

“Is PayPal good for your microISV business?” A short PayPal horror story - sadiq
http://blog.apparentsoft.com/business/124/is-paypal-good-for-your-microisv-business-a-short-paypal-horror-story/

======
ErrantX
I've had similar problems with Paypal accounts in the past too.

Although it's an absolute joke I have found they only respond to formal legal
threats. At one point they limited my account, with a couple of grand in it,
in the same way (nothing in, nothing out, wait 180 days). So I sent them a
letter basically saying "release my money or your staring down the barrel of a
legal gun" and listed a whole load of lost earnings, recompense etc. I "would
be seeking".

For the most part it was empty threats (I could probably have sued - but had
no cash to do so) but someone actually rang me the day it arrived; never
mentioned the letter but "a standard review of closed cases highlighted mine
for reopening"...

It's idiotic.

~~~
ajross
It's actually not so terribly dumb. The point here is to prevent fraud. People
who take the time to credibly threaten legal action are, I strongly suspect,
much less likely to be engaged in fraud. Real criminals would just walk away
from the cash (lest they attract more attention) and put up another site on
another PayPal account.

It's more than just squeaky wheel syndrome -- PayPal is using the context of
your communication to determine who you are.

Whether that's ethical or not is a separate question. But it seems logical to
me.

~~~
noodle
sure, but it also cripples small businesses who don't really know any better.
not every small-time merchant will have the wits about them to present legal
threats.

~~~
jrockway
Dunno, a legal threat is the first thing that came to my mind. I don't see a
situation where someone collects money from your customers and refuses to give
it to you any different from someone walking into your home, smashing your
piggy bank, and taking your money. The second case is obviously a crime, so it
follows that the first is too. When you are a victim of a crime, negotiating
with the criminal seems like a bad idea. Getting a lawyer (or the cops)
involved seems like a good idea.

So if I lost my "appeal" at PayPal, I would involve the real legal system,
instead of their made up one.

(OTOH, if the OP got all his money back, then he was not necessarily wronged.
Banks can refuse to do business with companies they are unsure about.)

~~~
ajross
Not to nit too much (because I think this is exactly the right thing to do)
but threatening to sue someone isn't the same thing as accusing them of a
crime. If someone is tried for larceny, the point is that they are punished by
the state to deter future crimes. The goal is not to return the stolen
property to the owner; that's what a civil suit is for.

And indeed, in the business world this happens all the time. Companies delay
and defer payments to each other all the time trying to maximize profits. The
situation usually comes to equilibrium without court action (e.g. "pay me for
the last shipment or you won't get the next"), but it's really common.
"Payment up front" is a consumer thing. B2B transactions are a whole lot more
complicated.

------
robk
Time and time again I've heard these PayPal horror stories (and at
www.paypalsucks.com). I am very leery of PayPal and make it a point to always
transfer any balance out immediately, as their freezes seem like a nightmare
to deal with. I wish Google Checkout had a more compelling product, and that
there were a better solution for C2C sales.

~~~
josefresco
I've heard horror story after horror story and yet I've never had any issues
with PayPal. I've stored money there, used their Visa/debit cart and even
opted into their money market option and made some money (off my money) for
several years.

Factoring in anecdotal evidence like this (or mine) always has risks.

I'm sure you could find someone local who absolutely hates the bank you choose
to have accounts with, but that doesn't necessarily mean you'll have issues.

~~~
Uchikoma
I've read horror story after horror story of houses burned down.

I've been living in one for decades without any problems.

Factoring in anecdotal evidence like this (or mine) always has risks.

~~~
memetichazard
I've heard those stories too. That's why we have fire alarms.

When does the plural of anecdote become data? At least, there will be a point
where we've got enough data points to start taking precautions.

------
dangrover
I've processed about $80K in transactions with PayPal with my microISV with no
problems. And I think they're better than all the other solutions. But I never
keep a balance because I'm afraid of this sort of thing.

Something like this happened with a charity drive at SomethingAwful:
[http://www.somethingawful.com/d/news/paypal-fiasco-
summary.p...](http://www.somethingawful.com/d/news/paypal-fiasco-summary.php)

There's apparently no way to quickly talk to an intelligent person with the
knowledge and authority to resolve a situation like this should one come up.
It seems like with the fees they take out they could do a lot better.

~~~
bcl
Same here. I've been using them for years with no problems. These stories
worry me enough that I do an annual review of the other options out there --
but none of them are as good as PayPal. I also don't keep funds in my PP
account, as well as transfer them out of the associated bank account ASAP
since there is the potential that they could drain that as well.

------
ladyada
You may be able to avoid the biggest problem - which is money 'trapped' in the
account by depositing all your funds, daily, into your bank account. Its
called Daily Sweep. Wait, you've never heard of it? Oh yes, thats because not
only is it -not- advertised or mentioned anywhere on the site but to activate
the -option- it you need to call up on the phone!

But its quite easy to do once you know about it. With your biz paypal account
call up and request activation of Daily Sweep. If the first person says they
dont know what you mean keep asking, eventually someone will admit it (only
took us 2 tries!) and set up the option. Now in your account activate it under
your prefs.

Every day, the earnings will be Swept into your bank account, just like a
Merchant Account. No guarantees they wont try to, say, pull money from your
bank account tho...

~~~
jrockway
Yes, what is to stop PayPal from requesting all the funds back from your
linked account? Can you ask your bank to prevent this?

~~~
HeyLaughingBoy
Bank accounts are free. I have my personal account, my business account and a
"throwaway" account I use only for PayPal funds. When my PayPal balance gets
over a few hundred $$, I manually transfer to the throwaway account and then
to the business account. They can't touch the business account because (a)
they don't know about it and (b) they have no authorization to touch it, so if
they somehow managed to withdraw funds, I'd be at the local branch the next
day screaming at the bank manager.

Make no bones about it, banks take unauthorized withdrawals very seriously!

------
bdfh42
I suspect that PayPal is the payment processor of choice for all crooks and
scammers. Thus, choosing them as your payment processor is risking your
business reputation - they will always default to treating their customers
with suspicion and if they have your cash in their coffers then they will sit
on it given any excuse to be "suspicious" - that's the business model they
operate within.

While the cost of processing payments is an issue (particularly with otherwise
low cost software downloads) it is important to link your business to partners
with a solid reputation for probity and good service.

~~~
ig1
The reason that PayPal survived and is still around is because they took a
very risk averse attitude and pro-actively try to combat fraud. Most of their
competitors didn't fail because of lack of customers, they failed because they
couldn't handle the fraud.

If you want to get a more detailed view of the issues have a read of the
interview Max Levchin gave to JL in Founders at Work.

~~~
pierrefar
There is a big difference between aggressive fraud protection and pooping on
your customers. Being polite and handling mistakes intelligently doesn't mean
they can't combat fraud effectively.

------
swombat
The way I see it, for something as critical as payment infrastructure, it is
simply not an option to go with someone who doesn't have a phone number where
you can speak to a real, intelligent person who can act beyond the confines of
a few support call scripts.

This is largely why we use a merchant account with a real bank (which has a
dedicated account manager), and a gateway with quality support staff that
always pick up the phone.

~~~
bmm6o
Absolutely. PayPal is fine right up until the point when they cut you off, and
then you have virtually no recourse. A similar thing happened to me (though I
was dealing in physical goods), and I was never able to get it straightened
out. They kept asking for more info, I kept faxing it to them; it was never
really clear to me what specifically they found suspicious or what I had to do
to allay their fears. Having to interact by fax with people who have no
authority or incentive to resolve the matter is awful; I think they hope you
just give up.

------
jasonlbaptiste
I've dealt with this before, and it's absolutely ridiculous. Paypal should not
be in business or allowed to operate. They go around acting as if they are
"bank like", but in actual reality they do not have to adhere to bank
standards. This means they can do things like this. I understand there are a
lot of scammers and fraudsters out there. If they need to do something like
this, they cannot make it a multiweek process that will most likely end up in
you waiting 180 days for your money. They also need better communication with
those that have had their accounts frozen. Using their system is utterly
ridiculous and not being able to talk to the actual person making a decision
is even worse. We're talking rightfully earned money that people rely upon to
make a living, you can't screw around with a person's living like this. I see
all these Paypal developer conferences and "developers love paypal" promotion
going on, and I call complete fucking horseshit on it. There's no way a single
dev or software company should go near your service with service+rules like
this in place.

~~~
SteveC
"developers love paypal"

Do they? Because I've never met one that does.

------
scotty79
I am really glad that I've read this. I plan to build a bit unorthodox website
and I was intending to use PayPal for money transfers between the users. After
reading this I am almost sure that my PayPal account would get suspended at
any decent amount of popularity. Can you point out some other alternatives? I
was thinking about money bookers.

~~~
Vivtek
With Moneybookers, you'll have the problem that they'll be flagged by US banks
as a gambling site. Repeatedly. One of my customers in Europe uses
Moneybookers to pay me, because their fees are really quite attractive in
comparison to PayPal. But because Moneybookers are in the UK and we all know
what a gambling haven the UK is, I have to keep a constant eye on my bank.

(But my bank bounces every other payment to joker.com for the same reason.
Amateurs.)

~~~
scotty79
Does your bank reject payments to your account done with moneybookers and you
have to explicitly remind your bank that you want those payments and then
everything is ok?

~~~
Vivtek
Occasionally. I have to admit it hasn't happened in a while, but I don't use
moneybookers that often.

------
jsteele
Sounds a lot like the various AdSense horror stories. A recent one:
[http://groups.google.com/group/android-
discuss/browse_thread...](http://groups.google.com/group/android-
discuss/browse_thread/thread/9f8fea67eab535c7/df44a3d3f59b0d01)

~~~
jplewicke
It's apparently very hard to scale any exchange system to exclude fraud and
prevent false positives in a humane manner. AdSense, Paypal, Google Checkout,
eGold, and Prosper.com have all failed to figure out how to do it reliably.
You can throw fancy machine-learning techniques at the problem and isolate
most of the unusual activity, but the problem then is how you filter that
between fraudsters and the genuine good guys.

The basic problem is that if you're a low-margin Internet-scale transactional
business, the marginal cost of distinguishing fraud from unusual non-fraud is
higher than the marginal benefit from letting the transactions through. And if
you're Paypal and you get the float on a bunch of locked funds without the
need to following banking regulations, it's definitely not in your best
interest to do.

------
dfischer
What's an alternative to PayPal then?

~~~
chaosmachine
Google Checkout, Amazon Payments, 2Checkout, Authorize.net, and other cc
processors. Or get a merchant account.

~~~
idan
Pretty much every big payment processor is viable so long as you have a US
Bank account into which you withdraw your sales revenue—except a lot of us
live outside of Bushland and thus the only option is either using a local
bank/merchant account (expensive, complex, slow-moving, don't understand new
technology, poor interface, etc) or paypal.

ApparentSoft is a developer based in Israel, like me. They probably opted to
use PayPal because PayPal recently opened up the ability to withdraw directly
to an Israeli Bank account -- something which all the ohter entrants on this
list cannot do (with the possible exception of 2CO, haven't looked at them).

~~~
sorbits
2CO can do international wire transfers.

I use them as a secondary account because some of my customers refuse to use
PayPal, and 2CO really sucks compared to PayPal. They haven’t frozen my
account, but their UI is crap, their fees are higher, there is delay before
payment appears in my account, they keep a “reserve” when they do payouts,
etc.

------
tallanvor
I've gotten to the point where I refuse to use PayPal for buying or selling
products. --I can't even remember the last time I used them to do anything
where it wasn't a hassle.

I suspect they probably see much higher percentages of fraud than other
payment processors, and as such have decided they'd rather shut down accounts
and reverse payments without warning rather than actually trying to detect and
prevent fraud in the first place.

~~~
rimantas
_> I can't even remember the last time I used them to do anything where it
wasn't a hassle._

I can. It had never been a hassle to me. If there are several payment options
available I choose paypal—it knows my shipping address and saves me from
filling the same borring form again.

------
jhancock
Description of high-risk third-party payment aggregation and why its not just
PayPal that has a problem with it:

[http://www.braintreepaymentsolutions.com/blog/high-risk-
mech...](http://www.braintreepaymentsolutions.com/blog/high-risk-mechant-
account-third-party-payments-aggregation/)

------
brandon272
While I find PayPal's rates reasonably attractive and their interface to be...
uhh... better than most other merchant account or payment processing sites out
there, I just don't think I can trust them to handle payment processing for me
on a business scale.

I understand as much as the next guy that a company like PayPal needs to take
fraud seriously. But why not work with your customers so that they can prove
themselves to be legitimate businesses with legitimate intentions? I know I'd
be more than happy to provide PayPal with whatever information they need in
order to ensure uninterrupted service, and to prevent my account from being
randomly "suspended" one day without notice or without reason.

They should get their act together and make quality customer care available
for all of their Pro customers.

------
pkrumins
Wondering if anyone has a success story with PayPal?

~~~
eli
It's been working pretty good for me.

Maybe I got lucky -- I got an excellent account rep when signing up for the
API. She gave me a direct number to her desk and whenever I have a problem I
call her and she fixes it.

I actually sent an email to PayPal's Executive Customer Service department
telling them how great she was and how there probably wouldn't be so many
paypal horror stories if they had more reps like her... and they wrote back
with a generic apology for the problems I'd encountered.

------
chrischen
I had a similar encounter of false accusation on Sedo.com trying to sell a
domain. They apparently had "definitive" evidence of shilling and closed the
sale. When I asked what that evidence was, they said the buyer had the same
name as I did. Maybe it was bad luck, but who'd be dumb enough to shill with
his own name anyways. It's not so much that I lost the sale that bothers me,
but that the lady in Germany still thinks I was trying to shill. Perhaps I
should have threatened to pursue legal action?

------
shin_lao
Do business with your bank. You have a person you meet face to face whenever
you need and who's going to crawl within the organization to fix that kind of
problem.

What PayPal did is pretty logical given the number of fraud they get everyday.
e-mail has got no legal value and from the outside what they did wasn't very
rigorous.

~~~
adnam
> e-mail has got no legal value

How's that?

~~~
shin_lao
No signature.

~~~
sailormoon
.. only an electronic paper trail a mile long.

Email is absolutely of legal value.

~~~
shin_lao
I'd like you to exhibit cases where e-mail was ok to grant a copyright
permission.

My lawyers always told me the following: everything formal must be fax, snail
mail or signed with an electronic certificate (I declare and pay my taxes with
the later for example).

Copyright handover is not just "ok we're going to buy you 2 computers" kind of
e-mail.

~~~
eli
And I'd like you to point out the law that says all contracts have to be
written. With a few specific exceptions, they don't.

Sure, you _should_ get them in writing and signed to cover your ass, but an
email contract is still perfectly valid in most cases. Just like a "handshake
agreement" can be legally binding.

~~~
shin_lao
Which country are you referring to? In France this is not the case. If there
is a disagreement and nothing is written down you're screwed.

edit: I've checked up a bit. There is such a thing as "oral contract" in
French law but it's very strict and limited to certain transactions.

The legal definition of contract doesn't say if it must be written or not
([http://www.legifrance.gouv.fr/affichCodeArticle.do?cidTexte=...](http://www.legifrance.gouv.fr/affichCodeArticle.do?cidTexte=LEGITEXT000006070721&idArticle=LEGIARTI000006436086&dateTexte=20091217)).

It's extremely rare (read: never) to start a work without a signed fax or
letter which basically says "ok, go ahead for that price".

That goes from a plumber who's going to fix your sink to me paying a designer
to work on a web site. I guess in some cases an e-mail has got a valid proof,
but it depends on the price of the transaction. You can confirm a 1,000 € job
by e-mail, but I guess a 100,000 € transaction needs more.

What you need is a proof that the agreement occurred between the two entities.

When giving someone the right to sell your product, I'm quite certain than an
oral agreement or even an e-mail is insufficient.

A printed e-mail sent by fax, let's just not talk about it. ;)

~~~
grayprog
The point with this case is that the first 2 reps told me it's ok to fax
emails. And then they closed the account.

And when I faxed signed paperes nobody wanted to look at them. Although they
said "go ahead" and send.

The real problem is that the support personnel are not the one making
decisions, are not telling the same, and you can't talk to the people who
really do decide.

Plus, their action of closing my ability to receive payment (and provide
service to my customers) without any warning is an extremely aggressive
sanction, for no reason.

Let's close his account and then see if he was doing legit business. In the
mean time, "we're sorry for any inconvenience this may caused you". When
you're doing a 2-week promotion, getting an account closed even for a week for
"inspection" is not an option. After 2 weeks we were back to normal low
activity, without the bundle.

~~~
shin_lao
I'm sorry for your problem, it shows that they are not well organized, but as
I said in my first comment the best is to work with your bank for online
payment.

You can offer paypal as an additional payment system, but really, work with
your bank. You know the guy/girl there, and they care more about your business
than paypal, because your good business means money in their vaults.

------
JereCoh
This happened to my company earlier this month. The categorization, not any
particular activity, of my business tripped one of PayPal's safety triggers.
PayPal was unapologetic and wildly unhelpful in resolving the issue (that
didn't exist!) quickly.

------
jmonegro
I once had my PayPal account "temporarily" suspended under similar
circumstances. Usually, all you have to do is fax them/upload copies of
documents verifying your identity and you should be set within a week, if
you're persistent and diligent.

~~~
eam
Did you not read the entire story?

~~~
jmonegro
I did, which is why I said "usually". This happened to me twice, and I've
never had to go through so much trouble. Furthermore, as to letting PayPal
know about a sale, it _is_ possible.

The first time I had an incident was because of a sale I ran, and PayPal
limited the account I got it fixed in a week, just in time for a sale of
another product. This time, I emailes PayPal telling them about the previous
story and asking if there would be a problem. There was, and my account got
limited for a second time.

What I did then was, instead of submitting documents, I uploaded a screenshot
of my email correspondence with PayPal, and their response. One or two days
later, my account was free.

------
agbell
I have heard that if you notify paypal you may see a big spike, then when it
gets auto-flagged, it will quickly be un flagged when they see the note on
your file.

------
flashingpumpkin
Very disturbing and frightening read - especially because I've stumbled such
horror stories about PayPal quite a lot the last couple of months.

------
aresant
Welcome to your traditional merchant account.

Processors are all powerful.

Consumers are always right.

Businesses are expendable . . .

despite providing the fundamental opportunity for the processors to exist.

------
zackattack
This is why I use Amazon Payments. Unfortunately, their documentation is
awful, but at least it's Amazon. They have a pride and reputation. I've never
had a problem with them.

