Online e-Commerce Issues w/ PayPal?

A concerned entrepreneur submitted this question for your consideration: "I run a very small online company and the main method we obtain payments for products is via PayPal. In this digital age having an easy way to accept payments for goods is critical to small business survival. Have you had problems with PayPal freezing your accounts, have you had any issues with PayPal harming any of your credit? Neither has happened to me but it it still is a concern. Recently, I was sent this site, became concerned and wanted to ask Slashdot readers for their input on security and any problems they may have had with this service." If you send your money to a website for safekeeping, you expect it to be safe, and a large part of this perception is based on dependable customer support. According the warning site, it sounds like PayPal might be a bit deficient on this end. Have any of you experienced similar problems?

"I don't necessarily trust the website I linked to, nor PayPal's statements. PayPal requires you to register your credit card AND your checking account and could conceivably and legally(?) remove any and all funds and stop you from withdrawing a dime from your PayPal account as well as your own checking account at their whim. What is a small business to do?"

Just an aside, if you are signing up for a personal account, you only need your credit card. It's merchants who want to use PayPal's premium features who have to specify banking information as well.

Comments

The Lack of Physical Stuff

[Ieshan]

I think a lot of internet junkies are still wary because they're decent business-people too, and this being the case, the reason people distrust online banks and payment services are their apparent lack of physical stuff.

When you go into a regular bank, you look around and see they have pretty lightbulbs, nice counters, poorly decorated walls, and all sorts of plush chairs and things. They've even got those little pens. Other people are waiting inside. These things make you *want* to be there.

A website might be real, real pretty, but that doesn't have any physical worth. When I step into a pretty bank, I know that my money is probably going to be secure because in the worst case senario, they've got physical stuff to back my loan with. While this doesn't have practical application in the real world, this is a large part of how our brain percieves things.

Paypal is dubious because they've got nothing to look at. Sure, they've got a big customer base, but *where is* paypal, and who runs the thing? I think the digital world is still evolving in that we still can't estimate worth by a website. I hope we can in the future.

Re:The Lack of Physical Stuff

[mkettler]

Well, I tend not to put much credit into the "physical stuff" of a bank. If a bank goes under the value of their "physical stuff" will likely be very insignificant compared to the potential debt of the company. Remember the S&L scandals of the 80's? Personally I find the fact that a bank is federally insured much more reassuring than their "physical stuff". (Paypal is not a bank and not insured as one) Even FDIC has its limits, but it provides far more backing than the paltry physical assets of most banks.
think about the assets of a small-mid sided bank office (wild guesses here, I'm not a banker):

Commercial building maybe 500k, but is likely leased
Computer equipment: 200k
office furniture, pens, etc: 100k
specialized facilities (safe deposit vault): 500k

So their physical assets might be as much as 1.2 million, supporting moderate number of small business accounts (200 maybe) and a decent number of personal accounts (3000 maybe), again, more guesses. Assuming an average value of these accounts at $2000 each (guessing) that's 6.4 million. And that's just the deposit side of things, not the loan side. Even with the wild inaccuracies of my guesses, it's not hard to see that the physical assets are not likely to match up much against the value of the accounts.

Trust and Convenience

[under_score]

This is just another issue like immigration or "Homeland Security" which is a balancing act between trust and convenience. Whenever you are operating with a third party, you need to balance trust versus convenience. If you favor trust, you will take more time for your safety: background checks (of people or Paypal), getting legal advice, insurance, anonymity concerns, etc. If you favor convenience, you will worry about reducing processing time, reducing bad experiences, simplifying and generalizing requirements, etc. Occasionally, technology can help increase both trust and convenience. But ultimately, even then, you are balancing trust and convenience against the provider of the technology. For example, open source software can be more trusted than closed source, but only if you forego convenience by actually checking the source!

Paypal's debit card

[strredwolf]

I've kinda sidestepped this issue with my own dealings with Paypal. What I did is:

1. Signed up for a Yahoo! Mail account, and told Paypal to send policy updates and transaction details there. I think alot of these companies want to keep in contact with you so you don't get trapped when they have to change policy.

2. Signed up, and received, the Paypal debit Mastercard. You get this by being a Premier or Business member. This debits straight from the Paypal account. I pay for art prints, supplies, and shipping through Kinkos, Mail Boxes Etc, and even the US Postal Service (yep, they take credit cards now).

Their main aim is to keep cash in the account, so that they can make money off of it. They make no jokes about it either -- clues are there if you go to their money market fund and read through the prospectus.

Also, Paypal *does* insure the accounts though The Traveler's Group (a well known, respected insurance company). They sidestep that issue.

Of course you could use Spamazon (more trouble than it's worth) or Yahoo! PayDirect (less features, more secure, more time consuming). But Paypal's the best bet here.

Re:I rate PayPal a 5 out of 10

[NecroPuppy]

The reason it takes so long to transfer money is because that's what PayPal's primary income source is - interest on your money.

Look at it like this:

You pay money to a merchant, he lets it sit there for a couple of weeks before he pulls it out.

The merchant pays a small amount to PayPal for the convienence, but the big money comes from the interest on the money.

$50 for two weeks might not seem like much, but multiply it by thousands, and it adds up quick.

Consequently, when you want to take money out, they have the transaction take a couple of extra days to squeeze every drop of interest.

I have had problems......

[jsimon12]

I have had them freeze my account and hold payments (supposedly randomly), but I have had them do it more then a few times. I am by no means someone I would consider suspcious, I occsionally sell extra things I have on eBay and use PayPal for payments, also occsionally buy things and use PayPal to pay.

But on 3 separtate occasions I have had payments held, and also on one occasion I have had my account frozen. And yes it did take me FOREVER to get a hold of anyone on the phone (thank god for "free" LD on my cell). I was told it was a "routine" random freeze, blah blah blah, several days later they "unfroze" my account. And yes it was a major and total bitch, but there really aren't any other shows in town, so what do you do?

Serious volations of PayPal policies.

[RobertFisher]

How curious. Just today I got a forwarded e-mail from a friend who hadn't set up her PayPal account to receive a payment I sent her. The e-mail read :


Dear [recepient's e-mail address suppressed],

On 09/03/00 you received $10.00 from [my e-mail address suppressed].
Our policy is to cancel unclaimed payments after 30 days, so
unless you sign up for a PayPal account these funds will be
returned to the sender. Don't let your money get away!


Note that this warning was sent some 14 MONTHS (!!) after the payment was sent. This is in gross violation of the stated policy of returning funds after 30 days. Moreover, as a sender, you don't have any clue in many cases whether the funds were actually credited or not.

In my case, it was only $10 at stake, but if many other payments were similarly misused, the interest racked up could have been quite substantial.

Bob

Re:Mis-informed (?)

[NoMoreNicksLeft]

Wrong. I have a standard account, and the first thing I bought was over $100, so they insisted on banking info.

It's really moot, though.

They keep changing their story, and their requirements so much, you can't keep up with them. Any money you have in your "account" isn't really yours at all, if they say so. I would be very scared to have more money in that account than I could afford to lose, which lately has been about $20.

As a matter of trust, how can you trust an establishment that claims they can make all their money through interest on the float, and that they are quick and easy to use, then over a period of 18 months starts adding fees here and there, adding no value, and apparently doing something that gives fodder to those writing paypal horror stories? I can't claim that such stories are true, but where are the rebuttals? Where is the free/easy to use account I had a year ago? Something screwy is going on.

A bank story

[fm6]

I'm reminded of a couple of pieces I read on this issue. Sorry for not remembering names. Sequence of events goes like this:

1. Man starts online bookstore, running it out of his home. Achieves modest success with a small but loyal customer base.
2. Nationally syndicated columnist discovers online bookstore, interviews owner. Writes it up as example of ordinary guy doing Amazon.com on a small scale.
3. Thousands of people read column, go to bookstore site, place orders.
4. Man gives resulting credit card transactions to his bank.
5. Bank says, "Whoa nellie! That's a lot of money! How do we know you can fulfill these orders? Your account is frozen!"
6. Online bookstore suddenly has no income, folds.

It's tempting to point fingers, especially at the bank. But that's shortsighted. Our monetary system has been around for so long, we forget how cumbersome and convoluted it is. Ultimately, every transaction carries a risk of fraud and loss. You shouldn't be suprised if anybody involved, merchant, buyer, bankers, whoever, does their best to avoid getting stuck.

And all of them do get stuck occasionally, not just the little guy. Difference is the big guys can spread out the cost of fraud over more transactions.