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The customer service angle sucks, no question, and I'm worried about getting into similar trouble (I sell downloadable games via PayPal). But I actually think

The customer service angle sucks, no question, and I'm worried about getting into similar trouble (I sell downloadable games via PayPal). But I actually think holding an issues worth of revenue in reserve is a decent enough compromise. If the company goes bankrupt before an issue ships, for whatever reason, PayPal themselves are going to be on the hook for refunding every single payment, as well as chargeback fees that may apply. PayPal's fees are around 5% - what's their gross profit on each transaction, 1-2% at most? So if there's a 2% chance of an issue going awry and angry people starting chargebacks, a magazine 50 issues old could turn into a net loss for PayPal overnight, which is why even merchants with long and clean track records get stung by this. PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs. The way PayPal handles the customer service end rightfully earns their horrible reputation. But too many people act like the risk itself is not there, or that there's a clear, obvious line between fraudulent businesses that con artists start and solid trustworthy businesses that we start. If PayPal wasn't as aggressive with their fraud prevention, they'd be skinned alive. And, as other people are pointing out in this thread, standard merchant accounts are not immune from the same level of shoot first, ask questions later fraud prevention.

scottshea 14y ago
> PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs So your suggested way around this is to incur credit charges & pay for the credit risk baked into the interest rate all so that Paypal is covered?
- reitzensteinm 14y ago
  Frankly, yes. The merchant is, if I understand the post correctly, taking orders, using the money to print a run, then shipping them. The risk is caused by the merchant's business model. It may not be high, but it certainly exists. Either the merchant, PayPal or consumers themselves must pay for it. Who would you pick?
  - rthomas6 14y ago
    The merchant. It's the merchant's business. The merchant should be the one taking the risk.
    - ed209 14y ago
      I'd be happy with that. Frankly, PayPal's perception of risk is clearly killing businesses. They are going so far into being risk averse that it's killing business. I would rather shoulder the risk that suffer PayPal's "protections". They're like the TSA of online payments.
  - scottshea 14y ago
    And yet you want him to turn to a bank to help secure Paypal's position so that would indicate that the costs of the risk are not wrapped into Paypal's processes (i.e. the transactions between the two parties). For Credit Risk banks and other financial institutions use interest rates. For Operational Risk they use fees. The freezing of accounts comes only when the activity of the merchant approaches a threshold not covered by the fees not prior. As a base coverage all banks are required to keep a reserve just in case their losses start to mount and then they kick in the extreme measures. Paypal has no such standard to meet in the US (not sure what being a Bank in EU/UK would do). Truly the Merchant should cover the risk directly with Paypal and the fee structure if they are legitimate. But that is not your solution... a third party must enter the equation to cover where Paypal is deficient in their risk assessment.
    - rprasad 14y ago
      Who would have thought that a merchant should have to cover the risk entailed by its choice of business model?
kevinconroy 14y ago
Excellent points. As developers, we're used to just plugging in an API and have it "just work". Money transfer systems are different. They draw a lot of dark, evil forces that try not just to hack their systems, but to game and abuse it through normal operations. It's unfortunate that legitimate businesses get caught in the crossfire sometimes, but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)
- elpadi 14y ago
  "but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)". How do you know it is a lot if we rarely hear about it?
  - Karunamon 14y ago
    One can extrapolate based on two things. Firstly the would-be competitors who have been utterly murdered by various kinds of fraud. Secondly the assumption that the amount of fraud in the world isn't going down. There are people (individuals, and entire enterprises) dedicated to financial shenanigans of the black hat variety. If Paypal didn't have a robust risk prevention system, they'd have been annihilated a long time ago.
    - brazzy 14y ago
      Can you name some of those competitors destroyed by fraud? I'd be interested to learn more about those cases.
      - cdk 14y ago
        If I recall correctly there is a mention of this on Paypal's story in Founders at Work.
      - Osiris 14y ago
        I've been using PayPal plus another payment provider to provide other payment options and I can say that I get almost no chargebacks with PayPal. I think I've had one in the past year. The other company, I get several chargebacks a month. Their fraud protections just aren't nearly as good as PayPal. In fact, I often spot fraudulent charges very quickly and have to email my third part processor to refund or cancel the payments. I was pointed to http://maxmind.com http://maxmind.com by another HN poster, which is an API that'll give you a probability of a charge being fraudulent so you can verify it before passing it to the payment provider. I'm going to test that out in combination with Stripe.
wpietri 14y ago
I believe it's a classic business mistake to think that you must turn a profit on every single customer. It's much better to think like a casino: as long as you're in the black for a service and segment of customers, it's a win. That's especially true for PayPal now. Before merchants didn't have much choice. If PayPal continues to be seen as difficult and risky, the better-qualified merchants will be the first to shift to other services. That will leave PayPal with a much more risky customer base than they have now.
- debacle 14y ago
  The financial industry is a different beast. If one customer can wipe out the profit of 100, you need to be much more careful about how you do business and who you do business with.
- nathanb 14y ago
  I don't think any reasonable person has a problem with PayPal deciding to freeze funds in order to ensure that they make a profit. The problem is that, once they have done so, it requires Moses and ten Biblical plagues in order for them to let your money go.
  - pzxc 14y ago
    I don't have a problem with PayPal putting a temporary hold (delay) on new funds coming into an account (as long as it's clear what the guidelines are for such a policy), but what I do have a problem with is PayPal freezing an entire account, including funds that are more than a year old. Which PayPal absolutely does in some circumstances. 5-year ex-paypal customer (and hated being one the whole time). 6-month stripe customer (and happy every minute of it so far)
jedberg 14y ago
But yet somehow banks stay in business while being legally barred from these same protections.
- jonknee 14y ago
  Banks have a much more rigorous approval process and are more limited in the merchants they accept (especially internationally).
- run4yourlives 14y ago
  Of course, you're using a paypal instead of a bank for this very reason, mostly.
- lhnn 14y ago
  Meh. As the author does, he finds another option. I'm not yet convinced that Paypal's shitty service is illegal, but I'm sure if it got bad enough, someone could reasonably argue theft or extortion. Point being: The precedent of putting Paypal under the behemoth of banking laws/PCI/Frank-Dodd is more frightening than people still willing to do business with them getting shafted. Dare I say, if it were easier and less regulated to move money through the interwebs, Paypal wouldn't be an issue.
- Firehed 14y ago
  Banks are not doing merchant processing for most people. Having some sort of reserve to guard against chargebacks is incredibly common in the industry; PayPal, however, is known for going completely over the top as the article and numerous commenters indicate.
  - tripzilch 14y ago
    > Banks are not doing merchant processing for most people. Well, US banks aren't. Dutch banks are doing it just fine: http://en.wikipedia.org/wiki/IDEAL http://en.wikipedia.org/wiki/IDEAL Works very well and I trust this method a lot more than a payment processor that's not my bank. I'm not entirely sure what the rules are from the merchant's side, however.
willyt 14y ago
Free hardcopy magazine with every PDF download purchased?
eridius 14y ago
If PayPal said they were holding the money until the magazines printed, that would be one thing. They didn't say that. They said they'd hold the money until 15 thousand pounds accrued, at which time they'd start paying out percentages. That's a whole different ballgame, and is completely ridiculous.
illumin8 14y ago
PayPal charges 5%? You should really shop around. You can get a merchant account through any number of banks that will charge 3% or less. Merchant accounts have the added advantage that they won't freeze your funds, however, you do have to agree to honor chargebacks, even if they happen a few months later, and you have to live by the card company's dispute policy, which is heavily slanted towards the consumer.
kahawe 14y ago
At least here in Europe, PayPal is registered and acts as a bank. How much would you enjoy your bank denying you access to your last paycheck just because "who knows what might get billed to your account"...?

scottshea 14y ago

> PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs So your suggested way around this is to incur credit charges & pay for the credit risk baked into the interest rate all so that Paypal is covered?

reitzensteinm 14y ago
Frankly, yes. The merchant is, if I understand the post correctly, taking orders, using the money to print a run, then shipping them. The risk is caused by the merchant's business model. It may not be high, but it certainly exists. Either the merchant, PayPal or consumers themselves must pay for it. Who would you pick?
- rthomas6 14y ago
  The merchant. It's the merchant's business. The merchant should be the one taking the risk.
  - ed209 14y ago
    I'd be happy with that. Frankly, PayPal's perception of risk is clearly killing businesses. They are going so far into being risk averse that it's killing business. I would rather shoulder the risk that suffer PayPal's "protections". They're like the TSA of online payments.
- scottshea 14y ago
  And yet you want him to turn to a bank to help secure Paypal's position so that would indicate that the costs of the risk are not wrapped into Paypal's processes (i.e. the transactions between the two parties). For Credit Risk banks and other financial institutions use interest rates. For Operational Risk they use fees. The freezing of accounts comes only when the activity of the merchant approaches a threshold not covered by the fees not prior. As a base coverage all banks are required to keep a reserve just in case their losses start to mount and then they kick in the extreme measures. Paypal has no such standard to meet in the US (not sure what being a Bank in EU/UK would do). Truly the Merchant should cover the risk directly with Paypal and the fee structure if they are legitimate. But that is not your solution... a third party must enter the equation to cover where Paypal is deficient in their risk assessment.
  - rprasad 14y ago
    Who would have thought that a merchant should have to cover the risk entailed by its choice of business model?

kevinconroy 14y ago

Excellent points. As developers, we're used to just plugging in an API and have it "just work". Money transfer systems are different. They draw a lot of dark, evil forces that try not just to hack their systems, but to game and abuse it through normal operations. It's unfortunate that legitimate businesses get caught in the crossfire sometimes, but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)

elpadi 14y ago
"but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)". How do you know it is a lot if we rarely hear about it?
- Karunamon 14y ago
  One can extrapolate based on two things. Firstly the would-be competitors who have been utterly murdered by various kinds of fraud. Secondly the assumption that the amount of fraud in the world isn't going down. There are people (individuals, and entire enterprises) dedicated to financial shenanigans of the black hat variety. If Paypal didn't have a robust risk prevention system, they'd have been annihilated a long time ago.
  - brazzy 14y ago
    Can you name some of those competitors destroyed by fraud? I'd be interested to learn more about those cases.
    - cdk 14y ago
      If I recall correctly there is a mention of this on Paypal's story in Founders at Work.
    - Osiris 14y ago
      I've been using PayPal plus another payment provider to provide other payment options and I can say that I get almost no chargebacks with PayPal. I think I've had one in the past year. The other company, I get several chargebacks a month. Their fraud protections just aren't nearly as good as PayPal. In fact, I often spot fraudulent charges very quickly and have to email my third part processor to refund or cancel the payments. I was pointed to http://maxmind.com http://maxmind.com by another HN poster, which is an API that'll give you a probability of a charge being fraudulent so you can verify it before passing it to the payment provider. I'm going to test that out in combination with Stripe.

wpietri 14y ago

I believe it's a classic business mistake to think that you must turn a profit on every single customer. It's much better to think like a casino: as long as you're in the black for a service and segment of customers, it's a win. That's especially true for PayPal now. Before merchants didn't have much choice. If PayPal continues to be seen as difficult and risky, the better-qualified merchants will be the first to shift to other services. That will leave PayPal with a much more risky customer base than they have now.

debacle 14y ago
The financial industry is a different beast. If one customer can wipe out the profit of 100, you need to be much more careful about how you do business and who you do business with.
nathanb 14y ago
I don't think any reasonable person has a problem with PayPal deciding to freeze funds in order to ensure that they make a profit. The problem is that, once they have done so, it requires Moses and ten Biblical plagues in order for them to let your money go.
- pzxc 14y ago
  I don't have a problem with PayPal putting a temporary hold (delay) on new funds coming into an account (as long as it's clear what the guidelines are for such a policy), but what I do have a problem with is PayPal freezing an entire account, including funds that are more than a year old. Which PayPal absolutely does in some circumstances. 5-year ex-paypal customer (and hated being one the whole time). 6-month stripe customer (and happy every minute of it so far)

jedberg 14y ago

But yet somehow banks stay in business while being legally barred from these same protections.

jonknee 14y ago
Banks have a much more rigorous approval process and are more limited in the merchants they accept (especially internationally).
run4yourlives 14y ago
Of course, you're using a paypal instead of a bank for this very reason, mostly.
lhnn 14y ago
Meh. As the author does, he finds another option. I'm not yet convinced that Paypal's shitty service is illegal, but I'm sure if it got bad enough, someone could reasonably argue theft or extortion. Point being: The precedent of putting Paypal under the behemoth of banking laws/PCI/Frank-Dodd is more frightening than people still willing to do business with them getting shafted. Dare I say, if it were easier and less regulated to move money through the interwebs, Paypal wouldn't be an issue.
Firehed 14y ago
Banks are not doing merchant processing for most people. Having some sort of reserve to guard against chargebacks is incredibly common in the industry; PayPal, however, is known for going completely over the top as the article and numerous commenters indicate.
- tripzilch 14y ago
  > Banks are not doing merchant processing for most people. Well, US banks aren't. Dutch banks are doing it just fine: http://en.wikipedia.org/wiki/IDEAL http://en.wikipedia.org/wiki/IDEAL Works very well and I trust this method a lot more than a payment processor that's not my bank. I'm not entirely sure what the rules are from the merchant's side, however.

willyt 14y ago

Free hardcopy magazine with every PDF download purchased?

eridius 14y ago

If PayPal said they were holding the money until the magazines printed, that would be one thing. They didn't say that. They said they'd hold the money until 15 thousand pounds accrued, at which time they'd start paying out percentages. That's a whole different ballgame, and is completely ridiculous.

illumin8 14y ago

PayPal charges 5%? You should really shop around. You can get a merchant account through any number of banks that will charge 3% or less. Merchant accounts have the added advantage that they won't freeze your funds, however, you do have to agree to honor chargebacks, even if they happen a few months later, and you have to live by the card company's dispute policy, which is heavily slanted towards the consumer.

kahawe 14y ago

At least here in Europe, PayPal is registered and acts as a bank. How much would you enjoy your bank denying you access to your last paycheck just because "who knows what might get billed to your account"...?