"Donate" has a very specific meaning, at least in the US, and comes with numerous accounting connotations, including the ability to write off the expense. As many people don't realize that "charitable donations" do /not/ include "donations" to purchase toys for children, it is misleading to use the term "donation" in this circumstance.
Meanwhile, often the person /accepting/ the donations doesn't understand this either. You cannot, for example, accept a $5 "donation" and then send someone a $5 product back to them: that is a "sale", not a "donation". You do not "donate" to Ikea in exchange for a chair: you "pay" them $5 for it.
In this case, this person obviously doesn't get it. "Why? These are my customers!" <- Right, which is why they are not "donating". These "customers" are buying toys, which are then being sent to other people on their behalf. These are /purchases/, like any other. This seller even goes so far as to state they are operating "just like any other retailer would".
At which point we ask the killer question: are they collecting sales tax? This is where the theoretical issues suddenly run right into the brick wall of reality, as sites that believe they are accepting "donations" on behalf of charitable work, such as handing out toys to children, put everyone in a position where they fail to realize that they are operating an online retail store where the receipts need to be reported (to the IRS), sales tax needs to be collected (for sales made to people in the same state), and the people buying the gifts can /not/ write off the expense.
PayPal is therefore very right to be wary of these situations, and often contacts people making the claim "only a nonprofit can use the Donate button", as the PayPal representative stated in this e-mail. I know this, as they contacted me once: I had a button "Donate to saurik.com" on the top of my website, which I ended up changing to "Contribute money to saurik.com".
That said, I am actually not 100% certain that that is their official "for everyone" rule. This author was correct when they said that "worthy causes" is mentioned in the PayPal PDF  on this feature: a more full quote being "for your nonprofit or worthy cause"; that said, the PDF also claims that when you sign up for your PayPal account you should do so "selecting “nonprofit” as the type".
(edit: Reading some more context of the story from Regretsy, including more responses from PayPal, I think that what PayPal means by "worthy cause" may actually be those "on behalf of verified non-profit organizations", not that that is made clear at all in that PDF.)
Their website , meanwhile, only ever seems to talk about nonprofits, but goes into detail regarding confirming non-profit status only for obtaining a discount on processing fees. I can certainly see that this is confusing, and I also believe I see a lot of websites around that /do/ use "Donate" in weird ways; certainly, if they really cared to limit it to nonprofits, they could actually enforce your account type /was/ nonprofit before letting you use it.
So, I personally believe that they simply contact vendors who seem to be running a for-profit sales business (even one that is losing money or breaking even "for the children") using "donate", rather than people who are simply using "donate" "without being a non-profit". How do they figure that out, you ask? My guess is that users are flagging the transactions as fraudulent, or complaining to PayPal using the dispute transaction feature (which some PayPal users treat pretty flippantly), using wording that indicates that they were buying something.
(For the record: I'm pretty certain that's what happened to me. I /also/ run a retail product called Cydia, which accepts payments through a separate PayPal account for SaurikIT (my company). People can contribute money to the cause I represent (open access to devices), or purchase things from Cydia. However, some users would just send my personal account (which I use for contributions to my work) $1.00, either by sendmoney or /my "Donate" button/, and then go on to say that they paid me $1 for some product in Cydia and that I didn't send it to them.)
In the end? While I think PayPal needs to be clearer on some things, I do not actually blame them for their reaction here. This setup seems "sketchy", was probably not handling the taxes on the sales correctly, was almost certainly handling the "extra money sent to the family" part incorrectly, and in the end went over the top with this emotional appeal (seriously? I have to have crying children surrounding this text?) rather than looking at this as an intellectual debate about PayPal's policies here (which might be interesting, and might cause everyone, including them, to learn something).
What world do you live in, where "donate" necessarily implies some kind of accounting whargarbl? Unless there is some more complicated scheme afoot here that I have failed to comprehend, it appears the Regretsy folks were collecting money, 100% of which would be used for the benefit of needy people, without claiming to be a 501(c)(3) or anything of the like. Still sounds like a donation to a worthy cause.
Only when PP blocked their use of the "Donate" button--which would have been acceptable for helping a sick cat??--did Regretsy resort to "reselling" already-purchased toys to recoup costs and continue the program. But again I cannot conceive of any reason that use tax would be due here...
In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
Regretsy is in the EU, not the US, but I don't believe that changes the point. In the EU, everything that is traded, whether it be a good or a service, is subject to a "value added tax". (Note: this applies to you even if you are not yourself living in the EU; if you sell products to EU customers online, you must collect and remit VAT if you are above their threshold.)
These taxes can be quite high: up to 25% of the receipt. You are only responsible for the "value added" (so you subtract your costs), but the way you subtract your costs is very similar to expense structure in the US: the cost you declare has to be to another VAT-registered organization, and you need to keep whatever receipts and documentation is required to defend the costs later.
I am simply having a very difficult time seeing how this specific setup was, in the eyes of the law, any different from Ikea selling chairs: they were selling products, and selling products is a highly regulated business with a large number of taxes that have to be considered. You cannot just throw up a website and willy-nilly throw money around.
I believe most people understand the difference between donating money to a "good cause" and making a tax-deductible donation to a registered charity. Making it difficult for an honest person to collect donations and forward the proceeds to the needy (where the donors have no expectation of any tangible good in return), or forcing Boy Scouts to obtain a peddler's license to collect canned foods for a food bank, is socially harmful.
As far as I know, Paypal has no legal or even formally self-elected responsibility to enforce that "donate" buttons are used only in the context of a registered charitable organization, or to play cop for the calculation, collection, and remittance of federal, state, local, or international taxes and tariffs, etc., etc. Paypal does not even have any way of determining what is taxable and at what rate--it is so thoroughly beyond their purview that I don't know why we're discussing it.
"Paypal has no legal or even formally self-elected responsibility ... "
Paypal may or may not have any legal responsibility there, it makes no difference.
I think a lot of people overlook the underlying business model of Paypal. They're betting they can do a better job of fraud prevention than the entrenched credit card processing industry, and by doing so they can offer credit card facilities to more (read "higher risk") people.
What that means is that if you do _anything_ that might be even tangentially related to things that look like credit card fraud, you're opening yourself up to all the well documented risks of having them stop you withdrawing money from your account for 180 days.
If you're doing anything other than delivering physical goods to credit card billing addresses via 3rd party trackable shipping, you need to make sure you're fully aware of the risks you're choosing to expose yourself to using Paypal. If you're using Paypal for donations, preorders, digital goods, downloads, conferences, consulting - anything where you can't give them a FedEx tracking number (or equivalent), you're opening yourself up to a world of hurt in the dispute resolution process.
Surely I'm not the only one who looks at almost all of these Paypal "horror stories" and thinks "Yep, I could have told them they had that coming."?
One interesting question will be what impact the re-organization of financial services regulation enforcement has long-term over Paypal. I know I have heard anytime your account is frozen write a letter to the Office of the Comptroller of Currency at the US Treasury Department and CC the CEO of Paypal to get traction........
forcing Girl Scouts to obtain a peddler's license to collect canned foods for a food bank
As an aside, most of those laws were put in to use against the lower class people who were begging. They have recently (thankful) started to be applied in a non-discriminatory fashion (i.e. to rich kids aswell as drug addicted adults), and this is the consequence.
In the US you cannot run that company: if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales, must declare any residual as income, and the people giving you the money cannot claim it as a write off.
The sales tax issue is a red herring. Regretsy was (presumably) buying the toys at a rate that included sales tax, and if the operation was not-for-profit then there was no financial value added, and no need to charge the "donors" any additional sales tax.
I believe this is only true if the sales tax as purchased is less greater than or equal to the sales tax as sold, and even in that case I believe still requires a business registration and declaration of the non-taxed receipts. I am not yet, however, an expert at this stuff, and would love to be given more information to learn more about how sales tax works in these situations (I am unfortunately starting to sell physical products, but luckily am not currently reselling anything I purchased at retail, so this specific detail isn't the kind of thing that would burn me ;P).
There are plenty of cases where the sales tax may not apply. For example, if I replace a warranty part, I do so without collecting or remitting sales tax because the transaction had no monetary value. Assuming shipping and handling is not taxable in the jurisdiction, and assuming that the company uses all the money gained for either shipping or purchasing the toys, then even assuming it's taxable it's already covered.
The sales tax is a red herring. The issue is probably one of a computerized algorithm being tripped somewhere.
Just because they don't make a profit doesn't mean they don't have to collect sales tax. When Walmart sells AA batteries as a loss leader, they don't get to not collect sales tax for it just because they used "all the money gained [(and then some, out of their own pockets!)] for either shipping or purchasing the batteries".
It gets really complex, in fact: the warranty replacement is only tax free if the warranty was a taxed line item during the original sale. If you make repairs to something, and you pass through the costs of the object to the person hiring you, you are generally considered to be a "retailer" and are responsible for collecting sales tax (which explains why you see wholesale discounts being given to large classes of professionals, from plumbers and carpenters to interior decorators).
That said, I am not claiming that the sales tax is the issue here: I'm claiming that this is a complex situation with a lot of intermingled laws and service terms, and that it is not at all clear that these people are running something that was entirely kosher and should de facto be supported.
People seem to have a thirst for PayPal's blood, and are totally ignoring (or, more favorably, simply not realizing due to lack of knowledge) that this was a somewhat sketchy, certainly risky (from a credit fraud perspective), and probably even illegal operation; and it makes no matter whether it involved feeding children or sick cats, or whether this is a computerized algorithm that flagged it or a person: the reason for the flagging, and for the blocks, actually makes a lot more sense when you examine the whole issue.
...and sales tax is different for different classes of product in the US, with some things getting better treatment, such as groceries, and some things worse, such as car tires. I did not expect it to be relevant to this specific case, but yes: I guess children's clothing is an interesting one for this Regretsy charity drive; that said, they stated "toys", not "clothing", and I don't remember toys being on that exemption list (which I actually have read, as I needed to see if any of the things I was selling had different rates).
(PS: the coolest one I've seen is that bound physical books often have much better tax rates than other goods, leading to hilarious situations where shipping someone a physical pamphlet that includes base64 might be much cheaper than selling them an expensive piece of software on CD. ;P)
if you accept money in exchange for goods (or even sometimes services), and are not a registered non-profit, you need to pay sales taxes on the sales
Only if you have a point of presence in the same state as the person you're transacting with. The US does not have a national sales tax; all sales taxes are collected by the states. Currently, transacting with a person in another state is considered interstate commerce and is therefore exempt from state sales taxes. There are efforts in Congress to change this, but, for now, you don't have to pay sales tax on a sale you make across state lines.
I think the difference is sales tax was paid when the toys were purchased. I don't think Regretsy was claimin to add value. They were just organizing a donation of toys. It's just like a bunch of friends getting together, all giving two dollars to one person who goes to target, buys a bunch of toys and then gives them to needy kids. I don't see how the law is broken in that situation. All taxes were paid.
The most damning evidence against PP in my opinion is that they specifically stated (accordion to the author) that the same scheme was acceptable when raising money for a sick cat but not for needy kids. Unless the Regretsy folks were purchasing toys with a business account and skipping sales tax I don't understand the logic. The PP reps subsequent attitude seals the deal: eff PayPal. If he isn't authorized I dole out financial or legal advice regarding the use of the donation button or wrt raising money for needy kids he should just say that instead of being an obstinate jerk.
tldr: tax presumably was paid, PayPal rep is a scumbag, screw PayPal.
"Donations that are not associated with a charity or nonprofit organization are not subject to these requirements, but all donation transactions are subject to review and must comply with all of PayPal’s Acceptable Use Policies"
"If you are not a 501(c)(3), you can still accept donations with our standard pricing."
I also disagree with your position that "donate" implies that it can be written off (or that it implies anything tax-related, for that matter). I don't think many people assume that. Anyone who has written off a donation knows that they can only do so with an associated donation receipt. This is why many charities often specifically note when a donation is tax deductible - saying, for example, donations in excess of $20 will be given a donation receipt.
If a layperson is not familiar with the difference, they aren't writing this off. Additionally, there are several types of organizations for which donations cannot be written off.
>In this case, this person obviously doesn't get it. "Why? These are my customers!" <- Right, which is why they are not "donating".
You seem to be confusing different things. After being unable to use donations, they tried to use sales. And paypal said no. That's the context of what you're quoting, after donations had been given up on.
This all seems to have happened during the course of the same conversation, and reading more of their blog history I don't see them saying that they then actually used a Buy Now button for any period of time.
Regardless, once the conversation started going farther in that direction, the issue did change (and I did not touch on that part of the problem); specifically, it became entirely surrounding "purchasing products sent to a different shipping address than the one the buyer specified during checkout", which is apparently against PayPal's terms of service.
(Note: I have not personally verified that it is against PayPal's terms of service, but I have no reason not to believe the employee of Etsy, a company that relies quite strongly on PayPal and certainly has gone down this road numerous times with them while determining what features they can offer to customers, who posted elsewhere in this thread .)
Because I think the sarik is talking about the whole idea itself, which according to what I understand from this complaint is
- 'Donate' money for the 'Give kids a random present'
- Blog author invests time to handle the flow of money, orders toys and selects/distributes to kids
What saurik is saying is that the first step, 'Donate amount of $currency to send a random toy of roughly the same value to a 3rd party' is pretty much a sale. The author itself is comparing his idea at one point with Amazon, purchasing gifts for someone else.
I'm sympathetic here and don't like the outcome, but I think your comment is incorrect: Saurik didn't confuse different things here. We might argue about whether these 'donations' should be considered sales, but - you misunderstood the argument, I think.
PayPal does not let you ship items to addresses that are not the billing address. General policy, in their TOS, no surprises. OP is also not a registered non profit, though the real issue doesn't really have anything to do with the charitable nature of it.
PayPal is not in a position to be running money for someone else's "dirty books" (which is a rather strongly negative term, but you have to realize that that is how PayPal is going to be seeing this specific pseudo-charity, and is the mental framework from which they are going to be dealing with this likely hostile person on the phone), and to the extent to which it "shouldn't concern them" (and it starts to, such as with 1099-K) it is a fair assumption that companies that are operating with "dirty books" are a "high-risk transaction" (one fraught with disputes, chargebacks, and investigations), something which PayPal simply refuses to traffic in (likely, as their entire concept of letting random people keep money and move it around is already "high-risk" enough ;P).
I don't know about you but I would never do business with a financial service provider that would essentially decide if I was running "dirty books" by your loose definition and cut off services. The problem is here you have a major problem:
1) You can't prove bad bookkeeping practices without an audit and
2) I am not consenting to an audit if that removes me from 4th Amendment search protections (meaning the auditor can be compelled by the government to turn over info without a warrant, when they'd normally be required to get a warrant to search my business).
No bank I do business with is going to just decide "oh you might not be collecting sales tax, so we are suspending your account and keeping your money for six months." There's no ethical justification for that. I am sorry.
I realize that you like to look only at my statements regarding sales tax, but these people were literally selling the promise of shipping an undisclosed good and a sweaty wad of cash to a random third party for an arbitrarily large sum of "donated" money as an unlicensed charity.
Remember: this money they were using for these purposes is actually /not/ their money, nor is it PayPal's: you don't really own money transferred over credit or ACH for six months, which is the window of time during which the money can be nearly unilaterally taken back.
This is a high risk transaction class, and if they had a normal merchant account they would have been required to do all kinds of paperwork verification, accept super-high fees, and pay massive retainers, and in the end likely have a hold enforced on their money anyway until they were considered a good credit risk (and we really are talking "credit risk" here: PayPal is loaning people money until such point as it clears).
Claiming that PayPal should not be looking into these things is about as silly as claiming that you shouldn't be denied a post-pay phone contract just because you don't ever pay your electric bill: this company is exactly as much of a risk (in dollars) to PayPal as PayPal is to this company.
Then don't use PayPal. Pay to process credit cards. As stated elsewhere, PayPal's business model is to provide point-to-point transactions between people, betting that they can prevent enough fraud to remain profitable. If what you're doing is unusual enough that you trigger their warning bells, then you're not worth the risk to them.
Paypal's fraud detection routines have been extremely, extremely overinclusive. They are worth using for some unimportant stuff but you don't have to be doing anything unusual to trigger a warning (I was just selling IT services), so they aren't worth betting your business on.
> they are not "donating". These "customers" are buying toys, which are then being sent to other people on their behalf.
It was a mistake for Regretsy to phrase it that way and it devolved into a mess from there. It started as a real donation to pay for the "cause" of giving toys to kids. Paypal's first complaint was that the recipient of the donations (the Paypal account holder, not the kids) was not a non-profit, yet their policies don't state this requirement.
A little experiment: Apply for a merchant account, saying that you're not a registered nonprofit, but intend to take donations to buy gifts for kids. I just phoned my bank and they literally laughed in my face.
People who have customer service nightmares with Paypal are generally doing something that no other payment processor would touch. I hear complaints from people who have been accepting pre-orders of a game or pre-registration for a conference, which is obviously a massive risk for a payment processor. If you found a merchant account provider willing to take such risky business, they'd demand a huge deposit and charge well above the odds.
Paypal provide an absolutely exceptional service in allowing pretty much anyone to accept card payments without a great deal of fuss. The flipside of this is that they have to deal with risky accounts retroactively, which means they have little choice but to freeze accounts that set off their fraud detection algoritms. If you prefer to know where you stand, apply for a merchant account - in most of the world, that will involve a long, expensive vetting process.
People continue to use Paypal because for many use cases, there aren't any better alternatives. This isn't because Paypal or the card companies are abusing monopoly power, but because payment processing is hard and fraud is expensive.
PAYPAL: I haven’t seen that PDF. And what you’re doing is not a worthy cause, it’s charity.
ME: What’s the difference?
PAYPAL: You can use the donate button to raise money for a sick cat, but not poor people.
Sigh. At the risk of pedantry, it's hard for my wtf filter to believe this without more context. Is this a direct quote?
Yes this is the major point of the exchange to me. It is not really for scam prevention and it has nothing to do with what is a donation or legal context. I just don't get the reason why people is not ok.
I think this one is very simple to understand: Pets don't commit fraud.
Or put differently: If somebody is running a scam here, the "pet" scenario would mean that it is you. The "poor people" scenario would mean that it is somebody else, making the whole situation a lot more complex. I think this is simply a matter of internal risk assessment triggers.
i don't think it's an issue of people vs. animals, it's an issue of "save poor people that aren't being named and won't produce an audit trail" vs "save this cat that belongs to me, the owner of this paypal account".
strictly on a risk assessment basis, an organization not registered as a 501(c) taking in lots of money for a generic cause is more likely to be fraudulent than one specific person that paypal can easily identify taking a smaller amount of money to save his cat.
paypal is probably just as comfortable with "save walter white" as they are with "save mr. marbles", but not "save people like walter white" or "save cats like mr. marbles".
At the risk of being perceived as the devil's advocate, let me ask a question.
I've heard of dozens of stories about Paypal along a similar vein. "They locked my account for unreasonable reason X and now are keeping the money".
Most of these stories seem anecdotal. Can someone point to a rigorously documented set of cases where both Paypal and the customer's side of things are reviewed?
Over the last few years, all of these "Paypal screwed me" stories have sounded like all the complaints a few years ago about Apple seeming to reject apps arbitrarily. As far as I know, the complaints about Apple from devs have largely died down since we've had a fairly straight-forward list of do's and don'ts to work from.
If most of the people reporting problems with Paypal are doing things that are inconsistent with their policies and then saying publicly how they're being screwed, then that creates a negative reputation for other people who have never personally had a problem with Paypal.
I've yet to see a "PayPal horror story" that didn't fit into one of the "any payment processor in the world would consider this high risk and temporarily or permanently freeze the account" slots.
If this discussion with the customer service rep did occur as written, it's the most ridiculous one I've seen yet, though. It's a major customer service fail even if the original reason for freezing the account was valid.
I have a client who is a payment processor who specializes in high risk transactions. Paypal is not. The problem though is that Paypals definition of risk can be overinclusive to the point of being arbitrary. When I had my account frozen, I was told it was because my wife had sent money to someone else who was accused of violating the ToS. So here we have an account suspended because someone from the same IP address sent money to someone else, and that third party was accused of violating the ToS. I wrote them a nice nastygram, stopped taking credit cards for a while, and later started up again with Amazon Payments instead.
Fraud of this sort of thing is a difficult thing to solve. I don't envy Paypal's position here. However, their approaches are unprofessional at best....
"I don't envy Paypal's position here. However, their approaches are unprofessional at best..."
From one point of view, they're no more "unprofessional" with their customer service than Google. At least there was a phone number to call and a person to answer it - even if they were apparently not highly trained enough or authorized to solve the problem.
Paypal are trying to solve the credit card version of "web scale" - they've got their almighty "fraud detection algorithm", with the knobs inevitably turned towards "risk pissing off low value customers" rather than "risk letting through financial risk exposing transactions". When you want to let everyone with a hotmail account and a prepaid debit card become a "merchant", it's inevitable that there are going to be _lots_ of edge cases, and not nearly enough skilled customer service people.
If you can look critically at what you're doing, and it seems like it _might_ be an "edge case", you might want to think twice about using Paypal.
Absolutely: that every other payment processor in the world would do the same thing is hugely relevant. Paypal is just the only one it's easy enough to set stuff up with, so they get all the bad press.
Because the gifts given will ultimately be going to someone other than the billing address. This is really the issue in the TOS OP is coming up against, from what I can tell.
Also, the actual items being sold were "mystery" gifts, not actual items.
My guess is that paypal views this as high risk because someone is sending money to OP, and OP is sending "something" to someone else. It's not trackable through PayPal's system, which means there is a high potential for chargebacks, which cost PayPal (and everyone else involved) money.
This seems like an extremely reasonable freeze to me, especially given that the PayPal rep told OP exactly what OP could do to sell these items: ship to the actual buyer and tell them what they are getting, and do so under a different name than your original attempt. That's kind of the only way it can work.
Any change in average processing volume and ticket size is a red flag at any payment processor. An individual/business suddenly getting a ton of "donations" is going to look suspicous. An individual/business that hasn't told their processor their plans, and gets a ton of "donations", is going to have to convince that processor the donations are really donations and are going to end up going towards what they said they'd go towards -- because if they don't, all those donors may charge back the payments, the fundraiser may disappear, and the processor is on the hook for all the costs.
OP's situation is pretty weird. If that conversation actually occurred, it wasn't handled well at all, and PayPal may well have done a lot wrong here. That doesn't mean it wasn't a high risk situation when PayPal initially froze the account to stop it from getting riskier.
I also think the OP's wrong about losing fees on everything twice even though the payments were refunded. When you refund something through PayPal, PayPal refunds its fees to you, even if it was a credit card transaction.
The official policy is actually that the "fixed fee" ($0.30) is kept, and the "variable fee" (2.9%) is returned to you, but in practice in many situations the fees are fully refunded. The situation is somewhat different for micropayment transactions (which are 5% + $0.05), but this vendor was probably not using them for this account (in most situations, unfortunately, this is an "all or nothing" account flag).
(I actually spent a half hour talking to my PayPal account manager today about this very subject, presenting different charges and asking why fees were or were not kept in various situations; however, I do use micropayments, so my results are not going to be terribly relevant, and we are actually continuing the conversation tomorrow. ;P)
Some of this is paypal's own fault. They've created the expectation that transferring money from anyone in the world to anyone else in the world should be painless and frictionless. For many cases paypal lives up to that (really quite amazing if you think about it) level of service. But the world is not a perfect place (nor is paypal of course) and a lot of people run into problems and their instinct is to blame paypal for both of those imperfections.
More so, people can use paypal without having any amount of experience with alternate payment processing methods, so they have no yard stick of comparison. They just don't know that any payment processor in the world would stomp all over them to the same or greater degree, so they merely level a harangue at paypal for not living up perfection.
I can't. I replied elsewhere in these comments that it happened to a client of mine. I made a lot of money in one weekend doing emergency "I told you so" payment gateway switching for him so he could take reservations.
But it's my recollection they're not a bank, and so they have no real obligation to act like one. So when they do this kind of stuff, I'm not surprised.
And I wouldn't want to be them. They probably deal with fraud and schemes on the scale none of us could possibly imagine.
I'm in the UK and one of my companies is in the typical start-up bind right now: we want to take on-line payments, heavyweight Merchant Account and Payment Gateway services are a bureaucratic nightmare to set up with lead times often running into months, but the cheap 'n' cheerful services like Paypal have terrible reputations for customer service and reportedly a tendency to steal merchants' money arbitrarily.
Does anyone here know anything about whether, in practice, such horror stories are mitigated in the EU by PayPal's registration as a bank?
We don't see them as a long-term prospect for handling our payments, but today we'd settle for something we can set up in hours rather than weeks so we can launch our service and get some sort of trading history going. If nothing else, that would deal with a lot of the headaches of applying for the more "serious" services, which tend to be very risk-averse if you approach them as a start-up with no trading history and wanting recurring payment authority on credit cards to implement your subscription model.
My business account was frozen by Paypal for a similar non-reason. I am not going into the details here but I chose to simply wait it out ($2 balance at the moment) and take my business to Amazon Payments.
The issue in my case was not me. It had to do, iirc, with someone my wife had done business on regarding Paypal, and we were required to verify all info on all accounts that had ever been accessed from our IP address. In other words they froze my account because someone unrelated to me was arguably (though maybe not certainly) violating their terms of service. Since that included my brother in law's account and he was abroad at the time, it was too much of a headache.
I have basically taken up advocating to all of my customers not to rely on Paypal.
The problem isn't so much being cut off as having no recourse. PayPal didn't just freeze the assets temporarily, pending investigation. They arbitrarily decided that this organization shouldn't be allowed to access the customers' money. No appeal or review is offered. That's the horror story.
A friend of mine down the street tried to sell an online account via PayPal. The would-be buyers sent the money to his PayPal account, got the online account credentials from him, then took the money out of PayPal. The money was lost but the admins for the software he used the account on reinstated it to him since this happens a lot. There are scammers with deep penetration into PayPal.
I have also experienced one such scammer when selling software using Paypal. Now for me it was nothing important since no physical object was lost. But that time I learned that Paypal chargebacks are an excellent way to scam vendors, and that the conflict resolution tools of Paypal are a joke.
Also, have any of these people contacted paypal before using their services? I'v spent around an hour waiting for and talking with paypal support to make sure that I'm able to use paypal for my new project without any problems.
These horror stories are so common that I have to ask: why does anyone still use PayPal?
I ask this in the most constructive way possible... is there a set of use-cases that PayPal is still the best for? Is it a lack of awareness of alternatives? International availability? Something else?
Because in reality paypal is actually pretty awesome (note: I work for Etsy which uses paypal as a payment processor, so I guess I'm kind of biased). The cost for the business, compared to maintaining your own payments platform at scale, is pretty reasonable, and the failure rate is pretty miniscule when you consider the amount of potential fraud that goes through the platform.
Paypal wasn't really designed to handle one off personal payments, it was designed to let small (and large) businesses accept payments, internationally and fraud free. This is ridiculously difficult (how many of you have ever written software that integrates with a bank? ugh.) PayPal does this exceptionally well and because of that many huge businesses are built on its back.
The reality is, in most of the situations that people complain about freezing their money, without paypal their entire project would've been a no-go anyway.
I do feel for people who legitimately have their accounts wrongly frozen (I am one of them, though mine was unfrozen after a few days), but you have to understand how small a percentage of people that is, and that you can't have a system without failure. Again, paypal's failure rate, when you consider what they actually do, is astoundingly low.
Edit: Just for absolute clarity - I work for Etsy and have zero affiliation with the blog from the OP, and it has zero affiliation with Etsy. Also these are my opinions not my employers etc.
Right on, Paypal was designed exactly for Bob to send Sally $10.27 for yesterday's lunch tab, according to Paypal's own promotion and vision on day one. Letting businesses, charities, and other orgs use it as a payment processor came quite a bit later.
I think it's safe to say that they, quite reasonably, figured out that the former is a risk-infested nightmare. Saying "hey, that actually cost $11, Bob!" is a minor thing in an interpersonal relationship, but when it has the potential to trigger a fraud investigation (think ex-girlfriend marking all 'casual' transactions as fraud after a breakup) you invite chaos.
So yes, they switched on that, but it's really not hard to see why. I wouldn't want to use it for personal transactions. (In Germany, we mostly use bank wire transfers for that.)
>> I do feel for people who legitimately have their accounts wrongly frozen (I am one of them, though mine was unfrozen after a few days)
This is the heart of the issue. Based on anecdotal evidence, there is little to no transparency in the freezing/unfreezing of accounts. This makes PayPal a cash flow risk to any business that relies on it for funding. I wouldn't be comfortable if my employees' pay depended on cash flow coming in from PayPal unless I had other dependable sources of emergency cash flow that could be tapped for indefinite periods of time.
It's good that your account was unfrozen after a few days, but what if you needed the money to pay your employees, so that they could pay their rents? Getting lucky with a short freeze is not a business strategy.
It's not that you are wrong, it's that this risk exists in every payment processor. Paypal anecdotally looks worse because it gets MUCH more press than other payment processors. A service that handles this better is a unicorn.
Don't take that for granted. PayPal has 232 million registered accounts, and many more unregistered buyers. Even if 99.99% of PayPal account holders were completely satisfied and never had any problem, that'd 0.01% would still be 23200 pissed off people.
Is it right to wonder "does anyone still use PayPal" if 99.99% of PayPal users have no problem using the service?
The problem with PayPal, and the reason why these horror stories exist at all, is simple: the entirety of PayPal's dispute-resolution system seems to consist of "the system flagged it, tough luck". And the only way to get actual service from PayPal past that point is to raise a massive cry of bad PR for them online.
So, yeah: if they don't want to deal with their customers, we can fix that by encouraging a situation in which they have no customers to deal with.
Because buyers keep demanding sellers use it. If you're a buyer, it's about the most painless thing out there. I got forced into it by a client once for that very reason. Unfortunately PyPal froze his account with about $20k in it. We switched to a real merchant account and everything went uphill from there.
Taking credit cards on your own site with a merchant account and gateway. But it'll almost definitely cost you more, you'll invest 10 times the resources into handling and stopping fraud, and some customers won't trust your site with their credit card. The reality is PayPal has a lot of benefits for both sides.
You have two basic options:
1) A proper merchant gateway solution
2) A third party payment provider with better terms of service.
On the first, I have generally recommended TrustCommerce both due to their emphasis on security (having reviewed their Perl and PHP API classes directly) and the richness of services they provide. They do cost more because Paypal gets a tremendous volume discount, but it's an option. For online payments also you have additional PCI-DSS worries that are burdensome for small businesses.
The second option includes solutions like Amazon Payments. I currently use Amazon Payments because I process 4-5 transactions per year. At that volume it isn't worth maintaining my own merchant account and certainly is not worth worrying about PCI compliance......
I have several websites; some sell products, some monthly subscriptions, some target consumers, some businesses.
Universally, on all of these sites, customers choose to pay with PayPal more often than credit card. For the most part, my payment pages are a secure credit card form with a "or Pay with PayPal" button to the right of the form. More people choose to click through to PayPal than to just put their card in to the form already on screen.
The preference for PayPal is larger outside the US among my customers.
Have you added Amazon payments as an option as well? I would choose that every time, given the choice, if for no other reason than Paypal is always trying to trick me into paying from my bank account, when I really want to pay with credit card for rewards and security. Amazon doesn't try to trick me.