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Good riddance, PayPal (elliotjaystocks.com)
713 points by hugofloss on Sept 6, 2012 | hide | past | favorite | 261 comments

The premise of his "vehemence" is untrue: banks can and do have the exact same policy regarding terminating merchant services accounts. They can terminate you at any time, without reason, and when they do so, hold any undisbursed funds in a reserve account for exactly 180 days. There is no regulation banks are subject to that PayPal isn't that would have an affect on that.

PayPal did not make up this policy; it's based on Visa and MasterCard's Operating Regulations, which predate PayPal's very existence. I have first-hand experience that not only is this in virtually every merchant services contract at every bank in the US, but it's actually enforced, exactly the same way PayPal enforces it.

8 years back I had a sudden influx of chargebacks from a single scammer that used a bunch of different cards on one of my websites to buy services, back before I knew how to spot that kind of activity. My real, regulated bank (First National Bank of Omaha) terminated my merchant account and held several thousand dollars for exactly 180 days with no recourse for me. They never saw another chargeback against my account, but I still had no access to that money for 6 months. Exactly the same as PayPal does when it terminates an account for activity it deems high risk.

I can echo the same treatment with two different merchant account providers across three companies. Didn't matter if it was a $10k month or a $1MM month or if the company was new or old--it was a constant battle. In one case it was only my personal credit rating (which happened to be spotless) that saved my business.

Yes, think about that. A merchant account -- where they hold your company's money -- relies on your personal credit score.

Anecdata: I had two chargebacks in five years of web software sales. Both claims were buyers ripping me off. I provided signed FedEx receipts for boxed software shipments and IP addresses/dates/times when the customer registered the software and downloaded updates. I ate the full cost (plus investigation and chargeback fees) both times. (This is "cost of doing business" and not an opportunity for a blog post, IMHO.)

From the post: "And thank god I made that [five figure] withdrawal when I did, because yesterday came the second phone call, informing me that a reserve would indeed be placed on my account."

I believe this action is what actually triggered the issue. If he paid the costs of running his business out of his PayPal account and took consistent monthly paychecks, it would have been far less of a flag.

Sucks that you have to do it, and we software types are famously short-tempered when it comes to dealing with real-world bureaucratic nonsense, but sometimes a bit of careful planning and playing the game wins the race.

Why would a merchant account provider have your personal social security number/be doing credit checks? Assuming its an incorporated C corp?

No merchant account provider will open a new account without the personal social security numbers of the principals. Otherwise you could defraud one bank then the next your whole life by simply forming a new LLC/corp each time for $100 a pop.

When a merchant is terminated for fraud, breach of contract or excessive chargebacks, they can be placed on the TMF (Terminated Merchant File) and MATCH (Member Alert to High-Risk Merchants) lists which all Visa/MC member banks have access to. The social security numbers of all the principals are added to that list, so that if they apply with a new business somewhere else, the bank knows they've previously been a principal of a business some other bank terminated, and the reason.

Because merchant banks require them. Anyone can create any number of C corporations at any time. Merchant accounts are one of several business services that young companies can't set typically set up without somehow binding the contract to the business owners themselves.

Merchant accounts are one of several business services that young companies can't set typically set up without somehow binding the contract to the business owners themselves.

I've noticed a disturbing trend in this respect recently, with seemingly everyone from law firms to banks wanting personal guarantees from someone to back up the company. This practice should, IMHO, be prohibited by law, and this should be impossible to override via any contract.

The entire point of a limited company (in UK terms) structure is that you know you are running a legally separate entity, and everyone else knows they are dealing with a legally separate entity. Everyone should judge the risks they are willing to take and offer terms that factor in those risks accordingly. This is done to incentivise people to start new businesses where there may be some degree of risk, without having to risk literally the roof over their heads to do it, and is universally acknowledged to be in the interests of economic development, which is why every major economy in the world has a concept analogous to that limited company.

Checking the credibility of the principals and asking for things like business plans and company financial statements is all perfectly reasonable so that a potential business partner can judge the level of risk. However, allowing piercing agreements is simply a completely one-sided deal: the little guy is now back on the hook for all of the risk, yet still takes the hit on all the bureaucracy associated with running a formal company.

If such agreements were banned, the banks and lawyers and other high-powered services would still have to deal with other businesses or they'd have on customers. They'd just have to be more realistic about what they charged if they wanted to continue working with profitable customers in the long run.

[Edit: Incidentally, piercing agreements do not seem to be completely universal. We've seen some fairly unpleasantly one-sided terms while investigating payment services, frequently including things like requiring direct control of your main bank account so they can grab whatever they feel like whenever they feel like it, but not everyone has asked for personal guarantees (as opposed to a personal credit check) at least at the stage we've got to with them.]

Banks already do ask for financials and corporate track record. You're required to stake your own credit when your financials are inadequate. You want that to be illegal? It's better than those companies not be able to obtain merchant accounts?

Banks already do ask for financials and corporate track record. You're required to stake your own credit when your financials are inadequate.

As far as I can see, those providers who require personal guarantees usually do so as a standard condition for almost any new business. Effectively, they consider everyone's financials to be inadequate.

You want that to be illegal? It's better than those companies not be able to obtain merchant accounts?

Someone would still offer the merchant account services to businesses who could demonstrate a reasonable business plan, because on balance they would make money from doing so. Most new businesses are not, in fact, going to experience a 30% chargeback rate four months after the original sale.

The banks obviously know that, they just want (as usual) to privatise the profits but externalise the risks/losses. I have no problem with prohibiting that kind of predatory behaviour. It's a potentially significant barrier to starting a new business, and with the global economy in its current state, allowing absurdly risk-averse banks to inhibit new businesses is exactly what we shouldn't be doing.

If the banking industry had a track record of assessing its clients responsibly and lending (or not lending) based on the results of those assessments and reasonable assumptions, I would be happy to cut them some slack. But we all know damn well that they aren't doing that. And if governments are going to pressure them just to lend to small businesses, they should certainly pressure them to provide basic services to businesses that are viable without relying on loans as well.

If someone could make money by offering merchant services to businesses with no credit history, they'd already be doing it. No law requires banks to require personal credit checks for merchant accounts.

If someone could make money by offering merchant services to businesses with no credit history, they'd already be doing it.

They are already doing it, every time a new business opens an account with them.

No law requires banks to require personal credit checks for merchant accounts.

I'm not talking about credit checks, I'm talking about a personal guarantee, of the "taking your house" variety.

If it's possible to build a viable business offering merchant account services backed by absolutely nothing other than the creditworthiness of a brand-new corporation, why is nobody doing that already?

Because they don't have to. The negotiating positions are entirely one-sided, and since they command all the power, they can essentially impose arbitrarily harsh terms to any extent the law permits.

I'm not sure you're following what I'm saying. That's probably my fault, for being terse. Even if the negotiating positions are "entirely one-sided" right now, that position leaves the door open for a competitor to capture market share by offering accounts without personal credit attachments. And yet nobody does that. That suggests one of two things: either (i) you can't capture much market share by offering easy terms for a merchant account (unlikely, to my mind) or (ii) you can't stay in business offering those terms.

Even if the negotiating positions are "entirely one-sided" right now, that position leaves the door open for a competitor to capture market share by offering accounts without personal credit attachments. And yet nobody does that.

Are you sure about that?

That suggests one of two things:

No, there are other possibilities. One is that the merchants assume that you're right and everyone is going to screw them the same way. Another is that they simply don't understand the profound legal implications of a couple of lines of small print and one more signature because, like most start-ups, they're trying to build a company and not paying lawyers thousands to review dozens of pages of terms sent by every financial service provider they've contacted.

Why would expose themselves to such obvious fraud?

The personal guarantees go away once your business is a going concern.

Sorry, what obvious fraud?

And if the personal guarantees are going to go away once the business is a going concern, there's no problem with writing a shut-off date into the contract to make this explicit from the beginning, is there?

You can anonymously acquire a Nevada shelf corporation in a week or two. If you were able to just setup a merchant account without a personal guarantee, you could then trivially rack up a significant volume of fraudulent charges without any recourse. (The bank would literally not know who you are)

If you are a real business, you will almost certainly change credit card processors anyway to get better payment terms as your volume increases. The last startup I worked for changed at least three times as our volume grew.

I think we're talking at cross-purposes here. I don't think any of us are suggesting that merchant accounts should be made available without any checks at all.

It's reasonable to ascertain the identities of those running the company. While I'm no expert on US law, certainly here in the UK company directors have some basic responsibilities for acting responsibly and so forth and could be on the hook if they've been severely negligent, so you have that the moment you're dealing with the company itself.

But the point of a piercing agreement seems to be to put the company's controlling people on the hook personally even if they aren't grossly negligent and the business just doesn't work out. The fundamental point of setting up an independent legal entity is to sever that connection, and I personally believe that everyone should treat negotiations accordingly.

"SQUARE" (square.com) does.

You're begging the false dichotomy here.

Insisting on personal liability for a corporate account is equivalent to denying the account to the corporation.

Bankers would prefer to have you sign away your first born children too (sounds like something out of Dickens). But we've made such practices illegal and there's no evidence that the money supply is suffering for it.

Help me understand. What you're suggesting is that, simply by having paid a couple hundred bucks to incorporate, regardless of my personal credit, I should be able to establish a merchant account?

Asking to see some personal references and a personal background check is one thing. But requring a 'natural person' to become personally liable for a corporate contract is basically equivalent to denying the corporation.

So maybe the bank is willing to issue the merchant account to the individual with the understanding that it may be used by a corporation. But let's not call it something it isn't.

You said it earlier: requiring a personal guarantee is indeed the equivalent of denying the account to the corporation. I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory.

I'm not sure what else there is to talk about, unless you think contracts for merchant accounts should be compulsory.

Completely automatic is obviously silly because of the fraud risk, but a presumption in favour and/or formal restrictions on acceptable criteria for refusal aren't nearly as absurd as you're implying.

We're talking about a very closed industry and a service that, in practice, directly affects people's ability to trade.

We regulate service providers in other essential industries, and they can't deny provision to a customer just because they don't like them. It's part of the deal if you want to operate in those markets.

And there are all kinds of laws to prevent or restrict one-sided deals that inhibit people's ability to trade. There are laws about monopolies and anti-competitive behaviour. The handling of non-compete agreements in employment law would be another obvious example in a slightly different context.

The "service providers" in those other "essential industries" that can't "deny provision" because they "don't like them" have, as a general rule, been granted monopolies. This is a silly conversation. The system that works the way you seem to want it to is the subject the thread; it's Paypal.

No, PayPal is almost the opposite extreme: they do very little in the way of checking up-front, and that's why there can be problems later when their aggressive fraud checks kick in.

I'm not looking for anything so dramatic, just that merchant account providers should recognise that they are dealing with a separate legal entity. Identifying the key personnel is reasonable, and so is wanting to check them against databases of known fraudsters etc. Asking to see financial statements, business plans, projections, etc. is all reasonable too. So is requiring a cautious degree of funds retention until the trading patterns become clear is reasonable. I really don't have a problem with a merchant account provider wanting to know who they're dealing with and to have some confidence that the company is a viable business; that's only fair.

I'm simply arguing that putting members of the company on the hook personally is not fair. If you're going to have companies at all then you have to protect them against such arrangements by law or you've devalued the entire concept and undone whatever benefits you were hoping to achieve in terms of incentivising entrepreneurial behaviour in your economy.

For the record, I'd add demanding direct control of the company bank account as a red flag as well. Aside from the glaring potential for abuse or error by the merchant account provider (for which, by the way, the company directors will once again take the heat), this has obvious implications if the company ever fails: it allows the payment company to grab whatever it decides it's due before the usual legal mechanisms for dealing with corporate bankcrupty get a look in, for example. And what if there's more than one payment service involved? Do they get to race to see who can empty a company's bank account first if anything does go severely wrong?

IIRC the US has a concept of bankruptcy protection to isolate a company that's in trouble if they have a reasonable plan to extricate themselves rather than failing. Not running a business in the US, I don't know all the details, but it seems a reasonable premise. But what happens if that company has signed over direct access to its bank account to a merchant account provider, who is risk averse and doesn't like the chapter 11 filing?

The bottom line is that these are all worst-case, doomsday scenarios, and even if a company is going to fail, it's usually not going to fail out of the blue and to that extent. I think you're obsessing over a fraud risk at the expense of making it much harder for people to run honest companies. If the system is set up in such a paranoid way, it's hardly going to be surprising if legitimate entrepreneurs are put off starting up, obviously leaving a disprortionate number of fraudulent applicants.

No, we're suggesting that if you're going to offer a merchant account to a company, your decision and terms should be based on the nature of that company.

You might reasonably do a credit check on the principals, since someone running a company who has a track record of bad debts is obviously a warning sign. Likewise you can check them against the databases of people who've been kicked off payment services before.

But in the end, you should be looking at whether a company has a credible business plan and people who are likely to execute it well. That's apparently good enough for other major financial transactions, including attracting investors and things like company credit cards for principals on the day you open a bank account. How come everyone else in the world can use common sense and make an informed judgement about risk, but merchant account providers can't?

Ok, and now the answer to that question is, "No, actuarially, we cannot offer you a merchant account backed only by your corporation." Like I said before. Your response is... what? No merchant account for you?

No, I've outlined two other options:

A. The bank offers a merchant account to a party they feel is worthy with the understanding that this party is going to use the account for the corporation.

B. The bank re-evaluates their criteria for merchant accounts and/or develops new products with which to serve the demand for merchant accounts.

But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss. Unless this person is connected to the right people in finance and banking, of course.

Why shouldn't my local tree-trimmer be able to accept credit cards? Like Greece, imagine the uncaptured tax that results from this sector of the economy dealing instead in mostly cash. I don't think this the current system is optimal or fair.

But the status quo seems to me like a situation in which an entrepreneur can't start an honest corporation without putting his kids' college savings at risk of highly unpredictable fraud loss.

And to add insult to injury, that kind of risk is entirely the fault of the payment industry itself, for failing to implement sufficiently robust security measures. And yet, the merchant typically carries the risk, not the payment industry.

Perhaps any compulsory refunds should be classified as either based on fraud or based on dissatisfaction, and the card payment services should be required to indemnify the merchant against fraudulent ones provided that the merchant has followed the recommended security steps before completing the transaction.

In fact, I've noticed recently that a few payment services are offering to eat chargebacks based on claims of fraud if an on-line transaction included a test such as Verified by Visa, so this situation may be starting to change, albeit rather slowly.

For losses based on dissatisfaction, it's probably as fair as anything practical to make the merchant carry the risk, but it is extremely unlikely that this kind of chargeback would result in a sudden spike in refunds a long time after the initial payments. It seems reasonable to handle this case via a level of retained funds commensurate with the observed level of loss.

That really only leaves catastrophe-scale events, such as a product having a fundamental flaw where everything dies at midnight on 1 January 2000. But in that case, either the business has the funds to cover the loss (in which case there's no problem and the card services can go to court if the merchant doesn't pay back what they owe) or the business is toast (in which case unless it's a very small business, probably no individual who gave a personal guarantee could do much to cover the costs anyway, and if it was a very small business, there's no substantial danger to the card service companies on the relatively rare occasions that they have to write the client off and eat the loss themselves).

In short, to the individual a piercing agreement may be an existential threat to their way of life, but such agreements make little real difference to the card companies in cases where the problem is not essentially their fault anyway.

Merchant account providers are not in the insurance business. If you're starting a business and worried that your own product failures are going to bankrupt you, pay for insurance.

It seems to me at this point that we've lost track of what a merchant account provider even does, and that your argument in some way depends on the fact that it's easier for large companies to bear losses than small ones, and so they should bear those losses regardless of who causes them. Why not just say Apple and Walmart should insure all new startups against personal losses at the same time? It's the same argument.

Merchant account providers are not in the insurance business.

Really? I think there's a good argument that insurance is exactly the business they are in.

The fundamental difficulty here is that money you think you have as a merchant can be taken away again retrospectively, and the merchant account provider is on the hook for it if the merchant disappears. The merchant account provider accepts that risk, but takes steps such as retaining partial funds that will normally be sufficient to mitigate it. Every now and then they'll take a big hit when there's a spectacular failure and whatever guarantees the merchant account provider thought they had turn out not to be worth enough to cover the loss. Most of the time, however, things will go fine and the merchant account provider will make a tidy margin.

How is this not an insurance model?

If you're starting a business and worried that your own product failures are going to bankrupt you, pay for insurance.

I'm not worried about my product failures, I'm worried about fraud due to a combination of their insufficient security and their rather generous waiting periods for customer complaints, or simply due to a mistake on their part.

Merchant account providers are not in the insurance business.

And why not? They could at least be obligated to obtain such insurance. Seriously, what else are they doing with that 3% of all those transactions?

Primarily because we accept the status quo because the merchant is in such a weak bargaining position. Let us not forget that merchants and consumers form the basis of our economy whereas payment and banking systems are just plumbing.

If the financial industry had more incentive to increase the security of payment systems, then maybe we wouldn't have the absurdly insecure systems that we have now. Inter-bank ACH is fundamentally an honor system. Credit/debit networks are basically a shared secret between you and everyone you've ever spent money with.

I'm not saying merchants should be immune from all chargebacks. I'm just saying that the lack of competition in payment systems is effectively disallowing the benefits of an LLC to the little guy.

And why not?

Because I was joking; the cost to ensure businesses that risk thousands of chargebacks would be stratospheric.

But the cost of fraud is already bourne by the economy. It gets bourne by the taxpayers, the consumers, and the merchants. And yes it is stratospheric, but so is the revenue of the current payment industry.

What I'm suggesting is:

A. It makes the little sense for the personal savings of an entrepreneur to be the underwriter of last resort.

B. If the financial industry wasn't so easily able to push the risk off on others, we might find that they become interested in real security improvements that result in an overall decrease of fraud.


The fraud/abuse we're talking about in this case is perpetrated by the merchants themselves. Want to see what a system of "real security improvements" looks like for a payment processor that doesn't require your personal credit staked to your account?

It's called Paypal.

The fraud/abuse we're talking about in this case is perpetrated by the merchants themselves.

But the merchant account issuer doesn't distinguish fraudulent merchants from losses due to stolen cards, fraudulent customer chargebacks, etc. So currently in the US, essentially all fraud costs tend to be passed on to the merchant (and for small entrepreneurs, their kids' college savings).

It's called Paypal.

Note that most of the criticisms people level against Paypal aren't against their policies and mechanisms that are a rational defense against risk. It's things like the destroyed antique violin, banning merchant accounts for "editorial" reasons, outright hostile customer relations, and (last but not least) a penchant for holding on to other people's money for as long as possible for completely unjustified reasons.

Hopefully we can agree that the root cause here is the prevalence of fraud itself. A more secure transaction system could make things nicer for everyone. The problem is that the payment networks are the only ones who can institute meaningful change and the current system (that enables them to pass the costs on to merchants) suits them just fine.

What does it help that the corporation is going to use the account only for the corporation? How does that cover the bank when the corporation fails to deliver on its promises to customers and then goes bankrupt, leaving the bank on the hook for chargebacks?

Ok, and now the answer to that question is, "No, actuarially, we cannot offer you a merchant account backed only by your corporation." Like I said before.

Well, I don't believe that would be the universal answer in most cases, and perhaps where it really is there is a lesson that someone should learn cheaply. But let's assume you're right for the sake of this discussion.

Your response is... what?

That a financial service company with no new clients is not long for the business world.

This is not a serious argument. It suggests that a simple form of contract between two consenting counterparties should be made unlawful, and then, to get around the fact that this would result in a market where small startups would never be able to get merchant accounts, suggests that the entire payment processing market would either restructure itself or be forced to restructure itself to get around that problem.

No. That's not going to happen. I'll go one further: if you so much as sign your name on a contract the wrong way, for instance by leaving out your title, you can easily create situations in which contracts that individual officers of your company sign bind directly to them; for instance, your VP/Engineering could easily sign a contract with a consulting developer that would leave them personally liable to that consultant if the company went out of business and didn't pay the consultant. The VP/Engineering in that scenario didn't even intend to create a personal attachment, and yet cases like this have been decided against people like that.

Similarly, in some states, payroll obligations --- which are contractual, precisely the type of exposure that limited liability covers --- can automatically pierce corporate liability and bind to the owners of the company.

I think you drastically overestimate the protection afforded by limited liability.

This is not a serious argument. It suggests that a simple form of contract between two consenting counterparties should be made unlawful

Which happens all the time, particularly when the parties have unequal bargaining positions, in which case frankly your characterisation of the parties as "consenting" is a stretch at best.

and then, to get around the fact that this would result in a market where small startups would never be able to get merchant accounts

Of course they would. The industry is extremely profitable despite the ever-present risk of fraud, and the rates that merchant account providers charge to start-ups are often at least double what they can get away with for more savvy established businesses. You keep saying that start-ups wouldn't be able to get a merchant account at all if piercing agreements weren't allowed, but you've given no evidence for this and your position defies all logic. As I've argued elsewhere, piercing agreements are unlikely to provide much cover for the merchant account provider most of the time anyway, and I'm quite sure that the people in the industry have concrete figures for things like how often they really have to rely on such agreements and how much of their losses they are really able to recoup in those cases.

suggests that the entire payment processing market would either restructure itself or be forced to restructure itself to get around that problem.

In case you hadn't noticed, the on-line payments industry is restructuring.

For one thing, companies like Stripe are taking traditional merchant account/payment gateway set-ups to the cleaners. Every HN discussion on this topic is full of people who are involved with start-ups bemoaning the lack of alternatives outside the US, and as the new generation of payment companies establishes itself globally, things are only going to get better for merchant-experience-focussed companies like Stripe. The industry giants with their month-plus application processes and hundred-page legalese documents are either going to have to play nicely with the new kids (and I'm betting even a young company like Stripe is already able to negotiate much better terms than their start-up clients could) or lose out in the ever-growing on-line sales market.

Obviously there are already alternatives with different business models like PayPal, and despite the horror stories, they still potentially offer a much better experience to merchants than the old school providers. As offerings from other big names like Google and Amazon improve, and as more companies like Stripe go international, competition will also force PayPal to improve rather than relying on often being the only salesman in town.

And then there's the small issue of companies like GoCardless, who eschew the anachronisms and merchant-hostile terms of the card payment industry entirely. I expect they're going to do pretty well out of that, too.

In short, I think you put way too much faith in dinosaurs. The question isn't if they're going to change, it's only when. The issue for most of us running small companies outside the US right now is just that we're a bit early. I expect in five years time we'll all look back on this conversation and laugh.

The VP/Engineering in that scenario didn't even intend to create a personal attachment, and yet cases like this have been decided against people like that.

I'm not sure what your argument was in that part, but surely you know that as a basic matter of law a contract requires understanding by both parties of what the agreement is, so whatever cases you're thinking of probably weren't as simple as you're suggesting.

> one of several business services

Could elaborate on the other ones?

Depending on the market, leases are another example.

If you think about this for just a second, you can see that incorporation can't possibly be a "get out of credit checks free" card.

Requested it as part of the application. Perhaps I could have avoided the disclosure, but since a merchant account is effectively offering you credit (think about it) leveraging my personal rating yet incurring no liability was a pragmatic win.

The issue is that fraud prevention--like terrorism prevention--means the side that's doing the groping isn't going to tell you exactly what they're doing and why. This leads to a lot of confusion.

If you're a relatively small or young company, the merchant account providers often demand that a principal signs a piercing agreement and personally guarantees the account.

For the first few years I was in business my corporate credit lines were effectively personal credit lines that happened to have my company name on them.

Just to note, the's author's not in the US, he's in the UK and Paypal's a regulated bank over here.

I always have mixed feeling on these stories.

On the one hand, if you operate almost entirely online, you're in amidst a mass of scammers and conmen, it's a much higher risk, hence everything being more draconian. So there's always problems. Brick and mortar businesses are much less as there's a real presence, etc.

On the other hand, this is a long established business. Are they really that high-risk any more? Why are they treated like someone who's just started? Why can't Paypal treat them more respectfully as there's plenty of trading history. Why are there no mechanisms for establishing real identities that are much stronger than what they seem to be doing?

> On the other hand, this is a long established business.

8Faces has been in print since 2010. That's a great start. It's not a really long time. Issue 5 is ready to pre-order. (Weirdly the author claims that they don't really do pre-orders, but on the website there is a huge banner telling people that they can pre-order issue 5.)

Magazine publishing is notoriously tricky, especially in the UK.

> Why can't Paypal treat them more respectfully as there's plenty of trading history. Why are there no mechanisms for establishing real identities that are much stronger than what they seem to be doing?

This is an excellent point. I can understand why Paypal don't have customer reps for every little nickel and dime trader, but a magazine doing £15,000 per issue is reasonably substantial amount of money. It'd be great if Paypal could establish identities (interviews? documentation?) and build relationships with the honest traders that use the service.

And as a result of being a Luxembourg bank

>It is therefore not possible for UK customers to obtain legal redress from the company in the English, Scottish, or Northern Irish Courts.

So he's not getting his £600 back through the courts.

The customer service angle sucks, no question, and I'm worried about getting into similar trouble (I sell downloadable games via PayPal).

But I actually think holding an issues worth of revenue in reserve is a decent enough compromise. If the company goes bankrupt before an issue ships, for whatever reason, PayPal themselves are going to be on the hook for refunding every single payment, as well as chargeback fees that may apply.

PayPal's fees are around 5% - what's their gross profit on each transaction, 1-2% at most?

So if there's a 2% chance of an issue going awry and angry people starting chargebacks, a magazine 50 issues old could turn into a net loss for PayPal overnight, which is why even merchants with long and clean track records get stung by this.

PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs.

The way PayPal handles the customer service end rightfully earns their horrible reputation. But too many people act like the risk itself is not there, or that there's a clear, obvious line between fraudulent businesses that con artists start and solid trustworthy businesses that we start. If PayPal wasn't as aggressive with their fraud prevention, they'd be skinned alive.

And, as other people are pointing out in this thread, standard merchant accounts are not immune from the same level of shoot first, ask questions later fraud prevention.

I believe it's a classic business mistake to think that you must turn a profit on every single customer. It's much better to think like a casino: as long as you're in the black for a service and segment of customers, it's a win.

That's especially true for PayPal now. Before merchants didn't have much choice. If PayPal continues to be seen as difficult and risky, the better-qualified merchants will be the first to shift to other services. That will leave PayPal with a much more risky customer base than they have now.

I don't think any reasonable person has a problem with PayPal deciding to freeze funds in order to ensure that they make a profit. The problem is that, once they have done so, it requires Moses and ten Biblical plagues in order for them to let your money go.

I don't have a problem with PayPal putting a temporary hold (delay) on new funds coming into an account (as long as it's clear what the guidelines are for such a policy), but what I do have a problem with is PayPal freezing an entire account, including funds that are more than a year old. Which PayPal absolutely does in some circumstances.

5-year ex-paypal customer (and hated being one the whole time). 6-month stripe customer (and happy every minute of it so far)

The financial industry is a different beast. If one customer can wipe out the profit of 100, you need to be much more careful about how you do business and who you do business with.

If PayPal said they were holding the money until the magazines printed, that would be one thing. They didn't say that. They said they'd hold the money until 15 thousand pounds accrued, at which time they'd start paying out percentages. That's a whole different ballgame, and is completely ridiculous.

Excellent points. As developers, we're used to just plugging in an API and have it "just work".

Money transfer systems are different. They draw a lot of dark, evil forces that try not just to hack their systems, but to game and abuse it through normal operations.

It's unfortunate that legitimate businesses get caught in the crossfire sometimes, but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)

"but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)".

How do you know it is a lot if we rarely hear about it?

I don't know about PayPal, but I used to work for a well-known online retailer and have seen the fraud data on that side.

The specific numbers are privileged, but suffice it to say, I'm very confident that PayPal deals with as much, if not more fraud, than the mind-boggling amounts I saw at that job.

Fraud definitely exists, but paypal should give more leeway to customers they know aren't fraud. Yes, this customer could, all of a sudden, turn into a fraudster, but there has to be a way to combat that without being so openly hostile at the beginning to a customer in good standing.

Paypal's goal is to protect the person giving the money, not the person receiving it.

Yes, that's not ideal for you as the merchant. Welcome to being a merchant. Shrinkage exists.

Not in my case. I bought an iPod over eBay a few years back. It was delivered faulty. I chatted with seller who said send it back. I told him I would when I "got back", which I did. Sent it registered. The guy stopped answering mail when he got the device. His reputation started to plummet very quickly, mine was 100%. PayPal refused to investigate because I notified them too late (about 6 weeks after purchase) despite emails, faulty item delivered and acknowledged. PayPal is a scam and I will never trust their buyer protection again. Http://www.paypalsycks.com/

How long do you think they should accept chargebacks? 6 weeks? 6 months? 6 years?

One can extrapolate based on two things. Firstly the would-be competitors who have been utterly murdered by various kinds of fraud. Secondly the assumption that the amount of fraud in the world isn't going down.

There are people (individuals, and entire enterprises) dedicated to financial shenanigans of the black hat variety. If Paypal didn't have a robust risk prevention system, they'd have been annihilated a long time ago.

Can you name some of those competitors destroyed by fraud? I'd be interested to learn more about those cases.

I've been using PayPal plus another payment provider to provide other payment options and I can say that I get almost no chargebacks with PayPal. I think I've had one in the past year. The other company, I get several chargebacks a month. Their fraud protections just aren't nearly as good as PayPal.

In fact, I often spot fraudulent charges very quickly and have to email my third part processor to refund or cancel the payments.

I was pointed to http://maxmind.com by another HN poster, which is an API that'll give you a probability of a charge being fraudulent so you can verify it before passing it to the payment provider. I'm going to test that out in combination with Stripe.

Is Stripe that other provider? I've been contemplating switching but I agree with your sentiment that PayPal's fraud detection is the best available right now.

I'd definitely be interested in seeing a write-up about integrating Stripe with third-party fraud detection systems.

No, I haven't currently implemented Stripe. It's another payment processor, the kind that provides their own payment page.

If I recall correctly there is a mention of this on Paypal's story in Founders at Work.

I work with ex-PayPal engineers on similar systems. While I can't give numbers as they're confidential, our automated systems catch a lot of attempted fraud, and I know Paypal does far more payment volume and has much more sophisticated fraud detection systems than us (compare three years of data to over a decade at scale). Doing the math... yes, it's a lot.

Also, fraudsters tend to not brag about how much fraud they weren't able to process.

Recommended read "Founders at work". There is chapter about PayPal.

I wonder if other Elon Musk's creations (SpaceX and Tesla) will become something like this after he will sell them.

Somehow I seriously doubt he will sell SpaceX especially if it's just to turn a profit. Sure in case something happens and all of sudden SpaceX as a business starts flopping, he might end up selling it to other defense and aerospace manufacturers, to at least recoup some costs for whatever shareholders.

Overall I think SpaceX is his baby. Based on interviews and what i've generally read about the man, I think he's gonna stick with it for the long run. I mean hell, he wants to go to Mars as soon as possible in one of his own rockets. That's a dedicated man.

But yet somehow banks stay in business while being legally barred from these same protections.

Of course, you're using a paypal instead of a bank for this very reason, mostly.

Banks have a much more rigorous approval process and are more limited in the merchants they accept (especially internationally).

Banks are not doing merchant processing for most people. Having some sort of reserve to guard against chargebacks is incredibly common in the industry; PayPal, however, is known for going completely over the top as the article and numerous commenters indicate.

> Banks are not doing merchant processing for most people.

Well, US banks aren't. Dutch banks are doing it just fine:


Works very well and I trust this method a lot more than a payment processor that's not my bank.

I'm not entirely sure what the rules are from the merchant's side, however.

Meh. As the author does, he finds another option. I'm not yet convinced that Paypal's shitty service is illegal, but I'm sure if it got bad enough, someone could reasonably argue theft or extortion.

Point being: The precedent of putting Paypal under the behemoth of banking laws/PCI/Frank-Dodd is more frightening than people still willing to do business with them getting shafted. Dare I say, if it were easier and less regulated to move money through the interwebs, Paypal wouldn't be an issue.

> PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs

So your suggested way around this is to incur credit charges & pay for the credit risk baked into the interest rate all so that Paypal is covered?

Frankly, yes.

The merchant is, if I understand the post correctly, taking orders, using the money to print a run, then shipping them.

The risk is caused by the merchant's business model. It may not be high, but it certainly exists. Either the merchant, PayPal or consumers themselves must pay for it.

Who would you pick?

And yet you want him to turn to a bank to help secure Paypal's position so that would indicate that the costs of the risk are not wrapped into Paypal's processes (i.e. the transactions between the two parties).

For Credit Risk banks and other financial institutions use interest rates.

For Operational Risk they use fees. The freezing of accounts comes only when the activity of the merchant approaches a threshold not covered by the fees not prior.

As a base coverage all banks are required to keep a reserve just in case their losses start to mount and then they kick in the extreme measures. Paypal has no such standard to meet in the US (not sure what being a Bank in EU/UK would do).

Truly the Merchant should cover the risk directly with Paypal and the fee structure if they are legitimate. But that is not your solution... a third party must enter the equation to cover where Paypal is deficient in their risk assessment.

Who would have thought that a merchant should have to cover the risk entailed by its choice of business model?

The merchant. It's the merchant's business. The merchant should be the one taking the risk.

I'd be happy with that. Frankly, PayPal's perception of risk is clearly killing businesses. They are going so far into being risk averse that it's killing business. I would rather shoulder the risk that suffer PayPal's "protections". They're like the TSA of online payments.

PayPal charges 5%? You should really shop around. You can get a merchant account through any number of banks that will charge 3% or less. Merchant accounts have the added advantage that they won't freeze your funds, however, you do have to agree to honor chargebacks, even if they happen a few months later, and you have to live by the card company's dispute policy, which is heavily slanted towards the consumer.

Free hardcopy magazine with every PDF download purchased?

At least here in Europe, PayPal is registered and acts as a bank. How much would you enjoy your bank denying you access to your last paycheck just because "who knows what might get billed to your account"...?

Hey, everyone — I'm David Marcus, and I've been running PayPal for the past 5 months. Hard for me not to comment on this thread. PayPal brought a lot of goodness to millions of merchants, and hundreds of millions of users around the world. But yes... as the company grew exponentially we were met with growing pains. And developers, merchants, and consumers sometimes had to pay the price for it. I still want to stress that when you manage money at such a scale, you always attract bad people with wrong intentions. Our intention has always been to protect our customers. Not to mess around with our merchants.

I want to share two things with all of you:

#1 — there's a massive culture change happening at PayPal right now. If we suck at something, we now face it, and we do something about it.

#2 — you have my commitment to make this company GREAT again. We're reinventing how we work, our products, our platforms, our APIs, and our policies. This WILL change, and we won't rest until you all see it. The first installments are due very soon. So stay tuned...

I don't know if this post is legit but if it is then you must know that currently: 1. your api is by far the most hated one in the space. the only good thing about it is the sandbox.

2. there were many instances where you were greedy ( diaspora, wikileaks). Alot of stories in IM forums that you freeze money from vendors and never return the money ( to either side).

3. tens of thousands vendors are waiting for stripe to go abroad including me so we could run away from your draconian "service"

this post is legit (see my last tweet to confirm it to citricsquid). Trust me, I know about this. And this will change. What we have in store is really good, and I know it will take time to rebuild our credo with the dev community, but we're committed, and again... you will like what you will soon see.

David, no dev out there is waiting at home thinking "oh my gosh paypal says something good is going to happen i can't wait". This only happens only to credible service from companies that are trusted by the community. No one cares about what is going to happen in the FUTURE, we care about NOW (i have ~35k dollars a month paid by pp and i can't change paypal's generic call to action template that i know from past a/b testing will make me and you more money). paypal's gate-keeping state of mind is going to back fire hard, better believe it because it's coming.

I agree. Want to fix your issue now. Shoot me an email david(at)paypal(dot)com, and let's figure it out.

Just the other day I was asked to buy a conference ticket via Paypal. I declined and other arrangements were made.

What it would take to restore credibility in my view at this point is apologizing and making up for the antique violin incident and un-blacklisting Wikileaks.

Well, let' start by Paypal recognizing that money in an account usually belongs to the account owner. Automated behaviour checks went wrong too often, resulting in account freezes. No answer from Paypal what the offense was, of course "for security reasons".

Paypal, your transparency sucks. If my account is fishy, tell what it is. We're no longer in the McCarthy times.

And besides, I'm living in the EU. US rules are not always popular for us.

I love the idea behind PayPal. Always did. But if my customers have to wait 10 for a login page to come, many leave these days. Experts say it is a requirement to get below 2. Please, get lightning-fast, it's lost money for all of us.

I have to say I do like the new business phone number which every time seems to connect me to a friendly and helpful person each time.

That's where the positives end for me however. For Paypal, I fear it's too little too late. You've done too much damage to yourselves. I get the reasons why you do things, but the communication over the last years has been atrocious.

We're in the UK and are just waiting for Stripe to come over. I think a lot of other businesses are thinking along the same lines as well.

Your fee structure is pretty expensive as well. There's also a lot of hidden costs:

- We're on an upper tier so should have a reduced commission rate. However, after scratching my head for ages as to why a majority of our sales are not at the lowered rate I finally find the link about cross border fees or whatever reason you use to charge us more. As an example, some of our $119 USD sales have $4.35 fees which is ~3.7%. Our current rate it says on our account should be 1.9%. Your fees structure is not as clear as it should be.

- Have you tried issuing a refund in a different currency? You have to draw money from your bank (even if there are available funds), which is converted to the correct currency which because your spreads as so expensive means sometimes refunds cost us money. I phoned up about this and they told me to open different currency balances which I did and which fixed the issue, but again, bad communication and a broken process

- Related to the previous point, your spreads on foreign conversions are high. I think they've improved a bit over the last couple of years but I still consider them an expensive hidden cost. I contacted Stripe asking what spreads they offer, and they told me they would consider it a hidden cost and they offer customers the same spreads the banks give them.

Also, your website is mind bogglingly slow. See this support ticket I opened: https://www.paypal-community.com/t5/Access-and-security/Why-...

The support person didn't do anything about it. I didn't expect them to though, as Paypal is an impenetrable behemoth that doesn't seem to care about these sorts of things.

Your website being as slow as it is, mind numbingly slow, is honestly enough reason alone for me to move service. Trying to find transactions just is a huge waste of my time waiting for each page to load. Try using your sandbox with pages that load that slow.

> there's a massive culture change happening at PayPal right now. If we suck at something, we now face it, and we do something about it.

So can you make your website faster for a start?

Every time I've called PayPal I get connected to a real person. Once they even proactively called me to warn me of suspicious behaviour on my account. My account (which I've used to make thousands of dollars in payments for years now) has been blocked by them several times and every time a quick call sorts things out. I wonder if I am the norm and OP is the exception or vice versa?

We've never had our account blocked, but we've had a call every now and then to confirm transactions we carry out which is appreciated.

I think if you process enough transactions you get good phone support. They've been great every time.

All the other problems though cancel this benefit out and more in my opinion.

Your fee structure is pretty expensive as well.

Yes, but just for my part I'd certainly let them take another couple of percent (on top of the 3.9% I'm already paying with Pro) for better service :-)

please could you verify your identity (tweet from http://twitter.com/davidmarcus) just for peace of mind? :)

Anecdotal, but maybe helpful: we had a customer purchase software from us almost a year ago, who paid via PayPal but using their Visa. They've now initiated a chargeback. When that occurs, Visa takes the money from PayPal, who takes it from us, immediately - Visa presumes their customer is "innocent" if you will.

It makes no sense, but if you don't like it your option is to not accept Visa. They own the customer so they make the rules. It doesn't matter if its PayPal, Stripe, or any other merchant - if your buyer initiates a chargeback, you'll lose the money until its resolved (~6 months, usually).

As such, PayPal/Stripe/any other merchant account will hold your money for a period of time, until they are comfortable that either:

    1) its been long enough that a chargeback is unlikely
    2) they'll be able to get the money back from you if a chargeback occurs later.
FWIW, all the credit card companies behave this way, and allow their customers to initiate chargebacks for variable lengths of time (sometimes depending on the card type - richer clients can chargeback later.) My understanding is that AMEX has no time limit on chargebacks.

Also relevant to this specific case: its against the TOS of Visa/MC/AMEX/etc to charge the buyer before shipment. You're supposed to authorize at time of purchase and capture only when you actually ship the goods. The OP seems to blatantly violate this, and I suspect they'll have to change the practice regardless of their choice of merchant account.

None of this excuses PayPal's lack of customer support. But Stripe et. all may not be the panacea you're hoping for. Credit cards are where these crazy policies originate, and unless you're prepared to stop accepting them, you'll have to play ball.

You're supposed to authorize at time of purchase and capture only when you actually ship the goods.

I also believed this to be true, but wouldn't that mean Kickstarter (and therefore Amazon) are flagrantly violating T&Cs? I wonder if Amazon has a special arrangement with the main card issuers in this regard.

Kickstarter isn't prepayment, it's patronage, the providers are under no obligation to deliver the product.

Kickstarter's T&Cs state:

Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.


When you fund a Kickstarter project, you're investing in the project.

If it does not fully fund, you receive a refund from Kickstarter.

If it does, your funds go to the project, who are on their best effort to successfully launch the project.

You are NOT, however, directly purchasing a reward. You receive a reward as a gift for helping to fund at a given level.

Are you unable to read? The T&C, as quoted, very clearly states that the project creator is required to fulfil the reward or they must refund the backer.

And for those backers not at a reward level?

But you ignore the bigger problem. How are you, as a Backer, able to require a refund because a Project breached its terms with Kickstarter?

Under what penalty? Plenty of Kickstarter projects have gone unfulfilled with no refunds.

The teeth backing up that TOS is that if you violate it, you'll probably find it hard to get a new kickstarter project accepted. But that doesn't mean there's a legal obligation to fulfill rewards.

> its against the TOS of Visa/MC/AMEX/etc to charge the buyer before shipment

There are some FTC rules about this too, IIRC, that a product must ship within a certain period following payment. I once worked with a company where this was an issue: they had to provide a great deal of data to the FTC to plead their case.

Generally 7 days, though it depends on the card issuer.


Here in Australia, my bank told me they were obligated to have a chargeback process resolved within 90 days.

Not sure if its a legal thing or just their own internal policy (Westpac).

I fully understand Paypal's need to protect itself from scammers. I get it. The loss potential is huge.

I think the problem here is that they really don't have any kind of a real relationship with their customers.

As an honest business person --not a scammer-- when this kind of thing happens to you it is horribly disruptive and demoralizing. As honest people we should be spending time on our business rather than trying to get our money out of a company that has totalitarian control over it. It could, and has, sink a business.

That said, I feel the OP may have triggered the freeze by clearing the account of nearly all funds a couple of days after the phone interview. If I were looking at that data I would see it as a potential red flag. It would almost be irresponsible not to interpret it that way.

I've had sales in excess of $20K (meaning, the invoice for that particular purchase was $20K) come into one of our Paypal accounts and have never had any issues. Then again, the money tends to stay in the account for months. I don't think they've ever seen us clear large amounts of money out of the account immediately after a large sale. That, I am sure, builds trust, even at the algorithmic level.

My company empties our PayPal account 2x a month, at which point it's well into 5 digits, and we've been doing this for ~5 years. If emptying accounts is a red flag, it's never hit us.

> My company empties our PayPal account 2x a month, at which point it's well into 5 digits, and we've been doing this for ~5 years.

Right, but you've been doing that with regularity. It's all about patterns. In addition to that, you are not doing this a day or two after having a probing conversation with a Paypal representative who obviously called with concerns about your account. Huge difference.

I can take almost any amount I want out of our Paypal accounts and it has never triggered so much as a warning email. Our track record (~10 years) is pretty solid.

>the OP may have triggered the freeze by clearing the account of nearly all funds a couple of days after the phone interview.

It would be very helpful for someone to post (from experience and/or inside knowledge) a "How work with PayPal and avoid problems" FAQ

There's been a lot of PayPal hating on HN. I'm not trying to defend the horrible things that I've heard, but I, for one, am a happy PayPal customer. We've regularly moved thousands upon thousands of dollars a day for the last decade without any major issues. #YMMV

They seem to really hate any and all pre-sales, plus they have a list of "risk items" - if you're lucky not to fall into one of those categories, it's a happy life with Paypal for you :-).

Then there's their automated fraud prevention system that is just too trigger happy. As an example: I bought an item on eBay the other week and they refused to process the payment. A couple of days later I decided to try again before buying from another seller and it went through without issues.

Based on what's said, it seems that businesses/groups that raise large sums of money sporadically trigger the most problems.

If you're running an on-going business that has multiple to many transactions everyday over long periods of time, then I suspect that you're less likely to trigger these problems. But again, YMMV.

There are countless tales of eBay parties having their funds frozen. I've personally had around a dozen influxes of a couple hundred dollars at a time be frozen for 4-6 weeks before I had access to their full balances.

Additionally, many have issues with the fees. Going back to eBay, you get hit with fees for both services, and I think many just see it as being too much given other emerging comparable services.

> There are countless tales of eBay parties having their funds frozen.

"I used ebay, something went wrong, here's my post" vs "I used ebay, everything went smoothly, here's my post".

Obviously you're going to have many more posts where things go wrong, but that doesn't tell you anything about the total number of transactions, nor the successful transactions.

Of course. You'd be hard pressed to find a scenario on the web where selection bias doesn't come into play. Regardless, there's a level of distinction between "I had a bad experience" and "Paypal has inexplicably frozen my funds."

I agree that there are numerous positive experiences out there. I would imagine PayPal would struggle if there wasn't a large user base that was satisfied. The point here is that some people are starting to reassess and or question the net-benefit offered by PayPal at the cost of these inconveniences.

I have worked with about 6 to 8 payment providers and from my anecdotal experience Paypal was the worst to work with.

Lots of comments here are focusing on the mechanics of credit card processing and why Paypal might have to hold funds, but to me the entire article was really about the customer service angle and how Paypal handle this. They freeze accounts and make it next to impossible to get valid feedback on why.

He might have argued the point, but in this particular example a simple explanation of "We are concerned about liability if you cancel an issue before the physical version is delivered. The hold on funds helps protect us in that event".

The Paypal model fits small transactions and small volume. As soon as you are big enough to feel like you deserve / expect such an explanation it is probably just time to move on.

I refuse to deal with Paypal, 6 months ago, I had a charge refused by my bank and before I had received a letter 5 days later Paypal had already backcharged all the payments I had made since to my account, stating that my account was now £65 in the negative.

The result of this is Paypal saying I owed them £65, but that once paid they would not return this to the companies and the companies sating that I owed them nominal amounts each.

I repaid the companies in cash through the post (I even converted it to the correct currency) and have squared things with them, and Paypal is still saying I owe them £65.

I have told Paypal that as they paid out £65 and then took it back, they are currently level and are not owed any money and informed them to cancel the outgoing payments as I have paid them myself, but they continue to persist with the idea that I owe them money.

They refuse to let me add another card to my account to pay off this amount (the card I originally used is Spanish and I don't use it anymore, the balance on it is, however +£0.47) and I refuse to lose money having it converted over to Euros.

As a result I have cancelled all existing usage of paypal and now pay from a credit card instead and I refuse to either pay Paypal the money I supposedly owe them or add more funds to my old account to have them take it away (leaving them £65 in the green and me in the minus)

My experience of Paypal customer services is poor service and automated responses, if it was possible to talk to a human this would have been sorted months ago, but as a result of their ineptitude they have lost a customer who was doing daily business with them in the order of £100 - £200 incoming and outgoing.

It's not much income to them, but I will no longer use their service and if enough people follow suit it will make a difference.

And for the record, the freeze they placed on my account over such a nominal amount cost me around £750 in lost sales before I began re-routing to my credit card, but I doubt very much they will offer to refund this.

Perhaps someone who runs their own company can answer this question for me: If you don't use PayPal, how do you receive payment from customers who don't have credit cards?

Are your customers exclusively in North America? Or do you just write those customers off (which is a valid option if PayPal integration would be that painful)?

Adding PayPal as a payment option has been an enormous pain for us but a non-consequently amount of our revenue comes from customers either without credit cards or with cards which always fail on international transactions. I see no alternative to PayPal for these customers.

  If you don't use PayPal, how do you receive payment from 
  customers who don't have credit cards?
If a customer doesn't have a credit card or a debit card that your payment gateway accepts, you deal with them the same way you deal with customers who don't have computers.

In the western world, people without credit or debit cards are such a small portion of the population that this policy of ignoring such users is worthwhile. In developing countries however, there are many services that aim to bridge this gap. I dont know how good they are, or how successful they will be, but people are certainly trying to access this market.

Examples (no affiliations): http://gharpay.in/ - Home cash pickup; https://www.itzcash.com/ - Prepaid Cash card; Mobile Money services in Africa such as M-Pesa - http://en.wikipedia.org/wiki/M-Pesa

Actually, as a student in Germany, most of people I know don't have or want a credit card (which is a major annoyance with Google Checkout, since they accept _only_ credit card payment). That's - depending on your product of course - not that small a market. I would argue that this is the case in other countries, too.

My girlfriend's online business accepts bank transfers if customers can't pay online. "Go to this bank and deposit $X to account Y".

Maybe it doesn't scale too well, but at her business scale it still works for the exception cases and money is money. If you're biggest problem is too many people depositing money to your bank account, that's not a bad problem.

http://www.polipayments.com/ seems pretty good for this.

When you go to make a payment, it logs into your bank account and does the transfer for you. So you get an instant receipt, without having to wait for the money to show up in the merchants bank account.

Apart from the obvious problem of letting third party software have full access to your bank account.

It's a breach of my bank's terms of service, so I would be responsible for fraud if I used it. No thanks.

We have a staggering number of customer who pay us through PayPal because they don't have a credit card or a debit card which clears through Mastercard/Visa (which is the standard in most countries).

Cell phone. You see it a lot in Africa, where few people have credit cards but many have cheap cell phones.

That works in the US, but it does not work internationally.

Moneybookers is a fairly decent alternative. I assume you're talking about mainland Europe where credit card penetration is less prevalent.

Moneybookers interface is terrible, and they will expose your customers to this horrible interface. Their customer service seems to be confused but I've never heard horror stories.

There are payment solutions geared towards European customers so that you can accept bank transfers, etc.

*Moneybookers has been rebranded, now called Skrill.

So they have! I knew they were transitioning, but it appears they're just about done with the change.

Skrill is such an awful name IMHO!

"Skrilla" is slang for money: www.urbandictionary.com/define.php?term=skrilla

See also the lyrics for "Cash in My Pocket" by Wiley:

> All I really want is money in my pocket

> Cash in my hand, oh, skrilla in my wallet

> All I really want is money in my pocket

> Cash in my hand and skrilla in my wallet, yeah


NB: This doesn't stop it still being an awful name, but it might explain why they chose it.

That's absolutely hilarious! They should have just stuck with their original brand, which wasn't all that terrible either!

Can't we agree that both names are equally horrible?


There are debit cards out there!

In fact, everyone I know has at least one debit card (either MasterCard or VISA), aside from the number of people who have an AMEX/VISA (credit type).

And debit cards work everywhere. I've used my VISA Electron (debit) pretty much everywhere in the developed world, both online and travelling abroad.

"everyone I know" is not a useful sample to approximate the customers of an online business with international customers.

Where payment options are concerned, VISA/Mastercard branded debit cards are the exact same thing as credit cards. And in many countries, the average citizen has neither. They may have a debit card that's part of some national payment network, they may be used to buying stuff online via their mobile phone account, or in cash at their corner convenience store, or via wire transfer from their bank account.

Paypal allows payment via a MANY such schemes you have never heard about. That is their USP, and something no startup can easily "disrupt".

I use Paypal for one reason (as the consumer); it adds an extra layer of protection for me. I don't want to give my CC details to every site I buy from. And then have to check my CC statement everyday to make sure nothing was hacked along the way.

For a consumer, Paypal makes it very easy to manage payments, receipts, and any other issues.

By the way, never ever use a debt card online. You're handing over access to your bank account.

> By the way, never ever use a debt card online. You're handing over access to your bank account.

Are you sure about that?

Visa will refund you money if your card is lost or stolen: http://usa.visa.com/personal/cards/debit/visa_check_cards_fa...

My personal bank also has similar verbiage for my debit card. They also mention that internet purchases are considered non-PIN purchases and are offered the same protection.

Yes, there is more risk since money can be taken directly out of your account instead of going against your credit, but there are mitigations in place.

I repeat this almost every time this topic comes up:

With a credit card, you can say that the charge was fraudulent and they will take the charge(s) off and you're not on the hook. With a debit card, you're out the money of the fraudulent charge while the bank investigates. From my personal experience, this can take a few days to 3 weeks before the bank puts the money back in your account. If the charge happens to put your account into overdraft, you may still have to pay the overdraft fee which may be hard to get overturned.

I pretty much only use my debit card as an ATM card. Very rarely do I actually use it as a debit card (there are rare instances where I may need to)

Conclusion: Don't use your debit card online if you have a credit card.

Used to work in the industry manufacturing and programming these cards. You are exactly correct, the credit network provides more protection for the cardholder than using your debit card.

With the bank account, they may not reverse fees or other issues that arise as a result. For example, I had a fraudulent charge on a debit card. They reversed it, which is fine, but i was still hit with an overdraft because of a scheduled ACH payment which, at that time, dragged me into negative balance. So there are differences between debit and credit cards.

The only problem with debit cards is that MasterCard and Visa don't cover everyone. For example MasterCard also runs Maestro [1] in the UK which lots of online payment systems seem to neglect (I had to setup another bank account with another bank to get my hands on a Visa Debit card for this very reason).

[1] http://www.maestrocard.com/uk/

Yes, because there are no security issues in giving out a debt card number that is directly linked to your bank account.

As you can always get the money back with a simple order, it is a very minor issue.

Huh? Debit transactions are not easy to reverse, at all, and in the U.S. at least are covered by much less generous consumer protection laws than are credit card transactions.

I was of course only talking about developed countries ;)

Really, afaik in europe and for sure in germany this is totally easy. It is not equally easy to reverse a transaction you started yourself. But when another person has you account-number and the public data belonging to this, all he can do is a "lastschrift" (direct debit), which is easily reverseable.

No need to downvote me. The USA is different than europe, and in this regards way behind.

A bank account number is different than a debit card number

About the direct debt, sure, I can undo this, via internet banking.

But a fraudulent debt card purchase takes time to process and you don't have you money in the account anymore.

With a credit card I can check for fraud and my money is not gone if this happens (and yes, it has happened to me)

Sure, those are different things. Maybe I misunderstood what the first comment was talking about, as I know of no system where you enter your debit card number to do anything.

This just highlights the fact that our global banking system works very differently in different parts of the world. And maybe, to close the cicle, as the article claims paypal really shouldn't forget this, as it has to behave differently outside of the US if it wants to stay successful. A different environment probably always needs a different strategy.

No, not everyone has a MasterCard / VISA debit card.

Whatever that is, a debit card by MasterCard or VISA..

Me? Got my first credit card with 30, when I moved to Israel. That thing's invalid by now. Here in Germany I have a direct debit card (likely ~everyone~ has one, it's the one you use for the ATM as well), issued by my bank.

Now, I can use Paypal. In Germany (and probably more places) they offer to connect a regular bank account. So - Paypal can withdraw from my bank account, I can pay with Paypal where people otherwise insist on a type of payment that I don't like (Paypal's not the nicest thing ever by itself, but 'it works').

In my circle, credit cards are still mistrusted, ~rare~ (as in at least 2 out of 3 won't have one) and really just for collecting debt or buying stuff on your company's name. People around me are waiting for Google Play (oh I HATE that name) gift cards, because they'd really like to buy apps some time..

While Mastercard/Visa debit cards are common in many countries (they certainly are in the UK, for example), there are places they're unheard of. New Zealand bank cards, for example, are typically not those kinds of debit cards and can't be easily used over the internet. They are almost universally accepted in NZ though, rather more so than debit cards in the UK where it's not that uncommon to find pubs or cafes that have a minimum charge or, in rare cases, don't take them.

I have a Visa debitcard, but it is only good for use in ATM and stores. To overcome this I get a bunch of Visa gift cards from my bank that I can put money into and use online.

> everyone I know

News flash buddy, population of Earth > potential customers > "everyone you know".

Depends on the business. Some people might buy gift tokens (with cash, using a friend who does have a valid payment method). This is useful on, for example, Amazon.

In the UK we have "prepaid credit cards"[1] which could be useful for some people who are otherwise unable to get credit.

[1] confusing name, because they never give you credit, and I don't think they have the same protections as normal credit cards.

They send cash like my grandma does.

Paypal to me is the classical example of the incumbent growing stale and detached from its consumer base on which it built its business on. Sellers like Eliot are the bulk of Paypal's business - small businesses who needed a (relatively) easy way to start accepting payments online.

Paypal is just giving every opportunity for someone else to come and get their market share. Hopefully it will happen sooner rather than later.

If PayPal is so very terrible (and I believe it), Is there a reason Amazon Payments or Google Wallet haven't overtaken PayPal in this market?

If neither Amazon nor Google's brand recognition hasn't convinced folks (buyers or sellers) to start pushing it instead of PayPal for Internet purchases, I can only hope it's because their solutions are equally terrible - otherwise, I have a hard time seeing how a new player will make headway in this space. And I'd really like a new player. :/

Amazon payments would be a great alternative, main problem is that it's only available in the US (this is why Kickstarter is still limited to US projects btw). I'm not familiar with the details on Google wallet, but my hunch it's the same reason

When Google Checkout launched it was in a right mess. I remember trying to use it and it silently crashed without an error. It was bizarre, all over the forums, no Google response.

It also had an even worse payment flow than paypal. Which is saying something.

You can't ignore early adopters like that so no-one switched.

Also seem to remember it didn't take payments from a lot of countries. Could be wrong.

It's hard to believe but Google merchant accounts still aren't available outside of the UK and USA. Even Stripe is still USA only.

Google Checkout (now Google Wallet) is still a mess both technically and with customer support.

>Is there a reason Amazon Payments or Google Wallet haven't overtaken PayPal in this market?

As a buyer (and not a merchant), I love Paypal because I can have it debit directly from by bank account instead of handing over my credit card information. I hate credit cards, and this combined with Paypal's two-factor authentication gives me some good peace of mind. I haven't seen any other services that provide direct-debit to Australians, and even if they did, they would be useless to me unless they were as ubiquitous as Paypal is. I can use Paypal just about everywhere except for Amazon and O'Reilly. At this point I wouldn't even consider using Amazon or Google Wallet for purchases.

On the other hand, these horror stories have made me very wary of the merchant side of Paypal, and I'd definitely think twice about using them to process payments.

> As a buyer (and not a merchant), I love Paypal because I can have it debit directly from by bank account instead of handing over my credit card information.

I don't understand this at all. I pay through PayPal via a credit card when a merchant accepts no other form of payment, and if they ever gave me trouble, I trust my credit card provider enough that I don't have to trust PayPal. I wouldn't let PayPal near my bank account, because bank accounts don't have the same level of protection for illegitimate transfers, and PayPal will happily ACH away however much they feel entitled to.

> I love Paypal because I can have it debit directly from by bank account instead of handing over my credit card information

You'd rather give the internet a direct line to your bank account to suck out all your money, vs giving it a number to a credit line (which you can refuse to pay if there's any fraud)? I'd like to see the logic behind this.

I've got it tied to a separate bank account that I transfer funds into whenever I want to buy something. I wouldn't ever connect it to my savings.

"If PayPal is so very terrible (and I believe it), Is there a reason Amazon Payments or Google Wallet haven't overtaken PayPal in this market?"

eBay would account for some of it. Also, payments is a relatively highly regulated market globally, as evidenced by Stripe trying to expand internationally.

When launched both of these products were problematic, Google from the UI side, Amazon from both the API side and the UI side. And the network effects suck - no one has accounts.

We axed amazon soon after we integrated with them - I gather that now both the API and more importantly the UI are much better, and people can sucessfully use their pre-existing amazon accounts. That would be huge.

Google we still support, but it's usage has plummeted from a low starting place on our site. It'll be dropped on the next rev of the our UI.

As Auguste mentioned already, it's all about lacking direct debit for international customers.

I'm from the Netherlands and if you're a freelancer here you need to provide income statements for 3 years before you can get a credit card.

That meant that until last year I couldn't buy a thing with Google Wallet or Amazon Payments without asking my family for a credit card.

The only thing that worked for me was PayPal (and the iTunes store.)

> I'm from the Netherlands and if you're a freelancer here you need to provide income statements for 3 years before you can get a credit card.

That's amazing. Also goes to show anyone who tries to talk about "Europe" is making a useless generalization - here in Sweden I easily got two credit cards when I was a student with no income aside from government student loans.

But don't you have VISA/Mastercard debit cards? In Sweden, there are no longer any ATM cards, everyone gets a VISA or MasterCard instead that works in ATM, stores and online.

You can get a MasterCard debit card while you're a student here as well, which most people get to keep after college.

If you didn't apply or it gets revoked because you were flagged somehow, which happened to me when moving abroad for a year, you end up in the situation I described.

And no, we are still pretty much exclusively ATM based here.

They won't even give you a secured credit card, one backed by a cash deposit?

>Is there a reason Amazon Payments or Google Wallet haven't overtaken PayPal in this market?

Network effects, name recognition, and forced integration with the only online auction site that matters.

Does anyone have insider knowledge of why PayPal has been causing merchants so much trouble? It sure looks bad on the outside, but I'd be interested to hear their rationale.

To the extent this perception represents actual reality:

You know how every time a new payment provider comes up and people kvelch that it isn't available in their country and how no provider is? This is because every payment provider which attempts to hit as many countries as Paypal does dies. They're killed by fraud. (Fraud kills domestic ones, too, all the time, but it's marginally less frequent.)

Luckily, Paypal is an anti-fraud AI company which also happens to run credit cards sometimes. When in doubt, they will always come down on the conservative side. This is why they still exist. (Early in their corporate history they lost -- no kidding -- one hundred million dollars to fraud.)

This perception does not actually match reality, though: most people bitten by this are unaware that similar activity would get them shut down by the fraud department at e.g. a bank. See comments by dangrossman, etc.

My paypal account has been hacked twice, and both times I had to catch the ensuing fraud on my own. This was about 3 and 4 years ago. Two months ago they shut down my account because they think I'm high risk. I've had my Chase account frauded twice too (I know, I AM high risk) and Chase hasn't shut down my account.

IMO Paypal swung quickly from being too sloppy to being too conservative. The fraud they missed a few years ago was easy to catch - it was from sketchy sites and the products were being shipped to PO boxes nowhere close to where I live. Paypal is playing a dangerous game now by shutting down people's accounts because their strength comes from a network effect within a potential monopoly (unlike Chase); every person they ban from paypal removes the legitimacy of their service a little.

BTW Paypal's fraud team was only built up to a solid point in the past 3-4 years. I know this because I used to work in the industry.

Luckily, Paypal is an anti-fraud AI company which also happens to run credit cards sometimes

The thing is, it shouldn't take much in the way of "AI" to recognize that a company that has already been doing business for several months or even years is probably not going to wake up one morning and start defrauding people. Criminals are lazy, and running a business is a lot of work. It would take about 30 seconds' worth of review time on the part of a moderately low-paid staffer at PayPal to avoid most of these PayPal Media Debacle of the Week stories.

I simply cannot believe that it's that hard to distinguish between a fraudulent user and a real one, given the presence of a significant transaction history. New accounts opened by people with no discernible history? Yes, they should freeze/ban/lock first and ask questions later. Accounts that are clearly used as part of a business? Give the customer the benefit of the doubt, or at least a 5-minute phone call.

You're wrong. A common type of fraud on ebay is for an account to build up a reputation buying/selling low cost items (or high cost items between a group of criminal partners) before using the account to scam on high price items.

Criminals are perfectly willing to put time and effort to create fake accounts or just buy stolen accounts.

To accept your statement that I'm "wrong," I'd need to see some examples of false business fronts that were not obviously bogus from day 1.

On eBay, yes, it was pretty easy to play the "Sell a bunch of stuff for 99 cents and then pull the big scam" game. But none of the widely-publicized cases where PayPal has basically attempted to wreck the lives of startup founders fall into that pattern. These people have all had independent web sites selling actual products, and/or a background in other ventures that could be checked if PayPal were to spend 5 minutes doing due diligence on them.

It's a relatively common thing for criminals to do, and is known as a 'long firm': http://en.wikipedia.org/wiki/Long_firm

1) Run a legit business for a few months

2) Build up credit history with suppliers

3) After a while, buy a huge amount of stock on credit

4) Sell all of the stock for cash at massive discounts

5) Disappear with the cash, leaving a pile of unpaid debt in your wake

Sure. Someone does that when they are looking to steal hundreds of thousands of dollars, or millions of dollars.

Someone looking to put one over on PayPal is not going to do all that crap. Sorry. I need to hear some actual examples if I'm going to change my mind.

Selection bias. You do not see all the times paypal has successfully frozen an actual criminal organisation (i have no idea the numbers). If paypal's accuracy was 99%, then there would be 1 innocent startup squashed for every 99 successful defections. Do you think paypal need 100% accuracy?

At the end of the day, letting criminals dictate how you do business with legitimate customers is not OK.

Simple due diligence will either eliminate the genuine criminals, or it will not. If five minutes' worth of due diligence by humans fails, then so will any conceivable AI algorithm.

Some criminals are after a quick buck. Some criminal organisations (eg Mafia) are a lot of work and go on for years. It's illogical to then assuming "There is lots of activity, ergo they must not be criminals".

Having a large base of clients willing to buy through their services is ultimately what matters, and I think they achieved that partially by siding with the customer most of the time. Making a purchase through their services, you know that you more or less protected, and if you start jumping up and down, you will probably get your money back. Businesses put up with their less-than-fair treatment because until recently, there weren't any alternatives on nearly the same level of "respectability", as far as buyers are concerned.

I'm willing to bet that in the beginning, when they were mainly trying to court businesses to implement their service, the situation was different.

This post makes me very very happy, knowing that Paypal lost one hundred million dollars. Thank you for making my day!

Considering they have a quarter billion active users, a "horror story" once or twice a month is an amazingly, amazingly low dissatisfaction rate. I don't think PayPal is actually causing that many merchants much trouble. It just appears that way, because:

* At most merchant services providers, underwriting happens up front: you have to describe your business, what you're selling, expected volume, etc. on an application, and go back and forth with the bank, before you are allowed to accept credit cards. PayPal lets you start immediately, and only gets the information from you once you've started transacting some meaningful volume. So the risk problems are weeded out with other processors right at the start, where with PayPal it can come up suddenly.

* These people have never even thought about underwriting and risk assessment. They treat PayPal as if it's a consumer service, when PayPal has to treat it seriously -- they're essentially making a rolling loan in the amount of 6 months of your transaction volume -- because if you disappear, they're on the hook for the chargebacks for all your past payments. People do stuff no other processor would let them do -- like taking massive donations with no prior approval, selling pre-orders to software that hasn't been written yet -- and PayPal isn't OK with it either once they find out.

* PayPal merchants are disproportionately more often individuals than actual businesses compared to what other processors see... because it's so easy to open an account, and everyone that's used eBay already has one.

* Because the merchants are individuals, and have no experience with underwriting at other processors, and have previously used accounts suddenly limited or frozen, they're confused and surprised. Add to that customer service that won't really tell you much once an account's been closed, and you end up with a couple really angry people a month: cue blog post about how PayPal is evil and if only it were a bank, they couldn't do this.

Even given that, I think PayPal has done a poor customer service job.

They long ago could have introduced some sort of premier business account that drags serious merchants through a proper vetting process.

Then they could have made the "we're scared of you" experience for non-premier users much less confusing. They clearly have a lot of internal structure and rules. They want to keep some of that hidden, to minimize fraud hackery. But they could expose the broad strokes to users, make clear what state they're in, and offer them the opportunity to upgrade to properly vetted merchant accounts at any time. People aren't upset about the restrictions; it's their arbitrary, opaque nature that makes them seem so unfair.

I think the real problem here is that PayPal is owned by EBay. I hear EBay is getting better, but the place used to be a nightmare to work at, and one glance at their website tells you how thoroughly they're focusing on exploiting their existing model at the expense of trying anything new. With that kind of ownership, I figure anybody with a desire for innovation long ago left PayPal.

My impression is that the barrier to entry of working with PayPal (in comparison to having a meeting with a bank and going through formal underwriting) is sufficiently low that people begin working with PayPal without knowing much about how financial systems work: they don't know how holds work, they don't understand how the credit system works, and in general they believe that the system should work identically to cash transactions (as in, the money is yours immediately when it hits your account).

The result is that the system is treating them identically to how a bank would treat a more organized company; however, with an accountant on hand and an understanding of the rules, the organized company is much less likely to make silly mistakes (such as selling people a product that is shipped more than 48 hours later, already in violation of VISA's rules, to a third-party's address and then claiming that it is a "donation" and not a "purchase" <- an example from earlier this year).

There are also simply more players, as we are now talking about a bunch of couple-person companies that are using PayPal to accept credit cards, and even individuals who may not be incorporated at all but are using it to launch and sell products on their websites. These kinds of people are also much more likely to decide to attempt "lynch-mob" as their primary means of recourse against a company doing something they disliked, so we are doubly more likely to hear about situations.

However, as a merchant who operates something that many people (incorrectly) call sketchy, and one who has spent much too long learning all of the relevant tax regulations, reading up on credit cards, talking to people with real merchant accounts, and having meetings with banks about possibly using their service instead, my opinion is: PayPal is not that difficult to talk to and they are not actually unreasonable; there are things they are incompetent at, but this isn't one of them.

I have no insider knowledge, but here is the obvious answer: fraud is an existential threat to their business.

Paypal's profit margin is a small percentage of the value of a transaction. The potential losses due to fraud can go as high as 100% of the value of the transaction. I.e. their losses can be 50-100x as big as their gains.

Further, the selling point of Paypal is they let anyone who wants to set up shop and use Paypal for money transfers. The tradeoff you make by using Paypal is much lower setup costs (relative to a merchant account) for much higher risk.

In Europe, PayPal actually is incorporated as a bank, so all normal rules apply. Merchant accounts for digital goods are subject to a lot of risk!

Stripe et. al. are the credit unions of the card processing world -- they can offer more personalized service. But they also can't really scale and meet all demand, or handle the very largest accounts, without putting many PayPal-esque structures in place.

Had a similar experience with Paypal about a year ago. I reported them to the Better Business Bureau for unethical business practices and Paypals response was basically "well its not illegal so we're going to keep doing it".

Great, and I will keep not using your site, and I will keep filing complaints through every forum possible until we eventually end up on a new site and the circle of life of

useful startup--->gets an ego and stops caring about customers--->replaced by new useful startup


EDIT: The best part was they accused me of three things: 1) Being a newer member (I opened my account in 2000 so I'm not sure I agree.) 2) Not having enough account history. (In the 12 years I've been a member I tend to make 1-2 transactions per month). 3) The transaction being "abnormally large". (I get paid rent and pay rent through the account for thousands of dollars at a time, the transaction in question was for $400 dollars)

basically paypal can diagf.

Thank you for writing this, reiterates everything i feel about Paypal as well!

We use Stripe and I couldn't be happier. Started with Paypal, wanted to shoot myself on a regular basis.

Unfortunately for Elliot, myself and the countless other non-Americans in the software development world, Stripe is not available (yet) outside of the USA. Stripe have stated that they're working very hard on breaking out into other countries, but I suspect it must be an immense job, what with all of the various existing bureaucracies and regulations present in each country. Hopefully we'll get some good news in the not-too-distant future...

Even when it becomes available to merchants in other countries, it still won't let you accept payments from the dozens of countries where people use PayPal but don't have major brand credit cards. There's really no equivalent service.

I think Skrill Moneybookers http://www.moneybookers.com is as close as you'll get to PayPal. They accept pretty much all credit cards, banks etc.

http://www.braintreepayments.com/ just expanded into the EU and Canada! (Disclosure, I work for Braintree.)

Could you please clarify this? We made contact with Braintree just last week, resulting in an invitation to join the EU beta programme. We read over the provided docs and sent back a few follow-up questions, but haven't heard anything since. Now the whole site seems to have changed around, suggesting that the service is out of beta.

Can I safely assume at this point that our reply was "lost" and we should start over? Not exactly a promising start on the customer service front, but perhaps we can call it teething trouble. :-)

My apologies. I can say that's highly unusual and there's no excuse for it. Can you email me directly at rob@braintreepayments.com so I can straighten this out for you ASAP?

We're in Canada using Stripe, we actually managed to get in before they even started their Canadian beta. You dont need to be in the US, you just need a US bank account and postage address.

Stripe currently has a Canadian beta going, if you happen to be based there. Send them an email and ask!

My business also suffered many of the same indignities, concluding with the freezing of my account and a 6 month hold on thousands of dollars. Our paypal account had an 8-year track record of perfect customer service - all issues handled immediately. We sell website construction software and marketing training services. We were taking in 28% of our income via paypal, with the rest through a standard merchant account. Losing this much of our business, along with having the funds held, was enough to collapse everything. The company is now in the process of being sold. I'm not saying it's all paypal's fault - we obviously should have had contingencies in place for such a circumstance - but they obviously had a huge part in the failure. I'm no longer angry about it; I'm just really sad. We posed no risk to paypal (years ago they placed a $5,000 reserve on our account which I was happy to comply with) and they couldn't give any reason for why they were doing this to us. 8 years of successful business is an eternity on the Internet. That track record seemed inconsequential to them. Causing this level of pain and heartbreak "because our TOS says we can" seems nothing short of... evil.

Just my yow cents...I received 3+k in my PayPal acct around 3mon ago. I was shocked next day that my acct was freezed and when I called PayPal I was told to provide PROOF OF DELIVERY to have mt acct unlimited...ok, so I did...the misery just started...a week later my acct was still frozen and I decided to call again...another chick with a distant,lazy voice stressed I would need PROOF OF RECEPT to unlimit my acct...you know how long it takes for a sea freight from china to the states I escalated to a inexperienced supervisor...to no avail of course...so I have to wait another month for the shipment to arrive, and then I called again in urgency...guess what? No luck, I went thru a few more chicks only to realize they never wanted to be honest with me to unlimit my acct because THEY WANT THE MONEY FOR FREE FINANCING! My acct was still frozen 45days after receiving the payment...I had enough...I refunded the money and closed my acct last month...I ask all my friends, partners,and biz associates to stop using PayPal...this is what I tell you PayPal you do not suck, that doesn't apply to you,you are sleazy cheap

I had PayPal freeze my merchant account while I was registering it. I didn't even get to sell anything, because their broken, confusing interface made me fill out something wrong, and when I tried to correct it they froze the account. I believe every word of this article.

I've been hearing a lot about Stripe lately, but haven't used it yet.

I hate PayPal with a vengance. I used PayPal with my small online music business a few years ago. But when there was one dispute by one customer, they froze my account, not just for that one transaction with that one customer, but for all transactions with all customers. And they refused to answer my calls or help me resolve the problem. They sided with the customer, even though she was wrong (it was about a disputed shipping charge), and I ended up not only losing the sale, the cost of shipping and insurance, but subsequent sales and deals with other customers. My rating on Ebay went from 98 to 65 over night with angry posts from other customers. It was a horrible scene. I ended up refunding everyone that had their money frozen, even though PayPal never refunded me! I switched eventually to Google Wallet and have been happy ever since.

I don't think this guy realizes the extent of how correct he is. PayPal is not a bank. They are basically a giant merchant account. Wells Fargo backs them, even while they compete with them (clearXchange.com).

So PayPal doesn't have to operate by the same rules. When you use PayPal, you are putting money into PayPal's bank account and hoping they act in your best interests.

A reasonable person (I feel) would conclude PayPal is a de facto merchant acquiring bank, especially given the volume, and therefore should be required to operate under those laws.

Of course, PayPal knows the real money is in becoming a card scheme, so it's only a matter of time before we see that (not co-branded with MasterCard). At least they'd have to operate under existing card scheme laws, but I sure as heck wouldn't use one.

That is not true in the UK, where the OP is operating in. Paypal is a bank here and subject to regulations.

Whose regulations, though? They're not a UK bank, and it doesn't seem clear that UK courts have any practical ability to help if a UK merchant has a dispute with PayPal and feels they need to resort to legal action.

Ah, I missed that he was in the UK. Thanks for pointing it out.

OMG! I thought I was one of the Only ones this happened to!!!

I had nearly $40k (ALL of my upstart company's capital) held for 180 days, and I almost went out of business. My products unexpectedly sold better than we had planned for, and we received a few chargebacks, that we had asked Paypal how we should handle before they occurred. The chargebacks were a very small amount, but they held the ENTIRE BALANCE. I couldnt pay for any of the inventory, which led to a chain reaction of chargebacks.

What made it even worse - THEY NEVER REFUNDED the customers on time and did not allow us, the merchant, to process the refunds --- IT WAS THE ULTIMATE BUSINESS NIGHTMARE!!! We started out as victims of our own sucess. Instead of helping us, we almost became victims of Paypal!

Small nit-picky thing: Paypal has bank-status in Europe.

Also in Australia.

I'm happy to see that someone is not only standing up to PayPal and going another route, but also that a very good alternative is being set forth. It's not just another "Paypal sucks", and I appreciate that.

From my experience and that of others who’ve suffered the same, it’s clear that PayPal are interested in buyers, not sellers. Why else would they provide customers with refunds at the drop of a hat, but withhold money amounting to thousands — literally thousands and thousands and thousands — from buyers without any valid reason, when not even your bank is legally allowed do that?

The best part about them giving buyers refunds is that if you, as a seller, want to dispute their chargeback, you have to pay Paypal an administrative fee ^_^

One of the reasons why PayPal so paranoid is to prevent money laundering. In fact this could be _the_ factor because any mis-step would land PP itself in big trouble and could be fined a lot of money. My guess is PP would rather err on the side of its own safety.

Another cause that it will freeze an account is when it suspects the account is used for illegal activities (e.g. selling fake goods).

Please note I am in no way implying the OP is involved in any of these. I am just making some guess on why PP may shut down/freeze accounts.

Money launderers typically like to avoid leaving a trial and I would think PayPal keeps a very accurate trial of where its money flows. And since they are regulated as a bank (at least in the EU) I suspect PayPal will simply need to hand over that information to the authorities when asked.

I doubt it. Money launderers never do chargebacks and never make complaints. They are _the_ ideal banking customer, which is why the tax man hates on them.

Money launderers launder money from stolen credit cards.

Chargebacks are filed a month or two later by owners of these stolen credit cards.

You are describing fraud. Money laundering is the redirection of the proceeds of illegal business to make it look like legitimate income.

Fraud IS illegal business. Purchasing goods using stolen credit cards is part of a process of making it look like legitimate income.

PayPal charges substantially less than a traditional merchant account and payment gateway. Particularly in the UK. It would be interesting if the OP touched upon that. They're also easier and faster to set up than a merchant account/payment gateway.

In return for being cheaper and faster there are trade offs. As stated in the article, this person's business model is a "high risk" one in general and to PayPal in particular. This is a great example of where a merchant account with a bank really is the better option. They need to met you, understand your business and why it works the way it does. Once done, you're less likely to have ongoing issues. So, you can keep your "higher risk" business model and change from PayPal or you can change your business model to better fit with PayPal. I don't think you can have both.

PayPal is a family sedan. This guy is lamenting that his vehicle doesn't perform the way he wants it to at high speed on twisty mountain roads. Seems like an unfair car review in that sense.

As others noted - it would look very strange to PayPal if you basically pull all your funds two days after that call. Who knows what else he inadvertently did to raise suspicion.

"Yeah, but, merchant services are hard!"

Bullshit. If you're going to process payments, you have to solve hard problems like fraud prevention, and PayPal is doing a dreadful job solving them. Freezing accounts isn't the problem; the problem is that PayPal is a giant black pit offering no way to resolve any issues. This is customer-hostile behavior. Shoot first, ask no questions later.

Any good alternatives?

Braintree: https://www.braintreepayments.com/tour/international

(Disclosure: I work at Braintree)

That's US only, so it wouldn't help the OP.

I don't know how well it would work for commercial things, but for personal payments between people you know, Venmo is awesome. https://venmo.com/ (Still U.S. only though.)

I started using Skrill Moneybookers because it's used internationally. I can't use Amazon or Google Wallet because I'm in Canada and its taking them bloody well forever to get here.

Oh, and I just signed up for Zoompass.

Unfortunately, PayPal has reached the point in the market where it is truly useful. A merchant account solves one angle of the problem of finding a replacement for me - the other side is paying people, and I've been finding more and more lately that almost everyone I encounter or hang out with has a Paypal account - if I wanted to pay by CC, it's difficult - even most of my small business friends can't do this conveniently - but when I offer to settle up with someone by Paypal, they almost always have an account and it takes only a minute.

Square would solve the problem for many, but... would the average person carry around a hardware device so their friends can give them money by cell phone? Probably not.

I agree whole-heartedly. I have a personal and business account. I stopped usin PayPal when it froze my account after they made a refund to to an eBay customer who stole my merchandise but demanded a refund after claiming to have not received the item. I produced the receipt signature from the USPS but was simply told that it was not good enough. I told their customer service rep that I would never use them again and that I look forward to PayPal suing me so I could have my day in court. they never sued me, but they also never unfroze my account. Totally unprofessional! -G. King

One of the comments in the article mentions gocardless.com for UK payments. This seems suspiciously good - an end run around credit card companies and much lower fees.

Has anyone used it? Is there a catch? How do customers react?

We're looking into it at the moment. They seem like decent people. Their integration set-up isn't bad.

As far as we can tell, there is only one catch, but it's a big one: you can only take payments from bank accounts within the reach of their direct debit system. That means UK-only today, and they've announced their intent to expand across Europe in "mid-2012" [1], but it's not clear when they might go any further.

[1] https://gocardless.com/faq

We introduced GC as a route for customers because PayPal is slow and onerous for us to deal with. Some customers need persuading but mainly they really love it.

We also work from the same office as GC and they're good guys. Always on the phone with customers, helping out and listening to feedback.

"PayPal have all the power of a bank and yet none of the responsibility."

That is precisely the problem, PayPal is on the hook for any credit card charges for 6 months so they are much more willing to protect themselves then to try to understand a specific situation. They are a black box when it comes to these types of issues, you feed lots of information in but you get almost nothing in return.

Banks usually transfer funds nightly and they don’t hold subscriber information hostage.

It would be one thing if PayPal was amazing to use but they are just one technical or customer service blunder after another.

No, its not. PayPal is a bank in the European Union.

From a purely end user perspective, PayPal does not operate like any of the Merchant services I've worked with. I'm sure its partially related to the additional liability PayPal takes on for processing a CreditCard that they do not issue but, in the end, the way they operate is not pleasant in any sense.

Does the oft-lionized "PayPal gang", famous for their successes in the tech community, bear any responsibility for the company's customer experience being sometimes so terrible?

Maybe this just happens to all payment companies at scale, but it seems like PayPal has a lot of stories from ordinary-sounding, reasonable-sounding people who were just trying to sell something and ended up losing all their money. Who's responsible for those service delivery failures?

I wrote about my experience with Paypal a while back. http://mydl.itweb.co.za/index.php?option=com_easyblog&vi... What a truly horrible and useless company. I've informed every online merchant not to use them since and make sure all my friends know.

PayPal do themselves no favours by not coming forward with explanations similar to those that see in this thread. Their deafening silence plus the bullshit automated responses are what appear to be driving customers away in droves.

I certainly wouldn't set up any of my businesses to rely on PayPal to take payments, and I expect many others feel the same way.

Great article, but does anyone else have the irritation of the links looking like the words have been crossed-out with green line through the middle?

Last night I was thinking, how many of you/us would take a PayPal insurance policy that cover cases like this?

In Asia, you have no alternative (at all). You either use PayPal (which suck), or 2CheckOut (suck less).

Lately its been all about PayPal horror stories...

Many merchants are just simply turning to the ACH Platform.

This is why Bitcoins was created.

No it isn't. Bitcoin's killer feature is anonymity. It has no underwriting, no risk prevention, and worst of all, no ubiquity.

Once you pay someone with BTC, your money is gone. It's that simple. Unless you involve a third party of some kind, and then it's PayPal all over again... though I assume it's a great deal easier to become a BTC middleman than a middleman of any established currency, due to lack of idiotic government red tape to jump through.

Actually Bitcoin's killer features indeed includes removing banks/other intermediaries from the transaction process, in addition to making state-sponsored inflation impossible.

Bankers hate BTC because it removes them from inter-mediating people and their money, statists hate BTC because it nullifies their socialist dreams of gathering funds at will (printing money). Anonymity is just a nice bonus.

Actually, BTC isn't really anonymous. The record of of transactions is part of the record... all you need is to tie a person to the BTC address.

Both physical goods, cash and bitcoins once transferred are hard to get back. But this does not invalidate property rights and prevention of fraud. If two parties cannot resolve a conflict by themselves, they turn to a third party. This has nothing to do with bitcoins, paypal or any money system.

Bitcoin is valuable because it gives you a choice: you can either have third party to resolve issues and insure risks, or you can go by yourself. In case of paypal/visa/wire transfer you do not have such choice.

From a merchant's viewpoint, once you receive coins, NO ONE can take them away from you, which actually solves the exact problem the guy have.

From a customer's, it means you have precisely zero assurance once you've paid that the other guy will follow through. It's just like sending cash through the mail, except with no chance it won't get there.

It is much easier build merchant rating services/databases than customer rating services/databases. Proof: compare (1) buying from a high-rated eBay seller which is pretty much riskless, to (2) the complex consumer credit rating industry which is doing a poor job at maintaining fraud at constant levels (fraud increasing year over year, small merchants going out of business, etc).

Therefore I assert that the Bitcoin model is superior: solving the fraud risk for merchants is more important than for customers. If a merchant start delivering poorly (or not at all) with purchases, he will quickly receive poor reviews and go out of business, hence self-correcting the fraud problem.

Of course another option with Bitcoin which you are not thinking about is to use escrow services as third party between buyers and sellers.

state-sponsored inflation

..which is just replaced with built-in inflation. At least the rate is predictable and static.

No. Bitcoin is deflationary, not inflationary. (The value of a coin increases much faster than the coin supply. About half of the 21M coins have already been generated.)

Err, deflation, right. Not sure why I conflated the two there.

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