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“Is PayPal good for your microISV business?” A short PayPal horror story

225 points by sadiq 17y ago

robk 17y ago
Time and time again I've heard these PayPal horror stories (and at www.paypalsucks.com). I am very leery of PayPal and make it a point to always transfer any balance out immediately, as their freezes seem like a nightmare to deal with. I wish Google Checkout had a more compelling product, and that there were a better solution for C2C sales.
- josefresco 17y ago
  I've heard horror story after horror story and yet I've never had any issues with PayPal. I've stored money there, used their Visa/debit cart and even opted into their money market option and made some money (off my money) for several years. Factoring in anecdotal evidence like this (or mine) always has risks. I'm sure you could find someone local who absolutely hates the bank you choose to have accounts with, but that doesn't necessarily mean you'll have issues.
  - pkrumins 17y ago
    Can you tell more about "money market option"? I'd like to try it but I can't find it anywhere in my PayPal account.
    - sorbits 17y ago
      This is only for US accounts.
  - barrkel 17y ago
    I've had one account closed down, but luckily I hadn't registered bank account details etc., only one of my credit cards. I recommend only ever registering the bare minimum of details with any given PayPal account, so that you can open up a new one with a different email address and different set of details.
    - sorbits 17y ago
      Did you get a reason as to why it was closed down?
  - Uchikoma 17y ago
    I've read horror story after horror story of houses burned down. I've been living in one for decades without any problems. Factoring in anecdotal evidence like this (or mine) always has risks.
    - memetichazard 17y ago
      I've heard those stories too. That's why we have fire alarms. When does the plural of anecdote become data? At least, there will be a point where we've got enough data points to start taking precautions.
  - sorbits 17y ago
    I’ve been using PayPal for five years and have had accounts in 3 different countries, personal and business. I have experienced my account having been frozen a few times, but in all but one case it was just a matter of uploading the required documents. The one case where this wasn’t enough was because an account had been frozen with the claim that I used it for “cash advance”, but the actual reason was something else, so I had to call them — they do have a number you can call with an actual human in the other end. I have also sold to a lot of people via PayPal, and there is definitely a lot of fraud going on, as people have used stolen credit cards and hacked accounts more times than I’d thought to buy my product — so to some degree I do understand why PayPal are pretty strict. They are also under a lot of external regulation about anti money laundering and similar.
- dhimes 17y ago
  Google isn't exactly easy when it comes to dispute resolution.
  - trezor 17y ago
    Does google even have non-automated solutions if you ever get in trouble?
    - dhimes 17y ago
      I was able to get a voice once. It was just sheer luck. She was very nice, but two things happened: they had just transitioned to their new adwords format, she was indicating something about it, and I pointed out that some feature was missing (like "see all ads" or something... I don't quite remember). Within minutes (same phone conversation) that was fixed. But my problem remains. I sell an educational software product, but I get lumped in with the "essay farms" that sell complete papers to students. So every time I change an ad... even just the price... I have to go through a lengthy review process. I asked her to institute some sort of trust system-- with occasional spot-checks, of course, to allow my ads to come up in reasonable time. Even my grocery store has a payment trust system! Still waiting for that system.
    - malloreon 17y ago
      They do if you're a big spender.
- dhimes 17y ago
  I dug around a little. Apparently PayPal's problem is that some folks are selling pirated stuff (dvds, etc.), while advertising them as legit and using PayPal to do so. Under these circumstances they have to use any means they can to verify that the seller is legit and the software (whatever) is not pirated. Apparently they were trying to do this here, but a bunch of emails wouldn't cut it. I can actually understand that. However, there should be a channel for companies to pursue to expedite the process. If I were the Apparent Software, I would send a letter from an attorney- perhaps an affidavit- testifying to what I was trying to do. This would at least take PayPal off the legal hook for anything they are trying to do. And it's a lesson for all of us. If we want to partner like this, we have to make it easy for our "silent" partners (PayPal, Google Checkout, Amazon-- they are all in the same boat here) to play along. I'm grateful to the blogger for posting: this problem wouldn't have occurred to me.
  - Aegean 17y ago
    Apparently the specialists were incompetent to distinguish between standard pirated software sale and a software vendor's niche product.
    - dhimes 17y ago
      It may have been the bundling that caused the problems- I don't know. If one of my competitors started bundling my software with theirs I would be grateful for this kind of leverage. On the other hand, there should be some known (= advertised) means of acceptable proof for resolving disputes. If may also make a difference if you are working as a sole proprietor vs having a govt id # (EIN in the US). But this is wild speculation.
  - grayprog 17y ago
    On the first page of the fax we wrote all 6 paypal accounts of our partners + all the URLs at _their sites_ where they show link to the sale. Surely, the 6 vendors won't point to a pirate selling web site, right? Also, we provided all their 6 paypal accounts. They could just call them to verify (which they apparently did when processing limitations of my partner's account). Jacob. Apparent Software.
dangrover 17y ago
I've processed about $80K in transactions with PayPal with my microISV with no problems. And I think they're better than all the other solutions. But I never keep a balance because I'm afraid of this sort of thing. Something like this happened with a charity drive at SomethingAwful: http://www.somethingawful.com/d/news/paypal-fiasco-summary.php http://www.somethingawful.com/d/news/paypal-fiasco-summary.p... There's apparently no way to quickly talk to an intelligent person with the knowledge and authority to resolve a situation like this should one come up. It seems like with the fees they take out they could do a lot better.
- bcl 17y ago
  Same here. I've been using them for years with no problems. These stories worry me enough that I do an annual review of the other options out there -- but none of them are as good as PayPal. I also don't keep funds in my PP account, as well as transfer them out of the associated bank account ASAP since there is the potential that they could drain that as well.
ErrantX 17y ago
I've had similar problems with Paypal accounts in the past too. Although it's an absolute joke I have found they only respond to formal legal threats. At one point they limited my account, with a couple of grand in it, in the same way (nothing in, nothing out, wait 180 days). So I sent them a letter basically saying "release my money or your staring down the barrel of a legal gun" and listed a whole load of lost earnings, recompense etc. I "would be seeking". For the most part it was empty threats (I could probably have sued - but had no cash to do so) but someone actually rang me the day it arrived; never mentioned the letter but "a standard review of closed cases highlighted mine for reopening"... It's idiotic.
- ajross 17y ago
  It's actually not so terribly dumb. The point here is to prevent fraud. People who take the time to credibly threaten legal action are, I strongly suspect, much less likely to be engaged in fraud. Real criminals would just walk away from the cash (lest they attract more attention) and put up another site on another PayPal account. It's more than just squeaky wheel syndrome -- PayPal is using the context of your communication to determine who you are. Whether that's ethical or not is a separate question. But it seems logical to me.
  - noodle 17y ago
    sure, but it also cripples small businesses who don't really know any better. not every small-time merchant will have the wits about them to present legal threats.
    - jrockway 17y ago
      Dunno, a legal threat is the first thing that came to my mind. I don't see a situation where someone collects money from your customers and refuses to give it to you any different from someone walking into your home, smashing your piggy bank, and taking your money. The second case is obviously a crime, so it follows that the first is too. When you are a victim of a crime, negotiating with the criminal seems like a bad idea. Getting a lawyer (or the cops) involved seems like a good idea. So if I lost my "appeal" at PayPal, I would involve the real legal system, instead of their made up one. (OTOH, if the OP got all his money back, then he was not necessarily wronged. Banks can refuse to do business with companies they are unsure about.)
tallanvor 17y ago
I've gotten to the point where I refuse to use PayPal for buying or selling products. --I can't even remember the last time I used them to do anything where it wasn't a hassle. I suspect they probably see much higher percentages of fraud than other payment processors, and as such have decided they'd rather shut down accounts and reverse payments without warning rather than actually trying to detect and prevent fraud in the first place.
- rimantas 17y ago
  > I can't even remember the last time I used them to do anything where it wasn't a hassle. I can. It had never been a hassle to me. If there are several payment options available I choose paypal—it knows my shipping address and saves me from filling the same borring form again.
bdfh42 17y ago
I suspect that PayPal is the payment processor of choice for all crooks and scammers. Thus, choosing them as your payment processor is risking your business reputation - they will always default to treating their customers with suspicion and if they have your cash in their coffers then they will sit on it given any excuse to be "suspicious" - that's the business model they operate within. While the cost of processing payments is an issue (particularly with otherwise low cost software downloads) it is important to link your business to partners with a solid reputation for probity and good service.
- ig1 17y ago
  The reason that PayPal survived and is still around is because they took a very risk averse attitude and pro-actively try to combat fraud. Most of their competitors didn't fail because of lack of customers, they failed because they couldn't handle the fraud. If you want to get a more detailed view of the issues have a read of the interview Max Levchin gave to JL in Founders at Work.
  - pierrefar 17y ago
    There is a big difference between aggressive fraud protection and pooping on your customers. Being polite and handling mistakes intelligently doesn't mean they can't combat fraud effectively.
- __david__ 17y ago
  The one advantage paypal has is the fact that it isolates your site from credit card numbers. If I go to some podunk site to buy something I almost always choose the paypal option even if they have a merchant account set up. Why? Because with paypal I end up authenticated with paypal.com and I know that no important info is passing through to the podunk site's servers. Otherwise I'm entering my credit card number into their site and I have no way of knowing how good or crappy their security is. I'm basically having to trust them not to do something stupid like store it in their DB, or mail it plaintext to their order processing guy, or some other brain dead thing.
  - 17y ago
dfischer 17y ago
What's an alternative to PayPal then?
- chaosmachine 17y ago
  Google Checkout, Amazon Payments, 2Checkout, Authorize.net, and other cc processors. Or get a merchant account.
  - ig1 17y ago
    Most CC processors are much more expensive if you're only dealing with a small number of sales, they're only worth using if you're beyond a certain size which most mISVs won't be.
  - idan 17y ago
    Pretty much every big payment processor is viable so long as you have a US Bank account into which you withdraw your sales revenue—except a lot of us live outside of Bushland and thus the only option is either using a local bank/merchant account (expensive, complex, slow-moving, don't understand new technology, poor interface, etc) or paypal. ApparentSoft is a developer based in Israel, like me. They probably opted to use PayPal because PayPal recently opened up the ability to withdraw directly to an Israeli Bank account -- something which all the ohter entrants on this list cannot do (with the possible exception of 2CO, haven't looked at them).
    - sorbits 17y ago
      2CO can do international wire transfers. I use them as a secondary account because some of my customers refuse to use PayPal, and 2CO really sucks compared to PayPal. They haven’t frozen my account, but their UI is crap, their fees are higher, there is delay before payment appears in my account, they keep a “reserve” when they do payouts, etc.
  - andreshb 17y ago
    What about best alternatives for merchants outside of the US/Europe?
scotty79 17y ago
I am really glad that I've read this. I plan to build a bit unorthodox website and I was intending to use PayPal for money transfers between the users. After reading this I am almost sure that my PayPal account would get suspended at any decent amount of popularity. Can you point out some other alternatives? I was thinking about money bookers.
- Vivtek 17y ago
  With Moneybookers, you'll have the problem that they'll be flagged by US banks as a gambling site. Repeatedly. One of my customers in Europe uses Moneybookers to pay me, because their fees are really quite attractive in comparison to PayPal. But because Moneybookers are in the UK and we all know what a gambling haven the UK is, I have to keep a constant eye on my bank. (But my bank bounces every other payment to joker.com for the same reason. Amateurs.)
  - scotty79 17y ago
    Does your bank reject payments to your account done with moneybookers and you have to explicitly remind your bank that you want those payments and then everything is ok?
    - Vivtek 17y ago
      Occasionally. I have to admit it hasn't happened in a while, but I don't use moneybookers that often.
flashingpumpkin 17y ago
Very disturbing and frightening read - especially because I've stumbled such horror stories about PayPal quite a lot the last couple of months.
pkrumins 17y ago
Wondering if anyone has a success story with PayPal?
- eli 17y ago
  It's been working pretty good for me. Maybe I got lucky -- I got an excellent account rep when signing up for the API. She gave me a direct number to her desk and whenever I have a problem I call her and she fixes it. I actually sent an email to PayPal's Executive Customer Service department telling them how great she was and how there probably wouldn't be so many paypal horror stories if they had more reps like her... and they wrote back with a generic apology for the problems I'd encountered.
- EvilTrout 17y ago
  I've been using Paypal for years to collect money and they have been working great. During one month where our sales were particularaly high they froze our account too, but not for incoming transactions, so no money was lost. I called them on the phone and was able to speak to a representative in 5 minutes who sorted it out. Not exactly a horror story.
- dpcan 17y ago
  I've been using PayPal for 10 years without a single problem and I process many payments every week (varies week to week). The problem is that MOST people have success stories, but it doesn't make for a very good blog post does it? One sentence nobody wants to read.
- __david__ 17y ago
  It's been working for me. I sell a little Mac shareware app that pulls in about 3k per year (not very much). Paypal was nice to interface too (especially with CPAN's Business::PayPal::IPN). I set the whole automated registration thing up in a few hours. I've had a couple of charge backs and those irk me to no end. Paypal always sides with the purchaser because software is intangible. I've been tempted to mail out postcards with the license code on them so that I can claim I sent something tangible out, but it seems like too much of a hassle to be worth it (it really only happens about once per year). I ended up solving the charge back problem in a technical way anyway.
jsteele 17y ago
Sounds a lot like the various AdSense horror stories. A recent one: http://groups.google.com/group/android-discuss/browse_thread/thread/9f8fea67eab535c7/df44a3d3f59b0d01 http://groups.google.com/group/android-discuss/browse_thread...
- jplewicke 17y ago
  It's apparently very hard to scale any exchange system to exclude fraud and prevent false positives in a humane manner. AdSense, Paypal, Google Checkout, eGold, and Prosper.com have all failed to figure out how to do it reliably. You can throw fancy machine-learning techniques at the problem and isolate most of the unusual activity, but the problem then is how you filter that between fraudsters and the genuine good guys. The basic problem is that if you're a low-margin Internet-scale transactional business, the marginal cost of distinguishing fraud from unusual non-fraud is higher than the marginal benefit from letting the transactions through. And if you're Paypal and you get the float on a bunch of locked funds without the need to following banking regulations, it's definitely not in your best interest to do.
shin_lao 17y ago
Do business with your bank. You have a person you meet face to face whenever you need and who's going to crawl within the organization to fix that kind of problem. What PayPal did is pretty logical given the number of fraud they get everyday. e-mail has got no legal value and from the outside what they did wasn't very rigorous.
- adnam 17y ago
  > e-mail has got no legal value How's that?
  - shin_lao 17y ago
    No signature.
    - sailormoon 17y ago
      .. only an electronic paper trail a mile long. Email is absolutely of legal value.
      - shin_lao 17y ago
        I'd like you to exhibit cases where e-mail was ok to grant a copyright permission. My lawyers always told me the following: everything formal must be fax, snail mail or signed with an electronic certificate (I declare and pay my taxes with the later for example). Copyright handover is not just "ok we're going to buy you 2 computers" kind of e-mail.
        eli 17y ago
        And I'd like you to point out the law that says all contracts have to be written. With a few specific exceptions, they don't. Sure, you should get them in writing and signed to cover your ass, but an email contract is still perfectly valid in most cases. Just like a "handshake agreement" can be legally binding.
swombat 17y ago
The way I see it, for something as critical as payment infrastructure, it is simply not an option to go with someone who doesn't have a phone number where you can speak to a real, intelligent person who can act beyond the confines of a few support call scripts. This is largely why we use a merchant account with a real bank (which has a dedicated account manager), and a gateway with quality support staff that always pick up the phone.
- ivenkys 17y ago
  Yes - there are times when you absolutely must speak to a human being, make your systems as easy and automated as possible but when i am stuck i need to be able to pick the phone and talk to a person. FirstDirect - are very good at that.
- bmm6o 17y ago
  Absolutely. PayPal is fine right up until the point when they cut you off, and then you have virtually no recourse. A similar thing happened to me (though I was dealing in physical goods), and I was never able to get it straightened out. They kept asking for more info, I kept faxing it to them; it was never really clear to me what specifically they found suspicious or what I had to do to allay their fears. Having to interact by fax with people who have no authority or incentive to resolve the matter is awful; I think they hope you just give up.
jmonegro 17y ago
I once had my PayPal account "temporarily" suspended under similar circumstances. Usually, all you have to do is fax them/upload copies of documents verifying your identity and you should be set within a week, if you're persistent and diligent.
- eam 17y ago
  Did you not read the entire story?
  - jmonegro 17y ago
    I did, which is why I said "usually". This happened to me twice, and I've never had to go through so much trouble. Furthermore, as to letting PayPal know about a sale, it _is_ possible. The first time I had an incident was because of a sale I ran, and PayPal limited the account I got it fixed in a week, just in time for a sale of another product. This time, I emailes PayPal telling them about the previous story and asking if there would be a problem. There was, and my account got limited for a second time. What I did then was, instead of submitting documents, I uploaded a screenshot of my email correspondence with PayPal, and their response. One or two days later, my account was free.
jhancock 17y ago
Description of high-risk third-party payment aggregation and why its not just PayPal that has a problem with it: http://www.braintreepaymentsolutions.com/blog/high-risk-mechant-account-third-party-payments-aggregation/ http://www.braintreepaymentsolutions.com/blog/high-risk-mech...
jasonlbaptiste 17y ago
I've dealt with this before, and it's absolutely ridiculous. Paypal should not be in business or allowed to operate. They go around acting as if they are "bank like", but in actual reality they do not have to adhere to bank standards. This means they can do things like this. I understand there are a lot of scammers and fraudsters out there. If they need to do something like this, they cannot make it a multiweek process that will most likely end up in you waiting 180 days for your money. They also need better communication with those that have had their accounts frozen. Using their system is utterly ridiculous and not being able to talk to the actual person making a decision is even worse. We're talking rightfully earned money that people rely upon to make a living, you can't screw around with a person's living like this. I see all these Paypal developer conferences and "developers love paypal" promotion going on, and I call complete fucking horseshit on it. There's no way a single dev or software company should go near your service with service+rules like this in place.
- SteveC 17y ago
  "developers love paypal" Do they? Because I've never met one that does.
ladyada 17y ago
You may be able to avoid the biggest problem - which is money 'trapped' in the account by depositing all your funds, daily, into your bank account. Its called Daily Sweep. Wait, you've never heard of it? Oh yes, thats because not only is it -not- advertised or mentioned anywhere on the site but to activate the -option- it you need to call up on the phone! But its quite easy to do once you know about it. With your biz paypal account call up and request activation of Daily Sweep. If the first person says they dont know what you mean keep asking, eventually someone will admit it (only took us 2 tries!) and set up the option. Now in your account activate it under your prefs. Every day, the earnings will be Swept into your bank account, just like a Merchant Account. No guarantees they wont try to, say, pull money from your bank account tho...
- jrockway 17y ago
  Yes, what is to stop PayPal from requesting all the funds back from your linked account? Can you ask your bank to prevent this?
  - HeyLaughingBoy 17y ago
    Bank accounts are free. I have my personal account, my business account and a "throwaway" account I use only for PayPal funds. When my PayPal balance gets over a few hundred $$, I manually transfer to the throwaway account and then to the business account. They can't touch the business account because (a) they don't know about it and (b) they have no authorization to touch it, so if they somehow managed to withdraw funds, I'd be at the local branch the next day screaming at the bank manager. Make no bones about it, banks take unauthorized withdrawals very seriously!
  - ladyada 17y ago
    Well we've only heard of this happening when there's a chargeback/claim & they had to pay the claimant. Not sure if its happened just because an account was shut down for 'risk management' Still, we prefer to keep as little $ as possible in PP's hands.
zackattack 17y ago
This is why I use Amazon Payments. Unfortunately, their documentation is awful, but at least it's Amazon. They have a pride and reputation. I've never had a problem with them.
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chrischen 17y ago
I had a similar encounter of false accusation on Sedo.com trying to sell a domain. They apparently had "definitive" evidence of shilling and closed the sale. When I asked what that evidence was, they said the buyer had the same name as I did. Maybe it was bad luck, but who'd be dumb enough to shill with his own name anyways. It's not so much that I lost the sale that bothers me, but that the lady in Germany still thinks I was trying to shill. Perhaps I should have threatened to pursue legal action?
JereCoh 17y ago
This happened to my company earlier this month. The categorization, not any particular activity, of my business tripped one of PayPal's safety triggers. PayPal was unapologetic and wildly unhelpful in resolving the issue (that didn't exist!) quickly.
agbell 17y ago
I have heard that if you notify paypal you may see a big spike, then when it gets auto-flagged, it will quickly be un flagged when they see the note on your file.
aresant 17y ago
Welcome to your traditional merchant account. Processors are all powerful. Consumers are always right. Businesses are expendable . . . despite providing the fundamental opportunity for the processors to exist.
brandon272 17y ago
While I find PayPal's rates reasonably attractive and their interface to be... uhh... better than most other merchant account or payment processing sites out there, I just don't think I can trust them to handle payment processing for me on a business scale. I understand as much as the next guy that a company like PayPal needs to take fraud seriously. But why not work with your customers so that they can prove themselves to be legitimate businesses with legitimate intentions? I know I'd be more than happy to provide PayPal with whatever information they need in order to ensure uninterrupted service, and to prevent my account from being randomly "suspended" one day without notice or without reason. They should get their act together and make quality customer care available for all of their Pro customers.

225 points by sadiq 17y ago

robk 17y ago

Time and time again I've heard these PayPal horror stories (and at www.paypalsucks.com). I am very leery of PayPal and make it a point to always transfer any balance out immediately, as their freezes seem like a nightmare to deal with. I wish Google Checkout had a more compelling product, and that there were a better solution for C2C sales.

josefresco 17y ago
I've heard horror story after horror story and yet I've never had any issues with PayPal. I've stored money there, used their Visa/debit cart and even opted into their money market option and made some money (off my money) for several years. Factoring in anecdotal evidence like this (or mine) always has risks. I'm sure you could find someone local who absolutely hates the bank you choose to have accounts with, but that doesn't necessarily mean you'll have issues.
- pkrumins 17y ago
  Can you tell more about "money market option"? I'd like to try it but I can't find it anywhere in my PayPal account.
  - sorbits 17y ago
    This is only for US accounts.
- barrkel 17y ago
  I've had one account closed down, but luckily I hadn't registered bank account details etc., only one of my credit cards. I recommend only ever registering the bare minimum of details with any given PayPal account, so that you can open up a new one with a different email address and different set of details.
  - sorbits 17y ago
    Did you get a reason as to why it was closed down?
- Uchikoma 17y ago
  I've read horror story after horror story of houses burned down. I've been living in one for decades without any problems. Factoring in anecdotal evidence like this (or mine) always has risks.
  - memetichazard 17y ago
    I've heard those stories too. That's why we have fire alarms. When does the plural of anecdote become data? At least, there will be a point where we've got enough data points to start taking precautions.
- sorbits 17y ago
  I’ve been using PayPal for five years and have had accounts in 3 different countries, personal and business. I have experienced my account having been frozen a few times, but in all but one case it was just a matter of uploading the required documents. The one case where this wasn’t enough was because an account had been frozen with the claim that I used it for “cash advance”, but the actual reason was something else, so I had to call them — they do have a number you can call with an actual human in the other end. I have also sold to a lot of people via PayPal, and there is definitely a lot of fraud going on, as people have used stolen credit cards and hacked accounts more times than I’d thought to buy my product — so to some degree I do understand why PayPal are pretty strict. They are also under a lot of external regulation about anti money laundering and similar.
dhimes 17y ago
Google isn't exactly easy when it comes to dispute resolution.
- trezor 17y ago
  Does google even have non-automated solutions if you ever get in trouble?
  - dhimes 17y ago
    I was able to get a voice once. It was just sheer luck. She was very nice, but two things happened: they had just transitioned to their new adwords format, she was indicating something about it, and I pointed out that some feature was missing (like "see all ads" or something... I don't quite remember). Within minutes (same phone conversation) that was fixed. But my problem remains. I sell an educational software product, but I get lumped in with the "essay farms" that sell complete papers to students. So every time I change an ad... even just the price... I have to go through a lengthy review process. I asked her to institute some sort of trust system-- with occasional spot-checks, of course, to allow my ads to come up in reasonable time. Even my grocery store has a payment trust system! Still waiting for that system.
  - malloreon 17y ago
    They do if you're a big spender.
dhimes 17y ago
I dug around a little. Apparently PayPal's problem is that some folks are selling pirated stuff (dvds, etc.), while advertising them as legit and using PayPal to do so. Under these circumstances they have to use any means they can to verify that the seller is legit and the software (whatever) is not pirated. Apparently they were trying to do this here, but a bunch of emails wouldn't cut it. I can actually understand that. However, there should be a channel for companies to pursue to expedite the process. If I were the Apparent Software, I would send a letter from an attorney- perhaps an affidavit- testifying to what I was trying to do. This would at least take PayPal off the legal hook for anything they are trying to do. And it's a lesson for all of us. If we want to partner like this, we have to make it easy for our "silent" partners (PayPal, Google Checkout, Amazon-- they are all in the same boat here) to play along. I'm grateful to the blogger for posting: this problem wouldn't have occurred to me.
- Aegean 17y ago
  Apparently the specialists were incompetent to distinguish between standard pirated software sale and a software vendor's niche product.
  - dhimes 17y ago
    It may have been the bundling that caused the problems- I don't know. If one of my competitors started bundling my software with theirs I would be grateful for this kind of leverage. On the other hand, there should be some known (= advertised) means of acceptable proof for resolving disputes. If may also make a difference if you are working as a sole proprietor vs having a govt id # (EIN in the US). But this is wild speculation.
- grayprog 17y ago
  On the first page of the fax we wrote all 6 paypal accounts of our partners + all the URLs at _their sites_ where they show link to the sale. Surely, the 6 vendors won't point to a pirate selling web site, right? Also, we provided all their 6 paypal accounts. They could just call them to verify (which they apparently did when processing limitations of my partner's account). Jacob. Apparent Software.

dangrover 17y ago

I've processed about $80K in transactions with PayPal with my microISV with no problems. And I think they're better than all the other solutions. But I never keep a balance because I'm afraid of this sort of thing. Something like this happened with a charity drive at SomethingAwful: http://www.somethingawful.com/d/news/paypal-fiasco-summary.php http://www.somethingawful.com/d/news/paypal-fiasco-summary.p... There's apparently no way to quickly talk to an intelligent person with the knowledge and authority to resolve a situation like this should one come up. It seems like with the fees they take out they could do a lot better.

bcl 17y ago
Same here. I've been using them for years with no problems. These stories worry me enough that I do an annual review of the other options out there -- but none of them are as good as PayPal. I also don't keep funds in my PP account, as well as transfer them out of the associated bank account ASAP since there is the potential that they could drain that as well.

ErrantX 17y ago

I've had similar problems with Paypal accounts in the past too. Although it's an absolute joke I have found they only respond to formal legal threats. At one point they limited my account, with a couple of grand in it, in the same way (nothing in, nothing out, wait 180 days). So I sent them a letter basically saying "release my money or your staring down the barrel of a legal gun" and listed a whole load of lost earnings, recompense etc. I "would be seeking". For the most part it was empty threats (I could probably have sued - but had no cash to do so) but someone actually rang me the day it arrived; never mentioned the letter but "a standard review of closed cases highlighted mine for reopening"... It's idiotic.

ajross 17y ago
It's actually not so terribly dumb. The point here is to prevent fraud. People who take the time to credibly threaten legal action are, I strongly suspect, much less likely to be engaged in fraud. Real criminals would just walk away from the cash (lest they attract more attention) and put up another site on another PayPal account. It's more than just squeaky wheel syndrome -- PayPal is using the context of your communication to determine who you are. Whether that's ethical or not is a separate question. But it seems logical to me.
- noodle 17y ago
  sure, but it also cripples small businesses who don't really know any better. not every small-time merchant will have the wits about them to present legal threats.
  - jrockway 17y ago
    Dunno, a legal threat is the first thing that came to my mind. I don't see a situation where someone collects money from your customers and refuses to give it to you any different from someone walking into your home, smashing your piggy bank, and taking your money. The second case is obviously a crime, so it follows that the first is too. When you are a victim of a crime, negotiating with the criminal seems like a bad idea. Getting a lawyer (or the cops) involved seems like a good idea. So if I lost my "appeal" at PayPal, I would involve the real legal system, instead of their made up one. (OTOH, if the OP got all his money back, then he was not necessarily wronged. Banks can refuse to do business with companies they are unsure about.)

tallanvor 17y ago

I've gotten to the point where I refuse to use PayPal for buying or selling products. --I can't even remember the last time I used them to do anything where it wasn't a hassle. I suspect they probably see much higher percentages of fraud than other payment processors, and as such have decided they'd rather shut down accounts and reverse payments without warning rather than actually trying to detect and prevent fraud in the first place.

rimantas 17y ago
> I can't even remember the last time I used them to do anything where it wasn't a hassle. I can. It had never been a hassle to me. If there are several payment options available I choose paypal—it knows my shipping address and saves me from filling the same borring form again.

bdfh42 17y ago

I suspect that PayPal is the payment processor of choice for all crooks and scammers. Thus, choosing them as your payment processor is risking your business reputation - they will always default to treating their customers with suspicion and if they have your cash in their coffers then they will sit on it given any excuse to be "suspicious" - that's the business model they operate within. While the cost of processing payments is an issue (particularly with otherwise low cost software downloads) it is important to link your business to partners with a solid reputation for probity and good service.

ig1 17y ago
The reason that PayPal survived and is still around is because they took a very risk averse attitude and pro-actively try to combat fraud. Most of their competitors didn't fail because of lack of customers, they failed because they couldn't handle the fraud. If you want to get a more detailed view of the issues have a read of the interview Max Levchin gave to JL in Founders at Work.
- pierrefar 17y ago
  There is a big difference between aggressive fraud protection and pooping on your customers. Being polite and handling mistakes intelligently doesn't mean they can't combat fraud effectively.
__david__ 17y ago
The one advantage paypal has is the fact that it isolates your site from credit card numbers. If I go to some podunk site to buy something I almost always choose the paypal option even if they have a merchant account set up. Why? Because with paypal I end up authenticated with paypal.com and I know that no important info is passing through to the podunk site's servers. Otherwise I'm entering my credit card number into their site and I have no way of knowing how good or crappy their security is. I'm basically having to trust them not to do something stupid like store it in their DB, or mail it plaintext to their order processing guy, or some other brain dead thing.
- 17y ago

dfischer 17y ago

What's an alternative to PayPal then?

chaosmachine 17y ago
Google Checkout, Amazon Payments, 2Checkout, Authorize.net, and other cc processors. Or get a merchant account.
- ig1 17y ago
  Most CC processors are much more expensive if you're only dealing with a small number of sales, they're only worth using if you're beyond a certain size which most mISVs won't be.
- idan 17y ago
  Pretty much every big payment processor is viable so long as you have a US Bank account into which you withdraw your sales revenue—except a lot of us live outside of Bushland and thus the only option is either using a local bank/merchant account (expensive, complex, slow-moving, don't understand new technology, poor interface, etc) or paypal. ApparentSoft is a developer based in Israel, like me. They probably opted to use PayPal because PayPal recently opened up the ability to withdraw directly to an Israeli Bank account -- something which all the ohter entrants on this list cannot do (with the possible exception of 2CO, haven't looked at them).
  - sorbits 17y ago
    2CO can do international wire transfers. I use them as a secondary account because some of my customers refuse to use PayPal, and 2CO really sucks compared to PayPal. They haven’t frozen my account, but their UI is crap, their fees are higher, there is delay before payment appears in my account, they keep a “reserve” when they do payouts, etc.
- andreshb 17y ago
  What about best alternatives for merchants outside of the US/Europe?

scotty79 17y ago

I am really glad that I've read this. I plan to build a bit unorthodox website and I was intending to use PayPal for money transfers between the users. After reading this I am almost sure that my PayPal account would get suspended at any decent amount of popularity. Can you point out some other alternatives? I was thinking about money bookers.

Vivtek 17y ago
With Moneybookers, you'll have the problem that they'll be flagged by US banks as a gambling site. Repeatedly. One of my customers in Europe uses Moneybookers to pay me, because their fees are really quite attractive in comparison to PayPal. But because Moneybookers are in the UK and we all know what a gambling haven the UK is, I have to keep a constant eye on my bank. (But my bank bounces every other payment to joker.com for the same reason. Amateurs.)
- scotty79 17y ago
  Does your bank reject payments to your account done with moneybookers and you have to explicitly remind your bank that you want those payments and then everything is ok?
  - Vivtek 17y ago
    Occasionally. I have to admit it hasn't happened in a while, but I don't use moneybookers that often.

flashingpumpkin 17y ago

Very disturbing and frightening read - especially because I've stumbled such horror stories about PayPal quite a lot the last couple of months.

pkrumins 17y ago

Wondering if anyone has a success story with PayPal?

eli 17y ago
It's been working pretty good for me. Maybe I got lucky -- I got an excellent account rep when signing up for the API. She gave me a direct number to her desk and whenever I have a problem I call her and she fixes it. I actually sent an email to PayPal's Executive Customer Service department telling them how great she was and how there probably wouldn't be so many paypal horror stories if they had more reps like her... and they wrote back with a generic apology for the problems I'd encountered.
EvilTrout 17y ago
I've been using Paypal for years to collect money and they have been working great. During one month where our sales were particularaly high they froze our account too, but not for incoming transactions, so no money was lost. I called them on the phone and was able to speak to a representative in 5 minutes who sorted it out. Not exactly a horror story.
dpcan 17y ago
I've been using PayPal for 10 years without a single problem and I process many payments every week (varies week to week). The problem is that MOST people have success stories, but it doesn't make for a very good blog post does it? One sentence nobody wants to read.
__david__ 17y ago
It's been working for me. I sell a little Mac shareware app that pulls in about 3k per year (not very much). Paypal was nice to interface too (especially with CPAN's Business::PayPal::IPN). I set the whole automated registration thing up in a few hours. I've had a couple of charge backs and those irk me to no end. Paypal always sides with the purchaser because software is intangible. I've been tempted to mail out postcards with the license code on them so that I can claim I sent something tangible out, but it seems like too much of a hassle to be worth it (it really only happens about once per year). I ended up solving the charge back problem in a technical way anyway.

jsteele 17y ago

Sounds a lot like the various AdSense horror stories. A recent one: http://groups.google.com/group/android-discuss/browse_thread/thread/9f8fea67eab535c7/df44a3d3f59b0d01 http://groups.google.com/group/android-discuss/browse_thread...

jplewicke 17y ago
It's apparently very hard to scale any exchange system to exclude fraud and prevent false positives in a humane manner. AdSense, Paypal, Google Checkout, eGold, and Prosper.com have all failed to figure out how to do it reliably. You can throw fancy machine-learning techniques at the problem and isolate most of the unusual activity, but the problem then is how you filter that between fraudsters and the genuine good guys. The basic problem is that if you're a low-margin Internet-scale transactional business, the marginal cost of distinguishing fraud from unusual non-fraud is higher than the marginal benefit from letting the transactions through. And if you're Paypal and you get the float on a bunch of locked funds without the need to following banking regulations, it's definitely not in your best interest to do.

shin_lao 17y ago

Do business with your bank. You have a person you meet face to face whenever you need and who's going to crawl within the organization to fix that kind of problem. What PayPal did is pretty logical given the number of fraud they get everyday. e-mail has got no legal value and from the outside what they did wasn't very rigorous.

adnam 17y ago
> e-mail has got no legal value How's that?
- shin_lao 17y ago
  No signature.
  - sailormoon 17y ago
    .. only an electronic paper trail a mile long. Email is absolutely of legal value.
    - shin_lao 17y ago
      I'd like you to exhibit cases where e-mail was ok to grant a copyright permission. My lawyers always told me the following: everything formal must be fax, snail mail or signed with an electronic certificate (I declare and pay my taxes with the later for example). Copyright handover is not just "ok we're going to buy you 2 computers" kind of e-mail.
      - eli 17y ago
        And I'd like you to point out the law that says all contracts have to be written. With a few specific exceptions, they don't. Sure, you should get them in writing and signed to cover your ass, but an email contract is still perfectly valid in most cases. Just like a "handshake agreement" can be legally binding.

swombat 17y ago

The way I see it, for something as critical as payment infrastructure, it is simply not an option to go with someone who doesn't have a phone number where you can speak to a real, intelligent person who can act beyond the confines of a few support call scripts. This is largely why we use a merchant account with a real bank (which has a dedicated account manager), and a gateway with quality support staff that always pick up the phone.

ivenkys 17y ago
Yes - there are times when you absolutely must speak to a human being, make your systems as easy and automated as possible but when i am stuck i need to be able to pick the phone and talk to a person. FirstDirect - are very good at that.
bmm6o 17y ago
Absolutely. PayPal is fine right up until the point when they cut you off, and then you have virtually no recourse. A similar thing happened to me (though I was dealing in physical goods), and I was never able to get it straightened out. They kept asking for more info, I kept faxing it to them; it was never really clear to me what specifically they found suspicious or what I had to do to allay their fears. Having to interact by fax with people who have no authority or incentive to resolve the matter is awful; I think they hope you just give up.

jmonegro 17y ago

I once had my PayPal account "temporarily" suspended under similar circumstances. Usually, all you have to do is fax them/upload copies of documents verifying your identity and you should be set within a week, if you're persistent and diligent.

eam 17y ago
Did you not read the entire story?
- jmonegro 17y ago
  I did, which is why I said "usually". This happened to me twice, and I've never had to go through so much trouble. Furthermore, as to letting PayPal know about a sale, it _is_ possible. The first time I had an incident was because of a sale I ran, and PayPal limited the account I got it fixed in a week, just in time for a sale of another product. This time, I emailes PayPal telling them about the previous story and asking if there would be a problem. There was, and my account got limited for a second time. What I did then was, instead of submitting documents, I uploaded a screenshot of my email correspondence with PayPal, and their response. One or two days later, my account was free.

jhancock 17y ago

Description of high-risk third-party payment aggregation and why its not just PayPal that has a problem with it: http://www.braintreepaymentsolutions.com/blog/high-risk-mechant-account-third-party-payments-aggregation/ http://www.braintreepaymentsolutions.com/blog/high-risk-mech...

jasonlbaptiste 17y ago

I've dealt with this before, and it's absolutely ridiculous. Paypal should not be in business or allowed to operate. They go around acting as if they are "bank like", but in actual reality they do not have to adhere to bank standards. This means they can do things like this. I understand there are a lot of scammers and fraudsters out there. If they need to do something like this, they cannot make it a multiweek process that will most likely end up in you waiting 180 days for your money. They also need better communication with those that have had their accounts frozen. Using their system is utterly ridiculous and not being able to talk to the actual person making a decision is even worse. We're talking rightfully earned money that people rely upon to make a living, you can't screw around with a person's living like this. I see all these Paypal developer conferences and "developers love paypal" promotion going on, and I call complete fucking horseshit on it. There's no way a single dev or software company should go near your service with service+rules like this in place.

SteveC 17y ago
"developers love paypal" Do they? Because I've never met one that does.

ladyada 17y ago

You may be able to avoid the biggest problem - which is money 'trapped' in the account by depositing all your funds, daily, into your bank account. Its called Daily Sweep. Wait, you've never heard of it? Oh yes, thats because not only is it -not- advertised or mentioned anywhere on the site but to activate the -option- it you need to call up on the phone! But its quite easy to do once you know about it. With your biz paypal account call up and request activation of Daily Sweep. If the first person says they dont know what you mean keep asking, eventually someone will admit it (only took us 2 tries!) and set up the option. Now in your account activate it under your prefs. Every day, the earnings will be Swept into your bank account, just like a Merchant Account. No guarantees they wont try to, say, pull money from your bank account tho...

jrockway 17y ago
Yes, what is to stop PayPal from requesting all the funds back from your linked account? Can you ask your bank to prevent this?
- HeyLaughingBoy 17y ago
  Bank accounts are free. I have my personal account, my business account and a "throwaway" account I use only for PayPal funds. When my PayPal balance gets over a few hundred $$, I manually transfer to the throwaway account and then to the business account. They can't touch the business account because (a) they don't know about it and (b) they have no authorization to touch it, so if they somehow managed to withdraw funds, I'd be at the local branch the next day screaming at the bank manager. Make no bones about it, banks take unauthorized withdrawals very seriously!
- ladyada 17y ago
  Well we've only heard of this happening when there's a chargeback/claim & they had to pay the claimant. Not sure if its happened just because an account was shut down for 'risk management' Still, we prefer to keep as little $ as possible in PP's hands.

zackattack 17y ago

This is why I use Amazon Payments. Unfortunately, their documentation is awful, but at least it's Amazon. They have a pride and reputation. I've never had a problem with them.

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chrischen 17y ago

I had a similar encounter of false accusation on Sedo.com trying to sell a domain. They apparently had "definitive" evidence of shilling and closed the sale. When I asked what that evidence was, they said the buyer had the same name as I did. Maybe it was bad luck, but who'd be dumb enough to shill with his own name anyways. It's not so much that I lost the sale that bothers me, but that the lady in Germany still thinks I was trying to shill. Perhaps I should have threatened to pursue legal action?

JereCoh 17y ago

This happened to my company earlier this month. The categorization, not any particular activity, of my business tripped one of PayPal's safety triggers. PayPal was unapologetic and wildly unhelpful in resolving the issue (that didn't exist!) quickly.

agbell 17y ago

I have heard that if you notify paypal you may see a big spike, then when it gets auto-flagged, it will quickly be un flagged when they see the note on your file.

aresant 17y ago

Welcome to your traditional merchant account. Processors are all powerful. Consumers are always right. Businesses are expendable . . . despite providing the fundamental opportunity for the processors to exist.

brandon272 17y ago

While I find PayPal's rates reasonably attractive and their interface to be... uhh... better than most other merchant account or payment processing sites out there, I just don't think I can trust them to handle payment processing for me on a business scale. I understand as much as the next guy that a company like PayPal needs to take fraud seriously. But why not work with your customers so that they can prove themselves to be legitimate businesses with legitimate intentions? I know I'd be more than happy to provide PayPal with whatever information they need in order to ensure uninterrupted service, and to prevent my account from being randomly "suspended" one day without notice or without reason. They should get their act together and make quality customer care available for all of their Pro customers.