Open Source Events Get Burned By PayPal
pydanny.com
pydanny.com
In any situation involving money, every loophole or mechanism for scamming people will eventually be discovered and then exploited to an extent you never believed possible. Just as the Internet has massively changed the basic economics of almost every industry, it has greatly reduced the risk and costs of widespread fraud to a level that would make Charles Ponzi cry with joy into his spaghetti.
There are teams of extremely intelligent and motivated people who spend their entire working careers figuring out ways to rip off Paypal (and Amazon, eBay, Google, Baidu, Bitcoin merchants, etc...) If a top tier company that deals with money on the Internet is problematic for a certain transaction, then you can be sure that is due to a real problem in the past that resembles that transaction.
Pydanny believes that Paypal's actions are without basis, so he has clearly identified a market inefficiency that is ripe for "disruption".
I think pydanny should take this opportunity to pitch his payments startup, PyPal, to pg and several other top-tier angels/VCs. Make sure to include a slide on fraud and loss prevention, and clearly outline the policy that will differentiate you from Paypal:
"The developer community is critical for the success of PyPal. In a situation where a PyPal account identified only by a Yahoo email address and with limited transaction history receives hundreds of thousands of dollars in deposits for a service that will not be delivered for months, we will not freeze that account under any circumstances. Especially if they self-identify as a Python developer."
Let me know how the pitch meetings go.
Imagine that instead of the current Paypal interface, you had the following:
> Instead of having one email address to accept all payments, you created a new sub-account for each event/product/other "stream of payments" that you want to send/receive.
> Creating a "receive payments" sub-account pops up a wizard, that asks you what these payments are expected to be relating to--a product you sell, a subscription service, an event, donations, etc.
> If you pick "one-time event"--the fraud department is called down to verify you and your business up-front. It all gets explained in the interface, your sub-account just will be in a "verifying" state for a few days/weeks, you'll get phone calls and have to submit paperwork to make it "active." Meanwhile, the rest of your account continues to work and none of your other payments get frozen.
> This is on top of the fraud detection that already happens. If you suddenly receive $50k, no matter what the sub-account said it was for, then sure, pause that sub-account and have the fraud guys take a look. But if they pull up the account and the payment pattern exactly matches what they themselves already OKed you to do up-front--then turn right around and unpause it.
...
Now, this all already happens with Paypal! Big corporations know what to do to make Paypal work like this--create a new Paypal account for each venture, get Paypal on the phone yourself and submit all the paperwork and get them to OK it before you declare it safe to start using that account, etc.
But none of this is obvious to the average small-business owner who may have never used an online payment system before. They just use one account for everything, get popular for whatever reason, accept a bunch of payments or donations all at once, and get their entire funding stream suddenly frozen while Paypal does due diligence that should have happened at the beginning of the process, not right when the money is needed most.
1) Small volume to huge volume in a matter of days. 2) Taking payments for something happening in the future.
Story after story about both of these scenarios.
It seems obvious at this point that PayPal is not a good processor for things like pre-sales or events. It may be annoying but it's a liability for them and they do what they need to minimize it.
PayPal may be attractive because it's quick to setup but it seems easier for people to get in touch with a proper merchant account provider, discuss what you'll be selling ahead of time so they're prepared, and not get your funds frozen.
Update:
For anyone who is interested, here is PayPal's policy on pre-sales.
https://www.paypal-businesscenter.com/content/presale-policy...
As for proper merchant account providers, tell that to people in countries where the majority of residents can get PayPal but not credit cards.
Great book by the way, just picked it up yesterday.
So what was your point exactly?
Here, let's make this simple. Just list, explicitly, the top 3 reasons for using bitcoin. Then explain how these reasons are unique to bitcoin and also how they fully justify dealing with the problems of dealing with bitcoin (variable exchange rates, difficulty of converting into local denomination funds, etc.).
2) Bitcoin transactions are irreversible
3) No third party is involved for the essential transaction (in this case the exchange of Bitcoin(s) for a ticket)
If you use Bitcoins as a method of transporting money you can cash them out as soon as you get them (which is within a few minutes) and getting Bitcoins isn't as hard as people make it out to be.
I'm surprised nobody has made a service that transparently uses bitcoins to send someone not-bitcoins:
[For the purposes of the example, let's call the sender of the money Alice, the receiver Bob, and the two instances of this Exchanger service Eddie and Edna. Eddie is local to Alice's legal/financial jurisdiction, and Edna to Bob's.]
1. Alice, living in America, visits Eddie and tells him that she wants to send Bob, in Canada, $50 USD. Bob is only identified to Alice (and thereby to Eddie) by his bitcoin deposit address.[1]
2. Alice pays Eddie $50 USD (cash, Paypal, ACH, pre-deposited funds, an IOU, whatever);
3. Eddie buys bitcoins with those dollars, and transfers the bitcoins to Bob's address.
Then, separately, Bob set up his bitcoin bank with an "on deposit" webhook that calls Edna. When triggered,
4. Edna, acting under an access token Bob granted her through the webhook, withdraws the deposit into her own bitcoin bank account;
5. Edna immediately sells the bitcoins for CAD, thus preventing any currency volatility;
4. Edna sends Bob an email saying "you've got $51.42 CAD[2]", with a URL;
5. Bob visits the URL, and enters his [real, physical] bank account routing information;
6. Edna does a wire-transfer from her account to Bob's bank account.
In this example, Bob and Alice never meet. Eddie and Edna never meet, nor have to trust one-another. The money is exchanged anonymously and securely. And yet, neither Alice nor Bob ever touch a bitcoin, or deal with the volatility of the currency.
Why doesn't this exist yet?
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[1] This could be encapsulated further if Eddie and Edna both subscribe to Ronald the name-Registrar; then Edna could transparently register Bob as "bob@ronald", and Bob could tell Alice to send her money to that alias.
[2] Assuming neither Eddie nor Edna take a cut of this transaction.
What I'd be interested in seeing would be somebody like eventbrite handling accommodation deposits and so forth as well as registration, then I could funnel everything through that. It's important that any such service release the funds to the event early so they can actually be used for running the event.
If your business DOES look like the above then engage a merchant account and explain to them what you are up to. It reduces the chances you'll get frozen.
If you can't qualify for a merchant account initially then use an all in one and build up a history that you can then take to a merchant account a little further down the road. (shameless plug for core.spreedly.com if you want the flexibility to shift and change easily)
And then they go on to describe how they refuse to kowtow to the obviously made up "needs of paypal's anti-fraud division".
There are lots of reasons to get mad at paypal but all too often the formula "We understood nothing about business, didn't even bother to familiarize ourselves with the law or financial regulations, and somehow problems resulted! We blame paypal!" is repeated all too often.
Let's look at this from the flip side. You decide you want to defraud a bunch of people, so you gin up a fake conference, it's easy to put up a fancy web page and sucker people in, then you take the money and run. You think this doesn't happen?
Paypal does have pretty crappy customer service, but if you expect to accrue a significant fraction of a million dollars in a paypal account and you don't think that somehow there might be some hoops to jump through then you are living in a fantasy world.
There's a reason why there is a lot of markup in event ticketing agencies (such as brown paper tickets, or event brite, or the hated ticket master), and it's not because it's such a fundamentally easy problem.
Edit: I'll say this again. It sucks when people who are working based on perfectly good intentions get hurt by the system but we live in a heavily regulated era. Expecting that you can operate a business without taking heed of the relevant regulations and business rules is massively naive. More so, it's a disservice to your customers. Imagine that you were running a 100% cash business. It would certainly make some parts easier, but don't you think people would start asking questions?
Answer: They've already done it. They have the staff in place.
The problem is their community managers and developer evangelists are sticking to PayPal specific conferences. They aren't in touch with people like me and dare I say you, i.e. the little guy.
https://www.paypal-businesscenter.com/content/presale-policy...
If PayPal wants to continue angering the community and world with this blanket policy, that's their problem. We'll all move on to other payment systems as they emerge.
If you find yourself in circumstances where you require presale revenue in order to hold an event then I'd suggest using a crowdfunding platform like kicktarter or indiegogo or the specifically event oriented event tilt and picatic.
The risk is that one single person holds a huge pile of funds for services that are supposed to be rendered in the future. That single person can skip out of town at any time. They could get hit by a bus. Their venue could burn down in a fire. Whatever the cause, there is a non-zero risk that the funds aren't used as intended or the event doesn't happen, and PayPal will be on the hook for hundreds or thousands of disputes and chargebacks from the purchasers.
This is why payment services for events like EventBrite don't work like PayPal. EB gets paid the money, and the event organizer has no access to it until after the event, when there's no chance of EB being on the hook for disputes for an event that didn't happen.
PayPal isn't in the insurance business. When it does allow a pre-sale, per the terms already linked in this discussion, they typically require a reserve. That means money can come into your account but you can't withdraw it. That's not malicious, that's the same thing EventBrite does. You only get the money after you've rendered the service it was paid for; it's protection for the attendees and PayPal. To expect anything different is to expect PayPal to act as a free insurer of events.
So yeah. I will use them. But if I have any problems with them, I'll take them to small claims over non-compliance with the law.
We'll see PayPal is doing in 5 years. ;-)
Best case scenario is that competition results either in a new top dog with better customer service or drives paypal to improve. But there's no way you're going to have a situation where tens of thousands of dollars suddenly flowing through an account won't result in lots of roadblocks and red tape. Not unless everyone moves to some sort of greymarket system like bitcoin.
Bottom line: if you do this as an amateur, expect to be treated like one. You can't script banking like you'd script ssh.
How easy would you say it would be to get a loan with "I have $N-thousand dollars stuck in my Paypal account, expected to clear" as collateral?
...actually, wait, that sounds like a [banking] startup idea:
> "We accept payments for an event into an escrow pool, then lend you (with interest) a percentage of the escrow-pool as an advance to set up the event, then release the escrow-pool to you automatically if-and-only-if there aren't too many complaints after the event [otherwise the issue goes to a set-length arbitration, and then we either release the money to you, or refund it in its entirety.] For trusted repeat event-creators, we may increase the loan percentage up to 100%, and may delay loan-interest accrual until after the event-date. We're also partnered with an event underwriter who you can allow us to ensure your event with automatically, in case of black-swan event failure."
Is anyone doing this? Is it even feasible?
I think it can also be described as factoring http://en.wikipedia.org/wiki/Factoring_(finance). And lots of companies are involved in this space, though there is still room for improvement.
Since they don't, it shows they are a criminal organization.