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Why Is PayPal So Successful Yet They Treat Merchants Like Crap? (capitalandgrowth.org)
103 points by jkuria 82 days ago | hide | past | web | favorite | 90 comments

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.

I'm a PayPal merchant. I manufacture and sell a little gadget for a fairly esoteric and non computer related hobby.

PayPal is the only payment service that doesn't require me to write any code, or to maintain a server that can run server-side code. It also doesn't require me to store any customer information on a server. I download a transaction history in PDF format every year for my taxes, and I delete the customer information, just leaving the dollar amounts. I don't want your steenkin personal info. Hack away, there's nothing to steal. ;-)

Oddly enough, I'm a pretty good programmer and I love to write code, but also as a lone wolf, I think maintaining a secure website against adversaries who are smarter than me, is over my head. And it's not my business. I kinda started this business as an escape from code.

There are a few customers who really really don't like PP, so I have to offer an "out" and for my little business, they're OK with sending a money order. Oddly enough there is a strong correlation between those customers, and customers who want to talk with me on the phone. There will always be a few people who just have not gotten into the whole computer thing.

It is quite possible that I'm lucky to be in a little market niche where nothing ever goes wrong with orders. My product is a tangible physical deliverable. I am quick to refund if someone is unhappy.

Took the words out of my mouth. I'd love a contingency, but to set up stripe I'd need some server (or "server less" function), write my own shopping cart, write my own order fulfilment system, write a shipping integration, and even then it wouldn't be as trusted as PayPal. Or, I could pay some company $20 a month to do it for me. Just doesn't make sense. I cannot understand why stripe does not have a competing solution for this.

There are a bunch of invoicing/simple billing Stripe integrations with third parties. I don't know why they don't offer a baked-in product for this and/or promote their brand to consumers more.


I found an open source solution that had all of those things you mentioned.

I am interested now...what is thou product!?

Several payment gateways offer a fully hosted payment form or cart. It can be as simple as "fill in the form to set a price, and you get a magic link you can put on your website." You need no server-side code because the customer transitions to the gateway's site to pay.

I've actually been looking for such a thing, but haven't found it... maybe the competitors to PP have a public awareness problem.

Even old school Authorize.net has a “simple checkout” feature that does exactly what you described. The admin UI is straight from 1998, but it works.

>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%.

I was a substantial PP merchant (millions of $ per year) and it was a horrible experience. We used PP and another, traditional, banking/card payment service and PP was far worse. So many people screwed us because they knew PP would just refund. PP regularly locked our money for months (we bought and sold product via PP so could not take all the money out). They threat merchants like shit generally, only protect the consumer. Many of which are just scammers using PP to get free product. We really only had a fraction of chargebacks on cards of what we had on PP and as a bonus, with those chargebacks at least noone could block our funds for months like PP did.

PayPal does NOT go to extreme lengths to avoid fraudulent transactions, paypal is actually really bad at it. PayPal doesn't even offer an option for 3D Secure, and that's insane.

Seller security is also shit for digital goods and services. PayPal is full of abuse with customers creating fake claims in order to get services for free. This is getting abused more and more. Worst case scenario if you create a fake claim for digital goods or a service on PayPal is usually that you don't get the money back.

It's good when it works, but they need to remove or fix the claim functionality, and allow 3D Secure to be used.

I definetly had problems with paylal related to chargebacks and fraudulent transactions for a ecommerce business before. Every single time paypal was either unhelpful or sided with customer

Used to have PayPal for my shed manufacturing business. Having a customer order a building and then request a refund a week later for whatever reason hit us with transaction fees both ways, often for several hundred dollars per customer.

Their payment model doesn't work for contractual transactions.

How do you withdraw with TransferWise?

Sign up for their borderless account: 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.)

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.

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

Set up a Transferwise US$ borderless account, and then add it as a bank account to paypal using the ACH routing number. Then you can withdraw from us$ paypal to us$ transferwise (zero fees), then transfer from transferwise to your local bank account (roughly 0.5% forex fee).

Basically PayPal takes a hostile attitude towards sellers. "Oh you have done millions of dollars with us over years and this new account is making a very flimsy complaint, well fuck you"

At a certain point PayPal is actively and knowingly participating in scams.

PayPal sides with a buyer regardless of how established your business is and how many thousands of legitimate shipment of product you have made. Buyer called saying they didnt get the package that UPS driver left at their door step? full refund of 1100 dollars at seller's expense. As a business owner, I don't accept PayPal for these reasons.

For better or worse, this is what the consumer expects. First of all, if they don't get a refund through PayPal, they will just get a chargeback through their credit card, and you're still screwed. Second, you're competing with large online and storefront merchants who offer no questions asked refunds. In fact, offering generous refunds may be cheaper than quality control for those merchants.

Those merchants make money by having a pretty good statistical handle on the rate of returns, and baking it into their prices. The trick is to make sure your cost is low enough relative to your selling price. Granted, a big vendor has an advantage in access to good statistics, whereas a small business can't plan for it very well.

But I think it does create a situation where PP or any other payment processor works for some businesses and not others. You have to decide if PP is the right technology for your business.

> they will just get a chargeback through their credit card, and you're still screwed

I am not in the US and most card sales we did were debit cards by far and there chargeback is usually far more difficult, which indeed, showed us a lot better result than purchases through PP. I would never use them again as merchant.

> First of all, if they don't get a refund through PayPal, they will just get a chargeback through their credit card, and you're still screwed.

Will that affect their standing with PayPal somehow?

But as a consumer, you understand why this is so powerful. Anytime a customer has to get into a he said she said with a company, the company usually wins, especially if there is money involved. It’s nice to use PayPal and not have to worry about convincing vendors like you that x, y, or z happened.

Yes it is powerful. I can blatantly scam people as a buyer.

It's a thief's dream. Oh hey this seller has had 100,000 transactions with very minimal issues...this buyer has 1...oh well the buyer must be right.

One might argue traditional payment is a theif’s dream, but from the other side. Customer has an issue? Not our problem, we don’t have to refund.

Well then reputation comes into play. It's a judgement call. Sometimes it won't come out right, but buyer always wins is bullshit.

Hopefully someone puts together a service sellers can just start blacklisting buyers.

Fair enough, I definitely see where you’re coming from, just trying to bring in the honest consumers perspective. I can see how the PayPal system would be threatening.

It's not like you're storing card data because you're using Stripe. Stripe also allows 3D Secure to be used, so Stripe is clearly the more secure option compared to PayPal.

All Stripe checkouts that I have seen so far are embedded into seller's website. I do not care where the form submits to or how does backend looks -- as long as address bar shows merchant's website address, the form could be fake or scrapped via evil javascript. This makes Stripe significantly less secure than Paypal.

(I've heard that Stripe can do checkouts on it's own domain, but I haven't seen it on a real website)

And as for 3D Secure -- it has no benefit for customer, just an extra password to remember. I am not sure why banks waste time implemeting it, when other systems (like real-time notification of charges on my cell phone) would be significantly more useful.

A good implementation helps with leaked credit card information if every transaction would use 3D Secure. I dont need to remember an extra password for my bank (n26). I have to login to the app on my mobile and sinply allow the transaction by a tap. Easy as that, much more secure. I was impressed when i saw itctge first time.

One of the reasons that merchants do not enable 3DS for all transactions is that it hurts conversion. However, from September 14, nearly all online transactions in the EU will need to be authenticated by 3DS (2.0). 3DS 2.0 is supposed to be a much smoother experience, thereby reducing the negative effect that it has on conversion.

Outside the US you can't assume that every customer actually has a credit card. Using it as the only payment method would probably halve our sales here in europe. The beauty of Paypal is that it allows to add your bank account as a source of funds using it as instant payment method where otherwise a SEPA transfer (and 1-2 days of delay) would be the only popular alternative to a credit card.

Not just security, but a brand. PayPal equals "American Express" or "Mastercard" with some people and they trust it for online transactions, which are still considered at least a little bit sketchy somewhere.

My parents for one.

I think Amazon also has some kind of checkout service. At least I've seen "Use Amazon to Pay" on some websites, and it works similar to "Use PayPal".

yes, Amazon Pay or its more intrusive brother, Login With Amazon.

We implemented Amazon Pay a few months ago and have seen a couple dozen transactions, vs hundreds with PayPal and thousands with credit cards.

It's not huge, but people do use it. Would those people have bailed if all we offered was Paypal and credit cards? Probably not. Good convenience on mobile not to have to re-enter cc info and risk another place mis-using it.

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.

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 (!)

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.

> 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.

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

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).

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.

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.... 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."

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.

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...

I had a startup based a community that used PayPal, and used them to process hundreds of thousands of dollars with no complaints. I also never had any chargebacks against my business, though.

15 years and counting...never had a issue.

I've had a PayPal account since the beginning. At least 15+ years with zero problems.

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.

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

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.

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.

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

Care to elaborate on this?

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.

Filing a chargeback and getting a new card issued is a genuine pain in the ass, especially if you have a lot of recurring card payments. Filing a dispute on PayPal is pretty much painless.

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.

> 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.

Well, speaking as an Australian here, one of the primary reasons for using a credit card is because of the consumer protections it entails. If someone puts through a false charge on my number or steals my credit card, I call up the credit card company and I tell them, it gets marked as stolen, the charge is written off, and I get issued a new card.

Indeed, and this is purely my own personal opinion, there's precious few reasons to use one if not for the consumer protections, and subsequently, i hardly ever use paypal because its just too much of a hassle and I can't see the point in doing more work for less convenience...

>There's zero risk to us consumers for stolen credit card numbers, so why would I care about that?

Because doing charge backs, getting a new CC and updating everything which is using the old CC is an annoying use of time.

You can do that all online with most cards. It's also likely extremely rare that your card number is stolen this way (it's never happened to me as far as I'm aware).

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.

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)_/¯

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.

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.

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).

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".

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?

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

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.

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.

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.

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.

Because it's convenient for end users

So much this.

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

They treat merchants slightly less crappy than credit card companies.

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.

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.

Maybe they caught the disease from their friends in banks

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.


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.

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


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.

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.

I hate to burst your bubble but we've never lost a paypal dispute and they have treated us extremely well. Further, I can call them any time and talk with a senior rep relatively easily.

What does being a libertarian have anything to do with a business transaction?

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.

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

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