PayPal is a global
e-commerce business allowing payments and money transfers to be made
through the Internet.
Online money transfers serve as electronic alternatives to paying
with traditional paper methods, such as
checks
and
money orders.
PayPal is an
acquirer, performing payment processing for online vendors,
auction
sites, and other commercial users, for which it charges a fee. It may
also charge a fee for receiving money, proportional to the amount
received. The fees depend on the currency used, the payment option used,
the country of the sender, the country of the recipient, the amount sent
and the recipient's account type.[4]
In addition, eBay purchases made by credit card through PayPal may incur
extra fees if the buyer and seller use different currencies.
On October 3, 2002, PayPal became a wholly owned subsidiary of
eBay.[5]
Its corporate headquarters are in
San Jose, California,[2]
United States at eBay's North First Street satellite office campus. The
company also has significant operations in
Omaha, Nebraska,
Scottsdale, Arizona,
Charlotte, North Carolina and
Austin, Texas in the United States;
Chennai in
India;
Dublin in
Ireland;
Kleinmachnow in
Germany;
and Tel
Aviv in
Israel. From July 2007, PayPal operates across the
European Union as a Luxembourg-based bank.
On March 17, 2010, PayPal entered into an agreement with
China UnionPay (CUP),
China's bankcard association, to allow Chinese consumers to use
PayPal to shop online.[6]
PayPal is planning to expand its workforce in Asia to 2,000 by the end
of the year 2010.[7][8][da
ted
info]
Between December 4–9, 2010, PayPal services were attacked in a series
of
denial-of-service attacks organized by
Anonymous in retaliation for PayPal's decision to freeze the account
of
WikiLeaks citing terms of use violations over the publication of
leaked
US diplomatic cables.[9][10][11][12]
History
Beginnings
The current incarnation of PayPal is the result of a March 2000
merger between
Confinity and X.com.[13]
Confinity was founded in December 1998 by
Max Levchin,
Peter Thiel,
Luke Nosek, and
Ken
Howery, initially as a
Palm Pilot payments and cryptography company.[14]
X.com was founded by
Elon
Musk in March 1999, initially as an Internet financial services
company. Both Confinity and X.com launched their websites in late 1999.[15]
Both companies were located on University Avenue in Palo Alto.
Confinity's website was initially focused on reconciling beamed payments
from Palm Pilots[16]
and X.com's website initially featured financial services. Both services
offered email payments as a feature.
At Confinity, many of the initial recruits were alumni of
the Stanford Review, also founded by Peter Thiel, and most early
engineers hailed from the
University of Illinois at Urbana-Champaign, recruited by Max
Levchin. On the X.com side, Elon Musk recruited a wide range of
technical and business personnel, including many that were critical to
the combined company's success, such as Amy Klement, Sal Giambanco,
Roelof Botha[17]
of
Sequoia Capital, Sanjay Bhargava and Jeremy Stoppelman.[18]
To block potentially fraudulent access by automated systems, PayPal
used a system (see
CAPTCHA)
of making the user enter numbers from a blurry picture, which they
coined the Gausebeck-Levchin test.[19]
eBay watched the rise in volume of its online payments and realized
the fit of an online payment system with online auctions. eBay purchased
Billpoint in May 1999, prior to the existence of PayPal. eBay made
Billpoint its official payment system, dubbing it "eBay Payments", but
cut the functionality of Billpoint by narrowing it to only payments made
for eBay auctions. For this reason, PayPal was listed in many more
auctions than Billpoint. In February 2000, the PayPal service had an
average of approximately 200,000 daily auctions while Billpoint (in
beta) had only 4,000 auctions.[20][21][22]
By April 2000, more than 1,000,000 auctions promoted the PayPal service.[23]
70% of all eBay auctions accepted PayPal payments, and roughly 1 in 4
closed auction listings were transacted via Paypal.[24]
PayPal was able to turn the corner and become the first
dot-com to
IPO after the
September 11 attacks.[25]
As of 2008, PayPal's total payment volume, the total value of
transactions, was
US$60 billion, an increase of 27 percent over the previous
year,[26]
and US$ 71 billion in 2009, an increase of 19 percent over the previous
year.[27]
As of 2011, PayPal's total payment volume processed was
US$117 billion.[28]
The company continues to focus on international growth and growth of its
Merchant Services division, providing e-payments for retailers on eBay.
In 2011, PayPal announced that it would begin moving its business
offline so that customers can make payments via PayPal in stores.[29]
Acquisition by
eBay
In October 2002, PayPal was acquired by eBay for $1.5 billion.[30]
PayPal had previously been the payment method of choice by more than
fifty percent of eBay users, and the service competed with eBay's
subsidiary
Billpoint,
Citibank's c2it, whose service was closed in late 2003, and
Yahoo!'s
PayDirect, whose service was closed in late 2004. Western Union
announced the December 2005 shut down of their
BidPay
service but subsequently sold it in 2006 to
CyberSource Corporation. BidPay subsequently ceased operations on
December 31, 2007. Some competitors that offer some of PayPal's
services, such as
Google Checkout,
Wirecard, and
Moneybookers remain in business, despite the fact that eBay now
requires everyone on its Australian and United Kingdom sites to offer
PayPal.[31][32]
eBay Australia was subsequently forced to moderate its position by the
Australian Competition & Consumer Commission, mandating that sellers on
eBay Australia offer PayPal as one of the (but not necessarily the only)
payment methods.[33]
These accepted payment methods include bank deposit, cheques and money
orders, escrow, and credit cards (processed by other than PayPal).[34]
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately
held Israeli start-up company with expertise in online risk tools, for
$169 million, in order to enhance eBay and PayPal's proprietary fraud
management systems and accelerate the development of improved fraud
detection tools.[35]
In November 2008, the company acquired
Bill Me Later, an online payments company offering transactional
credit at over 9000 online merchants in the US.[36]
As of 2012, PayPal accounted for 40% of eBay's revenue, amounting to
US$1.37 billion in the 3rd quarter of 2012.[2]
Corporate
governance
As of April 2012, PayPal's president is
David Marcus; Marcus joined PayPal in August 2011 after its
acquisition of
Zong, of which he was the founder and CEO.[3]
David Marcus succeeded
Scott Thompson as president, who left the role suddenly to join
Yahoo.[3]
Services
As of 2011, PayPal operates in 190 markets and manages more than 232
million accounts, more than 100 million of them active. PayPal allows
customers to send, receive, and hold funds in 25 currencies worldwide.[26]
These currencies are the
Australian dollar,
Brazilian real,
Canadian dollar,
Chinese renminbi yuan (only available for some Chinese accounts, see
below),
euro,
pound sterling,
Japanese yen,
Czech koruna,
Danish krone,
Hong Kong dollar,
Hungarian forint,
Israeli new sheqel,
Malaysian ringgit,
Mexican peso,
New Zealand dollar,
Norwegian krone,
Philippine peso,
Polish zloty,
Singapore dollar,
Swedish krona,
Swiss franc,
New Taiwan dollar,
Thai
baht and U.S. dollar. PayPal operates locally in 21 countries.
Residents in 194 markets[clarification
needed] can use PayPal in their local markets to
send money online.
PayPal revenues for Q1 2009 were $643 million, up 11 percent year
over year. 42 percent of revenues in Q1 2009 were from international
markets. PayPal's Total Payment Volume (TPV), the total value of
transactions in Q1 2009 was nearly $16 billion, up 10 percent year over
year.[37]
In 2008, PayPal's TPV off eBay exceeded volume on eBay for the first
time. PayPal's Total Payment Volume in 2008 was $60 billion,
representing nearly 9 percent of global e-commerce and 15 percent of US
e-commerce.[38]
At an analyst day on March 11, 2009, eBay CEO John Donahoe announced
that PayPal could be a larger driver of revenue than the eBay
marketplaces business.[39]
RIM announced that PayPal will be the only payment mechanism for its
Blackberry App World, which launched on April 1, 2009.[40]
However, by April 2011 Rim offer two other options: credit card and bill
payment from carrier.[41]
PayPal launched Student Accounts for teens in August 2009 allowing
parents to set up a student account, transfer money into it, and obtain
a debit card for student use. The program provides tools to teach teens
how to spend money wisely and take responsibility for their actions.[42][43]
In November 2009, PayPal opened its platform, allowing other services
to get access to its code and to use its infrastructure in order to
enable peer-to-peer online transactions.[44]
PayPal Operations Center and main office located in
Omaha, NE
Although PayPal's corporate headquarters are located in San Jose,
PayPal's operations center is located in
Omaha, Nebraska, where the company employs more than 2,000 people as
of 2007.[45]
PayPal's European headquarters are in Luxembourg and international
headquarters in Singapore. In October 2007, PayPal opened a data service
office on the north side of Austin. The company sometime back opened a
technology center in
Scottsdale, Arizona,[46]
and
Chennai, India.[47]
On November 28, 2011, PayPal reported Black Friday brought record
mobile engagement including a 538 percent increase in global mobile
payment volume when compared to Black Friday 2010.[48]
PayPal business model evolution
PayPal’s success in terms of users and volumes was the product of a
three-phase strategy described by former eBay CEO Meg Whitman: “First,
PayPal focused on expanding its service among eBay users in the U.S.
Second, we began expanding PayPal to eBay’s international sites. And
third, we started to build PayPal’s business off eBay”.[49]
Phase-1
In the first phase, payments volumes were coming mostly from eBay
auction web-site. The system was very attractive to auction sellers,
most of which were individuals or small businesses that were unable to
accept credit card, and for consumers as well. In fact, many sellers
could not qualify for a credit card “merchant account” because they
lacked a commercial credit history. The service also appealed to auction
buyers because they could fund PayPal accounts using credit cards or
bank account balances, without divulging credit card numbers to unknown
sellers. PayPal employed an aggressive marketing campaign to accelerate
its growth, depositing $10 in new users’ PayPal accounts (+$10 for each
new user they referred).
Phase-2
The biggest challenge in 2000 remained PayPal’s unsustainable
business model. Initially, PayPal offered its service with lower cost,
planning to earn interest on funds in users’ PayPal accounts (i.e., the
“float”). However, most recipients withdrew their funds immediately.
Furthermore, a large majority of senders funded their payments using
credit cards, which cost PayPal roughly 2% of payment value, rather than
relying on much less with business accounts qualified for seller
protection against losses due to chargebacks, provided that they
complied with reimbursement policies (e.g., retaining traceable proof of
shipping to a confirmed address or requiring a signature receipt for
items valued over $250).
Phase-3
After fine-tuning PayPal’s business model and increasing its domestic
and international penetration on eBay, PayPal started its off-eBay
strategy. Strong growth in active users growth by adding users across
multiple platforms, despite the slowdown in on-eBay growth and
low-single-digit user growth on the eBay site. A late 2003
reorganization created a new business unit within PayPal—Merchant
Services—to provide payment solutions to small and large e-commerce
merchants outside the eBay auction community. Starting in the second
half of 2004, PayPal Merchant Services unveiled several initiatives to
enroll online merchants outside the eBay auction community, including:
- Lowering its transaction fee for high-volume merchants from 2.2%
to 1.9% (while increasing the monthly transaction volume required to
qualify for the lowest fee to $100,000)
- Encouraging its users to recruit non-eBay merchants by
increasing its referral bonus to a maximum of $1,000 (versus the
previous $100 cap)
- Persuading credit card gateway providers, including CyberSource
and Retail Decisions USA, to include PayPal among their offerings to
online merchants.
- Hiring a new sales force to acquire large merchants such as
Dell, Apple's iTunes, and Yahoo! Stores, which hosted thousands of
online merchants
- Reducing fees for online music purchases and other
“micropayments”
- Launching PayPal Mobile, which allowed users to make payments
using text messaging on their cell phones
Local restrictions
PayPal, as of yet, has not provided its services to many places that
are known[by
whom?] to have a high percentage of internet
shoppers such as Bangladesh, Pakistan, Egypt, Afghanistan, Albania,
Serbia, Montenegro and Georgia.
Japan
In late March 2010, new Japanese banking regulations forced PayPal
Japan to suspend the ability of personal account holders registered in
Japan from sending or receiving money between individuals and as a
result are now subject to PayPal's business fees on all transactions.[50][51]
Taiwan
As of mid July 2010, users in Taiwan have noticed that the "Personal"
tab for sending money has been omitted without notice. There is no
longer an option to send personal payments, thus forcing all recipients
to pay a fee.[citation
needed]
Brazil
As of mid-November 2010, users in Brazil also have noticed that the
"Personal" tab for sending money has been omitted without notice. There
is no longer an option to send personal payments, thus forcing all
recipients to pay a fee. Balance transfers between PayPal accounts of
the same account holder incur an additional 6.4% fee.
As of beginning January 2011, Brazilian users are no longer allowed
to withdraw money using credit/debit cards.[citation
needed]
India
As of March 2011[citation
needed], PayPal made changes to the User Agreement
for Indian users to comply with
Reserve Bank of India regulations. Notable changes to the agreement
were:
- Export related payments for goods and services may not exceed
$500.
- Any balance or future payments must not be used to buy goods or
services but transferred to a bank account within 15 day from the
receipt of payment.
- Credit/Debit cards must be used to pay through Paypal.[citation
needed]
The per transaction limit just been changed to USD 3000, since
October 14, 2011.
PayPal wants to make India an incubation center for the company's
employee engagement policies. In 2012, PayPal hired 120 people for its
offices in Chennai and Bangalore. PayPal plans to recruit 1000
candidates for its Bangalore Development center.[52]
PayPal Labs
PayPal's innovation environment, PayPal-Labs.com,[53]
hosts several outreach and experimental projects such as the storefront
application,[54]
the Myspace and Facebook donations widgets, and the PayPal blog.[55]
Payment sources and destinations
Originally, a PayPal account could be funded with an electronic debit
from a
bank account or by a credit card at the payer's choice. But some
time in 2010 or early 2011, PayPal began to require a verified bank
account after the account holder exceeded a predetermined spending
limit. After that point, PayPal will attempt to take funds for a
purchase from funding sources according to a specified funding
hierarchy. If you set one of the funding sources as Primary, it will
default to that, within that level of the hierarchy (for example, if
your credit card ending in 4567 is set as the Primary over 1234, it will
still attempt to pay money out of your PayPal balance, before it
attempts to charge your credit card). The funding hierarchy is (1) a
balance in the PayPal account; (2) a PayPal credit account, PayPal
Extras, PayPal SmartConnect, PayPal Extras MasterCard or Bill Me Later
(if selected as primary funding source) (It can bypass the Balance); (3)
a verified bank account; (4) other funding sources, such as non-PayPal
credit cards.[56]
The recipient of a PayPal transfer can either request a check from
PayPal, establish their own PayPal deposit account or request a transfer
to their bank account.
Regulatory status
Peter Thiel, the founder of PayPal, has stated that PayPal is not a
bank because it does not engage in
fractional-reserve banking.[57]
Rather, PayPal's funds that have not been disbursed are kept in
commercial interest-bearing checking accounts.[58]
In the United States, PayPal is licensed as a money transmitter on a
state-by-state basis.[59]
PayPal is not classified as a bank in the United States, though the
company is subject to some of the rules and regulations governing the
financial industry including
Regulation E consumer protections and the
USA PATRIOT Act.[60]
In 2007, PayPal Europe was granted a Luxembourg banking license,
which, under
European Union law, allows it to conduct banking business throughout
the EU.[61]
It is therefore regulated as a bank by Luxembourg's banking supervisory
authority, the Commission de Surveillance du Secteur Financier (CSSF).[62][63][64]
In Australia, PayPal is licensed as an Authorised Deposit-taking
Institution (ADI) and is thus subject to Australian banking laws and
regulations.[65]
Safety
and protection policies
The PayPal Buyer Protection Policy states that the customer may file
a buyer complaint within 45 days if they did not receive an item or if
the item they purchased was significantly not as described. If the buyer
used a credit card, they might get a refund via
chargeback from their credit-card company. However, in the UK, where
such a purchaser is entitled to specific statutory protections (that the
credit card company is a second party to the purchase and is therefore
equally liable in law if the other party defaults or goes into
liquidation) under Section 75 Consumer Credit Act 1979, the purchaser
loses this legal protection if the card payment is processed via PayPal.[66]
According to PayPal, it protects sellers in a limited fashion via the
Seller Protection Policy.[67]
In general the Seller Protection Policy is intended to protect the
seller from certain kinds of chargebacks or complaints if seller meets
certain conditions including proof of delivery to the buyer. PayPal
states the Seller Protection Policy is "designed to protect sellers
against claims by buyers of unauthorized payments and against claims of
non-receipt of any merchandise". The policy includes a list of
"Exclusions" which itself includes "Intangible goods", "Claims for
receipt of goods 'not as described'" and "Total reversals over the
annual limit". There are also other restrictions in terms of the sale
itself, the payment method and the destination country the item is
shipped to (simply having a tracking mechanism is not sufficient to
guarantee the Seller Protection Policy is in effect).[68]
The PayPal Seller Protection Policy does not provide the additional
consumer protection afforded by UK consumer legislation (e.g., Sale of
Goods Act) and in addition it cannot be enforced in the Courts because
PayPal operates from Luxembourg, outside all three of the UK legal
jurisdictions.
Security
A credit-card sized alternative to the keychain
security token, the PayPal Keycard generates a temporary
login code to authenticate the user.
Security token
Main article:
Security tokenIn early 2006, PayPal introduced an optional
security key as an additional precaution against fraud. A user
account tied to a security key has a modified login process the account
holder enters his or her login ID and password, as normal, but is then
prompted to press the button on the security key and enter the six-digit
number generated by it. For convenience, the user may append the
six-digit to his or her password in the login screen. This way he or she
is not prompted for it on another page. Using this method is required
for some services, such as when using PayPal through the eBay
application on iPhone.
This
two-factor authentication is intended to make account compromised by
a malicious third party without access to the physical security key
difficult, although it does not prevent so-called
Man in the Browser (MITB) attacks. However, the user (or malicious
third party) can alternatively authenticate by providing the credit card
or bank account number listed on his or her account. Thus, the PayPal's
implementation does not offer the security of true two-factor
authentication.
The key currently costs US$29.95 for all users with no ongoing fees.[69]
The option of using a security key with one's account is currently
available only to users registered in Australia, Germany, Canada, the
United Kingdom, and the United States.[70]
MTAN
It is also possible to use a mobile phone to receive an
MTAN (Mobile Transaction Authentication Number) via SMS.[71]
Like all security measures, there have been reports of vulnerabilities
to older mobile handsets.[72]
Regulation
In Europe, PayPal is registered as a bank in Luxembourg under the
legal name PayPal (Europe) Sàrl et Cie SCA, a company regulated
centrally by the Luxembourg bank authority, the
Commission de Surveillance du Secteur Financier (CSSF)[73]
(note that all of the company's European accounts were transferred to
PayPal's bank in Luxembourg on July 2, 2007.[74])
Prior to this move, PayPal had been registered in the UK as PayPal
(Europe) Ltd, an entity which was licensed as an
Electronic Money Issuer with the UK's
Financial Services Authority (FSA) from 2004. This ceased in 2007,
when the company moved to Luxembourg.[75][76]
In the US, although PayPal has an extensive User Agreement,[77]
PayPal is not directly regulated by the U.S. federal government, because
it serves as a payment intermediary.[78]
PayPal is regulated as a money transmitter, 31 C.F.R. 1010.100(ff)(5).
PayPal is also subject to state regulation, but state laws vary, as do
their definitions of banks, narrow banks, money services businesses and
money transmitters. The most analogous regulatory source of law for
PayPal transactions comes from P2P payments using credit and
debit cards. Ordinarily, a credit card transaction, specifically the
relationship between the issuing bank and the cardholder, is governed by
the
Truth in Lending Act (TILA) 15 U.S.C. §§ 1601-1667f as implemented
by Regulation Z, 12 C.F.R. 226, (TILA/Z). TILA/Z requires specific
procedures for billing errors, dispute resolution and limits cardholder
liability for unauthorized charges.[79]
Similarly, the legal relationship between a debit cardholder and the
issuing bank is regulated by the
Electronic Funds Transfer Act (EFTA) 15 U.S.C. §§ 1693-1693r, as
implemented by Regulation E, 12 C.F.R. 205, (EFTA/E). EFTA/E is directed
at consumer protection and provides strict error resolution procedures.[80]
However, because PayPal is a payment intermediary and not
otherwise regulated directly, TILA/Z and EFTA/E do not operate exactly
as written once the credit/debit card transaction occurs via PayPal.
Basically, unless a PayPal transaction is funded with a credit card, the
consumer has no recourse in the event of fraud by the seller.[citation
needed]
In India, as of January 27, 2010, PayPal has no cross-border money
transfer authorization. In The New York Times article "India’s Central
Bank Stops Some PayPal Services", Reserve Bank of India spokesman Alpana
Killawalla stated: "Providers of cross-border money transfer service
need prior authorization from the Reserve Bank under the Payment and
Settlement Systems Act, PayPal does not have our authorization."[81]
PayPal is not listed in the "Certificates of Authorisation issued by the
Reserve Bank of India under the Payment and Settlement Systems Act, 2007
for Setting up and Operating Payment System in India".[82]
Fraud
If an unauthorized third party obtains and uses someone's PayPal
login information and completes a transaction using the accountholder's
debit or credit card, EFTA/E and TILA/Z make PayPal responsible for the
breach. There are, of course, fact specific exceptions to this rule. One
is if funds are illicitly withdrawn from a PayPal deposit account. In
that situation, neither PayPal nor the bank is required to return the
funds, because the agreement between a consumer and PayPal makes those
types of transactions authorized.[83]
PayPal account holders' private information is marginally protected
under one federal law. Since PayPal is a financial institution
under the
Gramm-Leach-Bliley Act (GLB), it cannot disclose its account
holders' non-public personal information to third parties unless account
holders opt in to those disclosures.[84]
If an account is subject to fraud or unauthorized use, PayPal puts
the "Limited Access" designation on the account. At this point, the
account holder must:
- Log in
- Reset their password
- Develop a set of
security questions (based on the subjective and not fact — e.g.,
"What is your favorite ice cream?" not "What is your mother's
maiden name?")
- Verify location by phone or by mail
- Provide a set of documents, including but not limited to, a copy
of the user's social security card and state ID, home utility bills,
business licenses, and proof of original purchase of recently sold
good
Phishing
PayPal presents anti-phishing
advice on their website[85]
for identifying and reporting phishing. PayPal encourages consumers to
report all phishing emails to them.
Shop-for-free bugs
In its x.commerce innovate developer conference 2011, PayPal
presented to merchant developers five types of security flaws which
allow malicious shoppers to shop for free in vulnerable web stores using
PayPal.[86]
The details of these flaws are documented.[87]
Criticism
In 2003, PayPal voluntarily ceased serving as a payment intermediary
between gambling websites and their online customers. At the time of
this cessation they were the largest payment processor for online
gambling transactions. In 2010, PayPal resumed accepting such
transactions, but only in those countries where online gambling is
legal, and only for sites which are properly licensed to operate in said
jurisdictions.[88]
In September 2005, Richard Kyanka, owner of the website
Something Awful, set up an account to collect donations for
Hurricane Katrina to be given to the
Red Cross. Owing to the high rate at which donations were made, the
account was automatically frozen, and Kyanka criticized the time and
difficulty involved in getting PayPal's customer service to unfreeze the
account. In response to the concerns of Something Awful members over the
charity used by PayPal,
United Way, Kyanka finally opted to have the money refunded to the
donors so that they could donate directly to their charities of choice,
though PayPal did not refund exchange and handling fees for
international donors.[89][90]
In March 2008, Australian current affairs show
Today Tonight aired a segment criticizing PayPal, with regard to
safety, freezing accounts and customer service.[91]
Several PayPal
gripe sites and blog posts[92]
have been created complaining of problems such as the freezing of
accounts of eCommerce stores if they experience rapid growth, preventing
them from being able to pay suppliers and fulfill orders.[93]
One such site, Paypalsucks.com,[94]
ranked third on a
Forbes Magazine listing of "Top Corporate Hate Web Sites" in 2005
based on "hostility" and "entertainment value" of
web forum postings and other criteria.[95]
In June 2008, the
Australian Competition and Consumer Commission found that, "The
evidence available does not support the view that PayPal is the most
secure method of payment, or offers the best service for all
transactions."[96]
In February 2010, PayPal stopped or reversed all "personal"
transactions in or out of India without prior notice. Funds already
transferred and transactions that had previously been "completed" were
reversed leaving many vendor accounts over-drafted. Companies,
contractors and service providers throughout India were left in debt to
PayPal for services they had already provided when PayPal, without
warning or consent, returned funds vendors had already received and
withdrawn.[97]
In March 2010, PayPal froze donations to
Cryptome, seizing over $5300 of in-transit donations.[98]
PayPal refused to inform Cryptome of the reason for this action,
claiming that to disclose why the donations had been confiscated would
violate Cryptome's own privacy.[99]
A week later, PayPal offered an apology, which was rejected by Cryptome
founder John Young as "insulting and unacceptable".[100]
In September 2010, PayPal froze the account of Markus Persson,
developer of independent video game
Minecraft. Persson stated publicly that he had not received a clear
explanation for why the account was frozen, and that PayPal was
threatening to keep the money if they found anything wrong. His account
contained around €600,000.[101][102]
In December 2010, PayPal permanently restricted an account used to
raise funds for
WikiLeaks citing it was in violation of the PayPal Acceptable Use
Policy. At a conference in Paris, a PayPal VP, in response to an
attendee's question, stated the account was restricted after PayPal was
allegedly pressured by the U.S. State Department.[103]
Afterwards, PayPal reiterated the decision was based on violation of
PayPal's Acceptable Use Policy. This was followed by cyber attack on the
paypal.com website and a boycott of PayPal, in which some users closed
their PayPal account in protest.
In November 2011, PayPal moved all shipping to eBay. This move also
forced businesses with multiple users to use only their administrative
passwords for all employees, which opens the door to potential account
fraud by merchant employees. As a result of this shipping change, many
PayPal merchants already frustrated with PayPal fraud protection moved
their shipping from PayPal/eBay to other online shippers such as
Stamps.com[104]
In December 2011, PayPal froze funds in an account held by
April Winchell, the owner of
Regretsy, used for charitable giving, requiring the account holder
to refund the donations collected but keeping the fees charged.
Following some public outcry the account was reinstated, PayPal
apologized and donated to her cause.[105][106]
As of December 2011, PayPal is embroiled in a controversy over their
policy of holding 30% of vendor transactions for 90 days, which PayPal
argues is intended to make funds available to customers in the event
that a transaction is found to be fraudulent; to provide PayPal the
funds to refund the seller. But PayPal has refused to provide
information regarding the reasons particular sellers have been
identified to have funds reserved. There is also criticism about the
perceived arbitrariness of the 90-day waiting period, when customers
have only 45 days to file a claim against a seller, and complaints about
the fact that PayPal has not paid interest on the funds held back. Many
sellers have surmised that the policy is due to a desire on the part of
PayPal to use their funds for investing. There is a class action suit
pending regarding the practice.[107]
By 2012, PayPal had garnered a reputation for being "slow and
bureaucratic", which has prompted internal reorganization, including
layoffs, to "speed innovation".[2]
Litigation
In 2002,
CertCo filed a
suit
against PayPal claiming patent infringement concerning the use of
distributed computing systems that process
micropayments, or small cash amounts. In April 2002, CertCo dropped
the suit and stated that they had come to a settlement involving, "a
non-consequential payment and mutual releases".[108]
In March 2002, two PayPal account holders separately sued the company
for alleged violations of the
Electronic Funds Transfer Act (EFTA) and California law. Most of the
allegations concerned PayPal's dispute resolution procedures. The two
lawsuits were merged into one class action lawsuit (In re: PayPal
litigation). An informal settlement was reached in November 2003, and a
formal settlement was signed on June 11, 2004. The settlement requires
that PayPal change its business practices (including changing its
dispute resolution procedures to make them EFTA-compliant), as well as
making a US$9.25 million payment to members of the class. PayPal denied
any wrongdoing.[109]
In May 2002,
Tumbleweed Communications filed a lawsuit against PayPal (and later
expanded it to include eBay) claiming that PayPal had violated its
patents for sending personalized links through e-mail, which PayPal uses
to alert its customers about financial transactions. In January 2004,
the two parties came to an agreement, but didn't disclose the financial
terms of their licensing agreement.[110]
In June 2003,
Stamps.com filed a lawsuit against PayPal and eBay claiming breach
of contract, breach of the implied covenants of good faith and fair
dealing, and interference with contract, among other claims. In a 2002
license agreement, Stamps.com and PayPal agreed that Stamps.com
technology would be made available to allow PayPal users to buy and
print postage online from their PayPal accounts. Stamps.com claimed that
PayPal did not live up to its contractual obligations and accused eBay
of interfering with PayPal and Stamps.com's agreement, hence Stamp.com's
reasoning for including eBay in the suit.[111]
In August 2002, Craig Comb and two others filed a class action
against PayPal in, Craig Comb, et al. v. PayPal, Inc.. They sued,
alleging illegal misappropriation of customer accounts and detailed
ghastly customer service experiences. Allegations included freezing
deposited funds for up to 180 days until disputes were resolved by
PayPal, and forcing customers to arbitrate their disputes under the
American Arbitration Association's guidelines (a costly procedure).
The court ruled against PayPal, stating that "the User Agreement and
arbitration clause are substantively unconscionable under California
law," noting their unjustifiable one-sidedness and explicit prohibition
of
class actions produces results that "shock the conscience" and
indicate PayPal was "attempting to insulate itself contractually from
any meaningful challenge to its alleged practices".[112]
In September 2002,
Bank One Corporation sued PayPal for allegedly infringing its
cardless payment system patents.[113]
The following year, PayPal countersued, claiming that Bank One's online
bill-payment system was an infringement against PayPal's online
bill-payment patent, issued in 1998.[114]
The two companies agreed on a
settlement in October 2003.[115]
In November 2003,
AT&T Corporation filed suit against eBay and PayPal claiming that
their payment systems infringed an AT&T patent, filed in 1991 and
granted in 1994.[116]
The case was settled out of court the following month, with the terms of
the settlement undisclosed.[117]
In March 2004, PayPal and New York state's Attorney General,
Eliot Spitzer, came to an agreement to require PayPal to disclose
clients' rights and liabilities more accurately and to pay $150,000 to
the state of New York for penalties and the costs of the investigation.[118]
In April 2007, one of two
anti-trust lawsuits was filed against eBay/PayPal by Michael Malone
of Texas.[119]
This suit claimed that the monopolistic relationship between eBay and
PayPal violates United States anti-trust laws. In March 2010, Judge
Jeremy Fogel entered summary judgement in favor of Paypal.[120]
In June 2011, PayPal and Israel Credit Cards–Cal Ltd. were sued for
NIS16 million. The claimants accused PayPal of deliberately failing
to notify its customers that ICC-Cal was illegally charging them for
currency conversion fees.[121]
See also