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The PayPal Phenomenon
An Anonymous Coward writes: "Pretty interesting and thorough history of PayPal." Not really the usual fare on Slashdot, but this is a very readable account of one of the few dot-com successes. I find PayPal pretty annoying today - a lot of the anti-fraud, privacy-invasive measures which this article applauds make Paypal much less enticing to me than it used to be. And they've been accused of squatting on people's funds at the slightest excuse. But maybe that's the way to success: start off with a very appealing product, then slowly tighten the screws.
It seems to me that the problem with previous micropayment schemes was not the scheme itself, but that there was never a situation in which the convenience of using the system outweighed the risks associated with trusting an outside party with your money and transactions.
eBay provided the fluid marketplace that created the situation where that convenience overrode the inherent mistrust of a newcomer like PayPal.
eBay brought the idea of the auction as a sales model to the forefront of the net, they also pioneered community based trust mechanisms that let their model survive even though they don't back transactions directly (something that would have quickly invalidated their business model).
What was supposed to be a concept that allowed high-brow concepts like online media micropayments seems to have come about largely because of the requirements of some people to sell $5 pens and beany babies.
Probably important not to forget that no matter how large the venture capital some firm gets to change the internet, most likely it won't succeed unless we decide it will.
I've never really had anything but a good experience with PayPal (and I've used it *heavily* for two years now). Maybe it's just my good fortune.
Well, okay, I do have one small gripe. Apparently, their site cannot be convinced that a certain customer of ours is browsing from the U.K., and as a result he's having to send us a check (brits read: cheque
Hopefully their money market fund will see a bit of a recovery soon (1.9% == blegh), but hey, there's a whole slew of investment vehicles that aren't doing so well at the moment. Such is the state of the economy.
As for "overly tight fraud prevention measures", I'd like to hear from people who've simultaneously run a company basing his/her online transactions on "true" merchant account methods. Most e-based merchant account providers/processors don't place nearly the emphasis on security that PayPal does, and chargebacks are a real bitch (not to mention quite bad for P.R. if the customer who got ripped off is particularly angry about it).
Just my brief experience in these matters. Replies are very welcome!
Not surprisingly, a lot of Slashdoters doubt PayPal...which is understandable, since it's so difficult to believe that any pure-play dot com can survive these days.
However, I've had the pleasure of working closely with many of PayPal's senior management over the past two years, back since they merged with X.com. I can tell you three very important things:
1. The P2P space is actually a loss leader. Most of their profit is made in the B2B and B2C space - not pure P2P as most people believe. They do very well in these spaces and recent analysts predict that their revenue was between $80 and $100mil last year. That's a heck of a lot better than most of the not-coms we've seen over the past several years.
2. They have an incredibly intelligent, dedicated and savvy staff that understands their market and industry.
3. They have a business model that works.
In my opinion, these three items equal success.
I love their service and I enjoy working with the company. If I didn't enjoy my current job so much, I'd probably apply for a job with them.
I've read several interviews with Peter Theil, one of PayPal's founders, including this one where he points out that fraud was the primary reason behind the failure of many online payment services. A quote from the interview:
What are your barriers to entry? Technology? Network economics?
The nutshell answer: Security & Fraud.
The network effect will get bigger and bigger over time. Until recently, we did have all these copycat competitors and they did have difficulty gaining network traction, but their ultimate downfall was fraud. There were a number of these companies - from Payme, Payplace, Paypro, ExchangePath - that went out of business because of the fraud issue. They didn't run out of money, or not get investors to invest. They got killed on fraud.
Fried ice cream is a reality. - George Clinton
Up until recently I've never had a problem with PayPal. However, that's because I never came near the $1000 limit for "unverified" users.
I recently bought a high-priced item over eBay and wanted to pay for it through PayPal. Unfortunaly, the item's cost was $20 over my "unverified" user limit. In order to continue getting use of my account, I must give them a bank account number? Are they insane?
I ended up just sending the guy a postal money order. I was willing to verify a home address, but a checking/bank account is going too far. I guess I'll just sign up for another account...
--
#nohup cat
I was putting together an old laptop for a friend of mine and tried to buy an old retail copy of Windows 95 to put on it. Color me strange, but I was actually trying to do things the legal way. To make a long story short, I paid for retail and got OEM.
After trying to talk the seller into a refund for a week or so, I gave up and took the matter to PayPal. Blah blah blah retail was pictured but got OEM instead blah blah blah violates Microsoft's license blah blah blah claimed to be "fully legal" but wasn't... (I didn't point out that if I wanted to use Windows 95 illegally I wouldn't have paid $35 for it)
After a few days of their "investigation process" I got a form letter from them telling me that, because I actually got something, they won't get involved. To quote it:
So even though the attribute in question was "legal/illegal," it's Somebody Else's Problem (TM).
I could understand their position on this if it weren't for the fact that, if I had mailed a money order instead (ie. used a competitor), this would have fallen under the category of mail fraud. But instead I'm now stuck with waiting for eBay's manditory 30-day waiting period to end so I can complain to them and see if anything happens.
Right now it seems that PayPal is working hard to make sure I get my shiney, over-priced, drink coaster with the Windows logo on it, while my best bet to get most of my money back would be to take the guy to small claims court in New Jersey. Thanks PayPal!
I think they suck. I opened an account and it was instantly locked "due to unauthorized activity". The thing was, I hadn't done any transactions yet.. (?!) I still don't know why they did it. Email after email after email for a week. No replies. Finally I set up a cron job to email them every hour. 130 emails later they opened the account up with no explanation. Have not used them since. I'd already sent a check.
http://www.oracletool.com
Unfortunately, as of 11/13, you won't be able to receive credit card payments any more with a personal account. Copied from their Policy Updates page:
Notice Date: October 11, 2001
Effective Date: November 13, 2001
To reduce the costs associated with credit card processing, the ability to receive credit card funded payments will become a feature reserved for Premier and Business accounts. Personal Accounts that receive credit card funded payments after 11/13/2001 may accept the payment by upgrading to a Premier or Business account, or they will have to deny the payment. Personal accounts will continue to be able to receive non-credit card funded payments for free. Once upgraded, Premier and Business Accounts may receive unlimited credit card funded payments.
It's easy for guys like our infamous slashdot editor to comment:
Well, that's an armchair critic opinion if I've ever heard one. PayPal is now less enticing to "michael of slashdot".
The cold reality of the world is that there's a small number of crooks out there who will commit fraud, given the opportunity. Any party in the transaction who may be exposed to the potential for a loss would be acting irresponsibly by not taking reasonable measures to detect fraud before making the transaction.
In the conventional visa merchant world, the consumer is protectedby the fact that their bank will handle their dispute with the merchant and issue a chargeback to the merchant to recover the funds.
The bank is protected by their ability to issue a chargeback to the merchant. If the bank believes the merchant may not have the funds to cover chargebacks, they will hold a "reserve", which basically means they won't give the merchant some portion of their money for many months, sometimes even a year or two! (we had this shitty situation when we got started and consquently had to carry quite a bit more debt than we expected as we weren't getting the money for most of the products we sold!)
The merchant isn't really protected by much of anything in the conventional visa transaction, other than their own efforts to verify that the buyer really is the legitimate cardholder and that the goods are shipped to the correct destination. Actually, a card swipe and signature are more-or-less proof that the buyer received the goods, but with internet and mail order sales, it's a risky business for the merchant.
PayPal is in a tough situation, being in the middle of a transaction. It's really amazing that they can make this work at all, built on top of the conventional infrastructure which puts most of the risk onto the seller's side. They really need to do everything they can to detect and prevent fraud... even if it doesn't appeal to michael's tastes.
PS: I will agree that it's very un-cool to take personal customer information and use it for any purpose other than the reason it was provided. We don't do this, partly based on ethical grounds, partly because we're so small that there's no incentive, but mostly because nothing is more important than satisfied customers.
PJRC: Electronic Projects, 8051 Microcontroller Tools
They didn't mention that paypal bought their competition, x.com, which included banking, mutual funds and stocks, then discontinued all of its operations.
You can bitch about the privacy invasive features and the anti-fraud procedures, but if you get swindled out of $2000, then you will be bitching about them not being effective enough. I know several people who have been frauded out of that much money, on a seemingly good trade, and PayPal has done NOTHING to help the matter. It is incredibly easy to defraud people over PayPal, so you can bitch about the procedures, but when you get jacked, you won't.
Blake
I remember way back when ebay started you could sell most anything and not give them a credit card number. When they started making profits, they started banning things because they were "immoral"(aka we dont want to take a risk when we are losing money but now that we are making it....). They also used to require almost no security check for anything. Now they require a credit card number, and 10+ feedback for using certain features(hey, I am totally glad they have it). It seems that it just might be a good strategy, start a service thats easy to get into, and once you get people hooked, clamp down.
Note the transition from peer to peer systems to one/many systems. There's something important to be noted from this.
Actually, this change just puts them on more-or-less equal footing with eBay's own payment system. You can still accept credit cards as an individual with a PayPal account, you just can't do it for free.
Am I annoyed at the change? Yes. But at least they haven't blocked me out completely. All they're doing is taking a cut - same as eBay does.
Well, there we were. All set and ready to buy a whole bunch of Webplayers from the defunct Virgin Connect operation. The deal with the supplier was struck by a volunteer, and funds were transferred into his PayPal account. More than $10.000,- in total, as there were several hundred machines ordered by more than 300 people.
Then PayPal decided that there was something bad about this transaction, and froze the account. Mind you, they froze it for our volunteer, but they did not freeze the incoming stream of funds which now piled up on his account.
PayPal sat on this money for three months, all the while collecting interest on it. The volunteer had complied to all of PayPal's requests, but they just kept on repeating them.
Eventually, more or less at the end of the 'allowable' freeze period, they released the funds and our transaction with the supplier (Boundless Technologies) could go through.
It is quite clear that PayPal did not have fraud in mind when they froze the account. What they did have in mind was the illegal collection of three months worth of interest on OUR funds, not one cent of which has been given back to the group.
In essence, while PayPal might provide a useful service, the company behind it is not to be trusted with your funds. Once bitten, twice shy, PayPal is not on the shortlist anymore...
--frank[at]unternet.org
Wired magazine had a (imho good) article about PayPal, how and why it worked while other initiatives of big banks failed on internet money transactions:
The Money Shot
bash$
I contacted their support line (via voice) and turns out that I only need to send a 'login card' (similar to a phone card) to cover my ass on their Seller Protection Policy - I get to keep the funds even if they are fraud! Even though I told them I didn't want it, the only way I can do business using PayPal is to accept fraudulent payments! They don't have an option to refuse payments 'on a hunch'.
Anyhow, I've rambled. I've spoken my peace. Thanks for looking. :)