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.<p>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.<p>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.
The customer service angle sucks, no question, and I'm worried about getting into similar trouble (I sell downloadable games via PayPal).<p>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.<p>PayPal's fees are around 5% - what's their gross profit on each transaction, 1-2% at most?<p>So if there's a 2% chance of an issue going awry and angry people starting chargebacks, a magazine <i>50 issues old</i> could turn into a net loss for PayPal <i>overnight</i>, which is why even merchants with long and clean track records get stung by this.<p>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.<p>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.<p>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.
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.<p>I want to share two things with all of you:<p>#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.<p>#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...
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.<p>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).<p>As such, PayPal/Stripe/any other merchant account will hold your money for a period of time, until they are comfortable that either:<p><pre><code> 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.
</code></pre>
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.<p>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.<p>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.
I fully understand Paypal's need to protect itself from scammers. I get it. The loss potential is huge.<p>I think the problem here is that they really don't have any kind of a real relationship with their customers.<p>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.<p>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.<p>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.
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
Lots of comments here are focusing on the mechanics of credit card processing and <i>why</i> Paypal might have to hold funds, but to me the entire article was really about the customer service angle and <i>how</i> Paypal handle this. They freeze accounts and make it next to impossible to get valid feedback on why.<p>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".<p>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.<p>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.<p>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.<p>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.<p>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.<p>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)<p>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.<p>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.<p>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?<p>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)?<p>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.
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.<p>Paypal is just giving every opportunity for someone else to come and get their market share. Hopefully it will happen sooner rather than later.
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.
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!<p>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".<p>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<p>useful startup--->gets an ego and stops caring about customers--->replaced by new useful startup<p>continues.<p>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)<p>basically paypal can diagf.
Thank you for writing this, reiterates everything i feel about Paypal as well!<p>We use Stripe and I couldn't be happier. Started with Paypal, wanted to shoot myself on a regular basis.
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.<p>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).<p>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.<p>A reasonable person (I feel) would conclude PayPal is a <i>de facto</i> merchant acquiring bank, especially given the volume, and therefore should be required to operate under those laws.<p>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.
OMG! I thought I was one of the Only ones this happened to!!!<p>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.<p>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!
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.
<i>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?</i><p>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.<p>Another cause that it will freeze an account is when it suspects the account is used for illegal activities (e.g. selling fake goods).<p>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.
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.<p>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.<p>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.<p>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!"<p>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.
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.<p>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.<p>Has anyone used it? Is there a catch? How do customers react?
"PayPal have all the power of a bank and yet none of the responsibility."<p>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.<p>Banks usually transfer funds nightly and they don’t hold subscriber information hostage.<p>It would be one thing if PayPal was amazing to use but they are just one technical or customer service blunder after another.
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?<p>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 <i>just trying to sell something</i> 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. <a href="http://mydl.itweb.co.za/index.php?option=com_easyblog&view=entry&id=1061333&Itemid=350" rel="nofollow">http://mydl.itweb.co.za/index.php?option=com_easyblog&vi...</a> 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.<p>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.
we have the same problems on amazon.com
Amazon have all the power of a bank and yet none of the responsibility.<p>AMAZON, you are the scourge of the internet.<p>Please see :<p><a href="http://joeyuen.posterous.com/good-riddance-amazon" rel="nofollow">http://joeyuen.posterous.com/good-riddance-amazon</a>