5 ms·
Redditor burnt by Paypal's "Rolling Reserve" feature
- dmak 15y agoThis needs more attention. I want to hear a response from Paypal.
- jrockway 15y ago"We don't have any physical presence in Illinois, so we don't really care about their laws," is what I'm guessing.
- pbhjpbhj 15y agoI was thinking "We're rich, sucks to be you.". But lying that the physical presence determines the location of a transaction would be high on the list.
- logic 15y agoAmazon no longer has an affiliate program in Illinois, despite not having a physical corporate presence there; affiliates in the state were considered (incorrectly, IMHO, but my opinion doesn't really matter) enough of a business presence to tie them here for the purposes of taxation and regulation. Merchants physically located in Illinois, and directly selling goods, using PayPal to accept funds from Illinois residents and businesses and dispense those funds to Illinois businesses...that's a much stronger argument for tying PayPal to state regulation.
- philjackson 15y agoOn the complaint he raised - "Oh no, I hand delivered it and wrote it with help of a lawyer. The complaint itself is about 50 pages long outlining everything from deceptive advertising to several violations of their state license."
- tzs 15y agoI don't see how he got burnt. He decided he wanted to accept credit cards directly, instead of having customers use their PayPal accounts to pay him, and so started using a PayPal service he had not been using before. That means he's going to be subject to the same kind of things other merchants who accept credit cards have to put up with (everywhere, not just at PayPal), including acquiring banks deciding to hold a reserve to offset their risk. The acquiring bank is on the hook to the credit card associations and issuing banks for any chargebacks that he can not cover. Worst case would be if he goes out of business leaving no money, and a year's worth of his customers chargeback. The acquiring bank is on the hook for all of that. From a risk point of view, an acquiring bank is in about the same position as a bank that is giving you a loan, collateralized by your business, in the amount of a year's worth of your credit card sales.
- DaveMebs 15y agoI think there are a few key points that highlight why offsetting risk is not a valid justification for this behavior: -A 30% default rate is absurdly high. There is no way 30% of the cards being used over the phone are stolen. -Even if usage of the service stops, the Rolling Reserves are a permanent change to they way PayPal handles his account. He cannot turn this off, even if his risk profile goes to 0. -PayPal is not even authorized to act as a bank in the state he lives and operates in.
- tzs 15y agoThe reserve isn't to offset the risk of stolen cards. It's to offset the risk that the merchant will not remain solvent over time, leaving the acquiring bank responsible for the merchant's debts to the credit card associations and issuing banks. It's not at all clear that merchant account providers are banks as far as state banking law goes.
- hnsmurf 15y agoPayPal will re-evaluate your rolling reserve periodically. Assuming steady volume and low charge backs they will lower it. Rolling reserves are not uncommon for merchant accounts. PayPal didn't event them. 30% is on the high side but if PayPal feels the merchant is risky they should have the right to ask for it. There are other merchant accounts out there this guy can use.
- iamelgringo 15y agoThis is why people should use Wepay.com I've been using them for years.
- lachyg 15y agoWePay.com does not do what PayPal does (yet), unfortunately.
- nkassis 15y agoIs Paypal considered a bank and subject to similar regulation? I find that they seem to be getting away with a lot of things that wouldn't be acceptable with other financial institutions.
- DaveMebs 15y agoNo, the article makes it clear that PayPal is not a licensed bank in the state of Illinois and this behavior is presumably illegal. The author claims to have filed a complaint with the state's attorney general.
- dangrossman 15y agoThe author of the article doesn't really understand the situation he's in. He signed up for a merchant account underwritten by a licensed bank (Chase or Wells Fargo) when he upgraded to PayPal Pro to get the virtual terminal. He accepted an agreement with that bank. That bank has the right to hold a reserve as outlined in that agreement.
- rmc 15y agoI think they are a bank in the EU due to, I presume, stronger regulations.
- epo 15y agoIn Luxembourg http://en.wikipedia.org/wiki/PayPal#Bank_status http://en.wikipedia.org/wiki/PayPal#Bank_status A consequence is "It is therefore not possible for UK customers to obtain legal redress from (PayPal) in the English, Scottish, or Northern Irish Courts" Another reason for not using PayPal in the UK.
- TylerBrock 15y agoYawn. Don't like it, don't use it! Problem solved.
- djhworld 15y agoI feel sorry for the guy, however from the looks of the story he signed up to a new service with the company...probably without reading the terms and conditions
- pbhjpbhj 15y agoIf something is illegal in your state then it's reasonable to assume that it's not in the T&C isn't it?
- rms 15y agoIt is still clear to me that all of the people complaining about Paypal as a merchant account provider have not dealt with regular merchant account providers.
- overgard 15y agoI don't see how the notion that other merchant account providers are worse than paypal somehow justifies their poor service.
- pbreit 15y agoRegular merchant accounts are actually not as bad as people think. One major difference is that merchant account providers make getting started a pain. That's when they do all of their analysis to determine if they are comfortable processing for the merchant. PayPal on the other hand does little vetting up front, making the signup process smoother, but can come down unexpectedly later in a merchant's life when it detects risky activity. This also affects how each implements reserves. While merchant account providers may institute a 5% or 10% reserve over 3-6 months, it is more of an insurance policy spread across all of its accounts since it doesn't have a good handle on which individual account will blow up. Whereas PayPal implements reserve only after it has detected risk, it immediately places a larger reserve. It never ceases to amaze me how negative the sentiment is towards PayPal from an audience that I would expect to be much more understanding of how difficult it is to process payments in real-time. And that PayPal became successful because of its actions, not despite them.
- davidw 15y agoThey don't do everything that Paypal does, but Amazon Payments is working out very well for me with LiberWriter, so far. Anyone who wants to publish with Amazon is going to have an account already, so that makes for a very natural overlap that not everyone would have with their service, but... so far so good.
- torontos 15y agoPart of the reason why I think the new entrants Stripe and Samurai will kill it. http://samurai.feefighters.com http://samurai.feefighters.com, http://stripe.com http://stripe.com
- blantonl 15y agoIf either of these new groundbreaking services gets very popular and attracts the eyes of the scammers, they'll be backed into the same corner that Paypal and every other merchant provider is in.
- marquis 15y agoI'd like to think that some hackers can stay ahead of other hackers, enough of the time to balance it out.
- tomjen3 15y agoTo sign up for paypal you must supply an email address (actually somebody else will have to). But what if some other service required you to provide a copy of a goverment issued id as well as the address associated with that id?
- brass_cannon 15y agoSamurai doesn't solve this problem. A merchant processing through them still needs to obtain a traditional merchant account, and therefore exposes their business to the same risk of having a reserve assessed on their account. If Feefighters is acting as an ISO (merchant account servicer / reseller), they can perhaps cushion the blow delivered to merchants in these cases, but likely not by much. Stripe allows businesses to process on their merchant account, similar to how PayPal works. This removes the direct impact of a reserve, but if Stripe observes behavior that could increase their exposure to risk, I'm sure they will take action. It seems likely to me that Stripe will be more reasonable than PayPal in these instances, but that remains to be seen.
- wnight 15y ago
- SandB0x 15y agoOne sure way to earn my sympathy is to litter your post with image macros and troll faces.
- xyzzyz 15y agoHe posted it to Reddit, not HN.
- rdtsc 15y agoHmm, strange, seems to works pretty well. So far about 3000 upvotes and 2000 comments.
- smackfu 15y agoWell, 90% of the comments are "yeah, Paypal sucks!!", and it really has about 25000 upvotes and 22000 downvotes. And the dude is just ranting more in the comments. I'm not surprised he didn't name his product.
- bcl 15y agoPayPal did something similar to me earlier this year. They instituted a 21 day hold on incoming payments because they suddenly decided my business was prone to chargebacks. This is after 8 years of service with zero problems. Never a complaint or chargeback and 10's of thousands of dollars through my account. I no longer have anything for sale (I open sourced my AIS Parser SDK late last year) so it didn't have a dramatic impact on my income. I decided to drop my PayPal and eBay accounts without argument -- if that's the way they want to play the game then I'll just take my business elsewhere.
- ck2 15y agoThe way PayPal risk management works is to dump the whole problem on the customer, never on themselves. This is why the "guarantees" on ebay are useless and actually a hassle for all parties, except paypal/ebay. Try getting a false charge on your paypal card - the moment you notify them, they instantly cancel the card - but to get the money back you have to file a written snail mail report - and then they do not send you a replacement card automatically, they allow it to remain canceled and never support you otherwise unless you specifically ask for another card which will take at least two weeks to receive. They have no problem with people leaving them as there is an endless supply of newbies and near zero competition with easy entry, because they aren't competing as a bank and don't have to obey banking laws.
- hnsmurf 15y agoAs a merchant account provider PayPal has lots of competition.
- EwanG 15y agoI suspect OP (both here and at Reddit) would be interested in pointers to some providers who share PayPal's low cost of entry with hopefully much better service. I know I would be :-)
- StavrosK 15y agoThe only contender seems to be (as it's linked in the reddit thread) http://www.stripe.com http://www.stripe.com.
- dedene 15y agoUnfortunately, they're still US-only (so far).
- LeBlanc 15y agoWePay has a dead simple to use stores product and we just released a new API (with iframe checkouts - https://stage.wepay.com/developer https://stage.wepay.com/developer ). Our goal is to be the 'anti-paypal' by providing over the top support, and making it really easy to get integrated.
- vlad99 15y agoThat is exactly what happened to us last year, the moment we went over $100k in sales per month paypal risk management called and forced us to accept their terms in order to continue using paypal. We did manage to get it to 3% of each order + $10k balance, "PayPal will retain in your PayPal account a minimum balance of $10,000 USD and 3% of the net proceeds of each payment received into your account for a rolling period of 90 days ending on the current date." Unfortunately, there are a lot of people who refuse to pay without paypal, so we were forced to accept this in order to stay in business. It utterly sucks because it takes any kind of risk from paypals back and puts it in the sellers. P.S: it doesn't have anything to do with accepting credit cards, they do this every time you hit a large sales volume aka when they assign a 'dedicated paypal manager' to you. Update: i remember at the time they put a reserve on us we digged in and calculated, figured out paypal holds about $300 mil for 90 days with it's new system, they probably get serious interest from that money, yet we see none, what if the currency goes down in those 90 days and i get to lose a large amount? It's not likely you'd see any compensation from them.
- sambeau 15y agoAnother shot in the arm for https://stripe.com/ https://stripe.com/ I guess that, to take a phone order over Stripe you would need a small app to talk to the API, live. Someone should build that!
- brackin 15y agoMy site runs deals every couple of days leading to big sales influxes when a new product goes live and is sent to our customers. We've had these problems before meaning we haven't been able to refund clients or pay merchants. It's lead to a lot of stress.
- driverdan 15y agoWhen will people realize what a terrible company Paypal is? They've been screwing their users in the name of security and fraud prevention since day 1, myself included. I've lost track of how many class action law suits there have been against them.
- coverband 15y agoSquare (https://squareup.com https://squareup.com) is pretty cool. I have an account with them and can charge credit cards through my iPhone. They even sent me a small swiping device for free, which you plug into the headphone slot. No monthly charges and mobile capability are great, but I haven't had big sums processed with them yet so can't compare the customer service.
- lsc 15y agohuh. I thought 'rolling reserves' were fairly typical for merchant accounts for people with bad credit. I don't remember what the rolling reserve was when I accepted credit cards directly (a loong time ago) but it was significant.