at
<https://stripe.com/help/chargebacks>. (The short answer to your question
about whether or not you can tie a chargeback to an individual charge without
human interaction is "yes".) We don't currently link to this page in the FAQ,
but we should; we'll get that fixed.

To your more general question as to how we (and our fraud policies) differ
from standard merchant accounts: there's no simple answer. There are a couple
of things probably worth pointing out, though:

\- First off, we should acknowledge that in this particular situation, it's
extremely unlikely that Xenonauts is a scam. There are certainly valid
questions around "how tractable is it to distinguish such non-scams from
actual scams", but the fact remains: in this specific case, what has happened
is a bad outcome for the world. Legitimate, trustworthy individuals are being
prevented from getting paid.

\- Secondly, we're not as radically different as you might think. We use many
of the same fraud screening measures that traditional merchant account
providers do. We work directly with the same banks and processors. We've
worked with the same consultants. It's not the case that merchant account
providers use a bevy of effective fraud screening measures which we have now
discarded. In reality, most of our friction-elimination is in the removal of
information requirements with weak fraud signaling value, and the fixing of
senselessly inefficient processes. (You don't fax forms to Stripe.) There is
not much fraud screening a traditional merchant account provider does that we
can't do. (And there's certainly plenty that we do that they _don't_ do.)

\- While PayPal is definitely sometimes cheaper, this is the case more rarely
than you might think. PayPal has a lot of fine print that has a bearing on the
overall cost.

We're acutely aware of the challenges of online payment processing. Stripe has
actually been handling production transactions for over 18 months. Peter and
Elon, two of PayPal's founders, are investors. (Trust me; they remain
viscerally aware of just how bad it can get.)

None of this is -- or can be -- a proof of how Stripe is invulnerable to
fraud. And, of course, we're not. But I can assure you that we get it. We're
not oblivious to the challenges, the mechanisms used by others, and their
successes and failings.

Happy to discuss more over email: I'm patrick@stripe.com.

~~~
saurik
1) Thank you: I did not find that link while doing a "site:stripe.com
chargeback" search on Google. That said, nothing on that page helps me
automate the process excepting if I'm willing to parse an as-yet-unknown
e-mail message that likely does not have a permanent fixed format.

Really, though: why is there no mention at all of chargebacks on the API
definition page? PayPal's APIs in this regard are not perfect (I've actually
filed some bugs against a few of the more horrendous corner cases recently),
but at least they document how chargebacks work, providing an API-driven,
machine-automatable process for the entire dispute, reversal, and chargeback
set of features.

2) Correct, Xenonauts is not a "scam", it is simply a "bad investment": I used
to be in the game development business (<http://www.cocommand.com/>), and most
of these projects don't ever actually happen; of those that do, most do not
succeed.

To be clear, my wording surrounding "scam" was not about this situation in
particular: it is that allowing pre-orders like this is asking for a giant
scam to be perpetrated, as described by some of the other posters here on HN;
you just accept a ton of payments, "spend" it all, and walk away: you don't
have the money anymore, so it will be very difficult for PayPal to get it
back. That said, even without "scams", this is still a serious "risk".

Remember, this game is not done: the website claims that they are raising
money for the development. In essence, they are using pre-orders like
Kickstarter. Even worse, their backup plan if they fail is that the money will
be refundable if they haven't finished by 2012, despite being clear that they
intend to spend the money before then (and we are not talking chump change:
they have done $54k in presales).

If Stripe is willing to accept clients like this, that means that they are
willing to foot the risk for these kinds of companies: in essence, you are
acting as a financing option, akin to someone getting a credit card and taking
out their entire credit line in cash. Even if most projects like this succeed
(incredibly unlikely), your 2.9%+$0.30 margin is not high enough to deal with
these companies going belly up.

This is why PayPal is actually /correct/ for not allowing these sorts of deals
to early stage companies (ones that don't have enough money in the bank, or
other assets, to cover any possible risks). I went through their underwriting,
and it made me feel happy that they were covering their asses: /I can trust
them/.

So, I guess what I'm asking here, is: why is it a good thing for my payment
processer to be helping early stage startups do debt-backed financing? You say
"trustworthy individuals are being prevented from being paid", but whether
they are trustworthy or not is irrelevant to whether they are a "reasonable
risk": would a bank finance this? Probably not.

3) I would actually love to know what these fine print situations are (I run
tons of money through them, and have for years: as far as I know I understand
all of their fees ;P); mind going over a few of them here?

So far there have been no surprises: 1% extra for cross-border transactions,
2% overhead on currency conversions, $20 chargebacks, and 2.9%+$0.30 with a
discount on volume (I am down to 2.2%+$0.30 currently). I normally am doing
micropayments, at 5.0%+$0.05, which is much lower for the large number of $1
transactions I am involved with.

The one thing I can imagine is (as Stripe doesn't mention it at all), that
your international payments (including currency conversion) might have a lower
(or even no) overhead, but the majority of those fees are actually paid "on
the other end", and the remainder end up being swamped by the discount to 2.2%
(and, in my particular case, are orders of magnitude less than the
micropayments difference).

------
UrbanRonin
While I certainly don't care for PayPal's practices, I'm also not a fan of
pre-orders. Specifically, I don't think anyone should ever be charged for
something, even a partial payment, before it's delivered/shipped. In fact, I
think there are regulations that payment not be captured until merchandise is
shipped. If you're just authorizing the cost of the merchandise, and then
waiting to capture after shipping, I think that's fine, but does PayPal allow
you to do that?

------
dhughes
Someone at Reddit posted about having odd problems at PayPal where they are
holding his money for 90 days and got a terse response from their help line.

[http://www.reddit.com/r/reddit.com/comments/l4q2y/please_hel...](http://www.reddit.com/r/reddit.com/comments/l4q2y/please_help_me_expose_this_newest_paypal_fraud/)

------
aespinoza
This is the second news related to Paypal disappointments I have seen today. I
am taking this as a sign, and for our project we are going to be removing
support for payments via Paypal.

The Paypal related discussion is here:
<http://news.ycombinator.com/item?id=3087322>

~~~
lurker19
Very superstitious.

~~~
aespinoza
"Superstition is a credulous belief or notion, not based on reason or
knowledge."

It would be superstition if I've done it without seeing the problems other
people have. Those two articles, actually describe real experiences.
Experience defeats anything else.

I choose to believe those two articles, and not because I read them on here,
because they are not the only bad experiences I have heard regarding PayPal.
In fact I have never heard a good review of their service.

------
TheAmazingIdiot
I'm going to be somewhat direct here.

I allege that what Paypal is doing here (holding funds over 10 days) is
illegal.

In order to do what Paypal does in the USA, you need licensure. They point out
that they are not a bank. Indeed, they aren't: in many states they are
classified as a money transmitter. In 8 states, they have no license to
operate.#1

What is this money transmitter stuff? In essence, the law in all the locales I
have checked (I have not gone through every one), indicate only a short
holding period (5-15 days) and only allow holding of money of a known crime.

So indeed what they do is absolutely fraudulent. In other words, if you have a
patent troll corporation with many lawyers, target Paypal for their illegal
behavior.

#1 Source: <https://www.paypal-media.com/state_licenses.cfm>

~~~
OstiaAntica
This is a very anti-hacker post, and an argument for the broken status quo. I
also seriously doubt it is accurate.

PayPal has disintermediated anti-competitive banking laws, providing millions
with low-cost quasi-banking. They should be celebrated, not attacked.

~~~
TheAmazingIdiot
Theft of money from startups and non-for-profits is worse in my book. I use
the direct word theft, because they take money that is out of the bounds of
most money transmitter licenses.

And considering what is taught in business school, is to quantify risk. If you
trigger the unknown red flags, which software makers and other starting
businesses tend to do, you risk losing access to your money for at least 180
days (up to forever).

How do you quantify that kind of risk?

California, re 1841: [http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin...](http://www.leginfo.ca.gov/cgi-
bin/displaycode?section=fin&group=01001-02000&file=1840-1846)

And they are not even licensed to _operate_ in my state of Indiana.

IC 28-8-4-20 (a) A person may not engage in the business of money transmission
without a license required by this chapter. # hence all Paypal business in
Indiana is illegal.

------
reaktivo
bitcoins.

