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That would indicate to me that either PayPal are exploiting a monopoly position, or there is a massive gap in the market for a fast, easy payment system that doesn't treat serious customers like dirt.

You're missing the third possibility, which is that efficiently doing what PayPal requires requires "treating serious customers like dirt."

PayPal is in the business of efficiently detecting and not paying for fraud. One type of fraud that they need to deal with is fraudsters getting control of an established account, sticking lots of fake payments in, then withdrawing the "money" before PayPal notices that it isn't real. Their strategy for this seems to be to make people jump over a low paperwork barrier, then wait long enough that the payments have all cleared before they pay out. Given this, paying for a dedicated customer service representative for the victim on top of that strategy is an inefficiency.

The last part of that decision ignores the effect of pissing people off on their reputation, and so may be shortsighted. But the rest of their strategy makes sense to me.

One type of fraud that they need to deal with is fraudsters getting control of an established account (...) Their strategy for this seems to be to make people jump over a low paperwork barrier, then wait long enough that the payments have all cleared before they pay out.

One day my account (solely used for sending payments) got blocked because of a "potential unauthorized third-party access". After completing the verification they asked (new password, new security question and credit card confirmation), I received another message asking me to send a scanned copy of my ID Card, a proof of domicile and my BBAN.

I told them that for confidentiality reasons, it was out of question to send any of these documents. I asked them to give me more specific information about the materials that led to the account suspension and to reactivate it without delay. The next day, I received an email with vague excuses and my account got reactivated immediately.

It is true that their antifraud system can lead to number of suspended accounts and frozen funds without any solid basis. But they may also take advantage of frozen money (eg. this 600k case) for further financial activities so as big-box stores are used to: http://books.google.com/?id=UOSk0J8vYugC&pg=PA533 (source: http://preview.tinyurl.com/2vrcddc)

> Their strategy for this seems to be to make people jump over a low paperwork barrier, then wait long enough that the payments have all cleared before they pay out.

I wonder why they don't just do this by default? Personally I would not be offended at all if they just had a status on the payments called "waiting for payment to clear."

I wonder why they don't just do this by default?

Because for the majority of their customers, not getting money for several months would cause them to look for another solution.

Consumers can reverse credit card payments up to six months out.

That's a product insurance system though isn't it, it's not clearing or failing to pay.

If a transaction can be reversed, it hasn't cleared.

What I'm saying is that my impression is that the transaction is not reversed but that a subsequent insurance claim is made.

IMO if the money is available for you to spend then it has "cleared". Money that has cleared may be recouped, eg when you sell something fraudulently and get nabbed.

If you fraudulently sell something and then spend the money, how does paypal recoup it?

If a merchant (paypal) has a high triggering rate on that insurance, the credit card company might raise their rates on that merchant.

Any combination of actions that lets fraudsters get money from PayPal without in the end having to pay money out is going to lead to huge losses. One way or another that money will come from PayPal in the end.

Yeah seems plausible... Why not have a rate limit to how much you can take out of the account at a given time until they provide some kind of authentication that it is indeed you. An analog to that would be the ATM limit of $400/day and you can walk inside to get as much as you want out.(as long as the account does not have a daily limit for cash transactions.)

>PayPal is in the business of efficiently detecting and not paying for fraud.

I think it is likely that since PayPal has become an Ebay property, they are tighter with releasing funds to reduce their losses related to "Ebay Buyer Protection" on Ebay sales. On a sale where that protection is provided, a purchaser gets his money back from Ebay (which generally means paypal) when buyers have failed to deliver what was promised and failed to work out the problem directly.

So Ebay/PayPal needs/wants to be able to snatch the cash back. If the funds are held long enough, they're covered. I seem to recall Ebay recently updating their user agreement terms related to PayPal funds.

I doubt that PayPal is trying to rip off or upset customers. They're trying to combat various types of theft/fraud and do so without using much in the way of resources. They should be more transparent with whatever is going on though.

They're not called the PayPal Mafia for nothing ;)

> there is a massive gap in the market for a fast, easy payment system that doesn't treat serious customers like dirt.

You're thinking of AlertPay.

There are exceedingly few global payment systems, almost none of which, from a consumer perspective, are as trustworthy and easy to use as PayPal: When it comes to small vendors, I'd much rather pay them through PayPal (where I can even pay from a bank account) than to give my CC numbers to some micro operation.

PayPal, like all payment processors, deals with a large amount of fraud, yet they seem to manage to keep it low enough relative to the total cash flow that their rates are fairly reasonable for small vendors.

Which is exactly why guys like this use the service in the first place. As you mentioned, these stories seem to cycle around, yet lots of people still rely upon PayPal, and there's something to that.

Add in that every Western government is imposing strong anti-money laundering and anti-terrorism financing regiments on organizations like PayPal.

Seriously, people don't know how amazingly good they really have it. Having a snag in PayPal (and going through the arduous task of providing documents) is nothing.

I'm in India and Paypal had a tough time dealing with the central bank here. So yes, I would agree a little that these rules are most likely imposed by regulatory authorities but that doesn't mean what Paypal does is acceptable. Have intelligent rules not alarms that blaze through the roof everytime someone transacts above, say, a thousand dollars. Even after that they could very well treat sellers with a bit more dignity?

> I'd much rather pay them through PayPal (where I can even pay from a bank account) than to give my CC numbers to some micro operation.

Really? I certainly wouldn't. I have recourse with American Express. They have far better fraud detection than Paypal, in large part because they know my spending habits far better than Paypal does. On the single instance I've dealt AMEX's fraud detection, they called me before they even authorized the fraudulent transaction, and overnighted me a new card when I confirmed their suspicions.

Paypal, on the other hand, flagged a transaction as potentially fraudulent simply because I had the purchase shipped to my workplace (a well known bay area address) and now they want me to go back to Kansas and wait at my home phone number for them to call and "verify my domicile." Screw that; my account can stay locked for all I care.

>Really? I certainly wouldn't. I have recourse with American Express.

When I pay with Paypal I have recourse with both Paypal AND my credit card. It doesn't remove that right.

>Paypal, on the other hand, flagged a transaction as potentially fraudulent simply because I had the purchase shipped to my workplace

Why is the fact that it's a well known Bay Area address of any significance at all? Paypal demands that shipped items only go to the address on record for the account. That seems pretty logical and of obvious value.

Not if you pay with Paypal through it connecting directly to your bank account.

> Why is the fact that it's a well known Bay Area address of any significance at all?

Which do you think seems more fraudulent? This address:

1600 Amphitheatre Pkwy, Mountain View, CA 94043

Or this one?

Hospital Road, P.M.B. 2155 Kaduna, Nigeria

Which address do you think is more likely to be used for fraud?

> Paypal demands that shipped items only go to the address on record for the account. That seems pretty logical and of obvious value.

An obvious negative value, sure. I've shipped to at least 9 different addresses on Amazon. Sometimes I'm not buying things for myself. Sometimes I'm not at home and want it to get shipped to me at a hotel. Oddly, Amazon has no problem with this (maybe because they're indemnified against fraud losses by the CC company, as I noted elsewhere). But try to ship something anywhere but your recorded home address with Paypal and you have to jump through a ridiculous number of hoops. It's not logical at all.

Sounds like you have an idea for a new business. Build a database of fraudulent and non-fraudulent addresses, then sell it to paypal.

"Which do you think seems more fraudulent?"

Any corporate destination for personal purchases looks more fraudulent than any home address. Home addresses -- most notably the one correlated with the account -- have easy traceability. A package being delivered into the bowels of a place with thousands of employees, not so much.

I'm quite glad that any paypal purchases made on my account can only be delivered to my home address. Seems pretty logical to me.

"Oddly, Amazon has no problem with this"

Amazon is the seller. They take the risks because they have a large-margin product that they are selling you. PayPal is a very small margin payment facilitator. Your comparison is not at all valid, and borders on ridiculous.

"maybe because they're indemnified against fraud losses by the CC company"

This is absolutely wrong.

The CC company bears absolutely no burden for fraud beyond the administrative hassle, and it is wholly on the merchant's backs. Merchants have to follow the prescribed rules (e.g. taking a CCV number) or they lose their merchant account, or they fall into a tiered bin where they pay much higher rates.

> The CC company bears absolutely no burden for fraud beyond the administrative hassle, and it is wholly on the merchant's backs.

I've done some research, and I was misinformed on that point.

You are assuming that "better fraud detection" means "fraud detection that isn't triggered". Credit card companies aren't as concerned about as fraud because they don't lose money, the merchant loses money. It costs them little to be lax.

Paypal loses their own money when they don't detect fraud. They can't afford to be lax.

> You are assuming that "better fraud detection" means "fraud detection that isn't triggered".

It means "fraud detection that catches actual fraud and doesn't bother me otherwise.

> Credit card companies aren't as concerned about as fraud because they don't lose money, the merchant loses money.

Wrong. The merchant is indemnified against fraud and the CC company takes the loss if the merchant can show that they followed the guidelines in the merchant agreement (essentially: check that the card is signed and the signature on the receipt matches the signature on the card).

How is paypal expected to verify the signature on the receipt matches the signature on the card?

Are you from the past?

It's a different procedure online. Usually the CVV number is used instead of a signature.

We're all from the past :)

A note for those reading me above: I'm wrong. It turns out that merchants are stiffed in cases of CC fraud.

They probably also make a fortune on the interest accrued. I wonder if they defer to freezing accounts so easily is because they realize that it's easy money.

You would think so, and that was their original business plan — just make money off the float. Instead they ended up charging fees (30¢ + %3) to get to profitability.

I don't think the original business plan included credit card payments. You only ever put "real" money into your account, and in order to use the service you basically had to keep enough in there for them to float it. Adding credit card payments changed that. Notice that paypal still doesn't charge fees for payments that come straight from a bank account.

In almost all circumstances, the recipient of a Paypal payment gets the 30¢ + %n cut taken out, even if the money came directly from a bank account.

Paypal is also set up to avoid making credit card transactions at all costs — you need one to sign up (as effectively overdraft protection), but payments always debit from the bank account first. If you have a pro account and embed/link it to customers, they can have the option to pay directly with a credit card, but only if they don't have a paypal.com cookie.

There is only one way to reliably avoid the fees — you have to explicitly make the payment as an 'eCheck' which only takes out the 30¢, but Paypal will take at least a week to clear the funds.

Firstly, no.

Secondly, most PayPal purchases happen through credit cards. Credit card companies hold onto the payments for up to 60 days, meaning PayPal is holding onto absolutely nothing.

So..you're telling me their not holding onto his 600,000 euros and that the credit card companies are? At some point though, the money ends up in PayPayl's coffers and it's in their interest/profit motive to hold onto it for as long as possible and accrue interest.

>Credit card companies hold onto the payments for up to 60 days, meaning PayPal is holding onto absolutely nothing.

PayPal would absolutely tell the customer that "we can't do anything the CC company is holding the funds". They don't appear to be doing that.