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I 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. The

I 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 ago
The 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 ago
PayPal 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.
cperciva 15y ago
PayPal is not even authorized to act as a bank in the state he lives and operates in. Does this matter? I use a bank which isn't authorized to operate in the country I live in (Harris Bank, operates in the US; I'm in Canada).
- dangrossman 15y ago
  I don't think it matters. Some don't seem to realize that when you sign up for any of the PayPal Pro features you're getting a real merchant account underwritten by a real bank. PayPal isn't underwriting it, it's usually JP Morgan Chase or Wells Fargo. You are asked to accept a separate agreement specific to that bank your account is assigned to when you apply for the upgrade.

tzs 15y ago

The 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 ago

PayPal 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.

cperciva 15y ago

PayPal is not even authorized to act as a bank in the state he lives and operates in. Does this matter? I use a bank which isn't authorized to operate in the country I live in (Harris Bank, operates in the US; I'm in Canada).

dangrossman 15y ago
I don't think it matters. Some don't seem to realize that when you sign up for any of the PayPal Pro features you're getting a real merchant account underwritten by a real bank. PayPal isn't underwriting it, it's usually JP Morgan Chase or Wells Fargo. You are asked to accept a separate agreement specific to that bank your account is assigned to when you apply for the upgrade.