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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.
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.