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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.

>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.

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.)