Some Pros & Cons About Paypal

If you are buying or selling anything on the web you are aware of the advantages Paypal and companies like it offer. A reasonably priced and simple alternative to merchant accounts. Paypal has become nearly irreplaceable to online charities and businesses alike. In fact, payment processors like Paypal are often the only choice for new businesses since merchant accounts require extensive security information and prohibitively high initial fees.

While Paypal is far from the only online credit card processing company it is certainly the most widely recognized. Online merchants often report an increase in sells simply by getting started with Paypal. Originally launched in 2001 Paypal quickly became so dominant that eBay abandoned their old billpoint payment method and made Paypal their primary payment system paying more than a billion dollars for the privilege.

Thousands of transactions take place on Paypal everyday without a hitch and many businesses simply could not exist without it. Still there are many things to be aware of regarding the service.

To start with Paypal is not a bank and is not subject to the same level of protective regulation that would come with a merchant account. Paypal is largely self-regulated and can make decisions regarding an account at their own discretion. Many people claim to have disastrous situations result from mistakes and arbitrary decisions made by Paypal regarding their money. Situations that sometimes take months to resolve with uncooperative customer assistance people.

While any large successful business is sure to have a fair number of disgruntled customers the sheer volume complaints against Paypal warrants attention. It is reported that at one point Paypal had over 100,000 unresolved customer complaints. There are many websites detailing horror stories posted by buyers and sellers alike. A long lived and amusingly inflammatory one is PayPalSucks.com. It is likely that some of these people’s complaints are unfounded but many of their stories are highly detailed and very convincing.

Over the years Paypal has been drug into the courts system many times. In 2002 a federal judge refusing to dismiss a class action suit called Paypal arbitration policy unfair and said they mistreated complaining customers. Paypal demanded customers agree to a legally binding arbitration in their home county rather than sue. So someone selling T-shirts in Florida would have to travel to Santa Clara, Ca in order to settle a dispute. The customer was also required to pay for part of the arbitration process.

The cost of arbitration often exceeded the amount of money being debated in the first place. Judge Jeremy Fogle wrote, “By allowing for prohibitive arbitration fees and precluding joinder of claims, PayPal appears to be attempting to insulate itself contractually from any meaningful challenge to its alleged practices.”

Of course, this sort of binding arbitration has become the norm for many businesses but that doesn’t make it right.

In 2004 Paypal had to pay the state of New York $150,000 dollars and revise its user agreement to clearly reflect the limitations and conditions of its refund policies. In blunt terms, New York accused Paypal of lying to its customers about charge-backs and reversals on certain credit cards. Paypal claimed that their customers had “the rights and privileges expected of a credit card transaction” when in fact this was not the case. American Express and Discovery accounts had severe limitations on their normal refunds policy.

These are just examples of the legal problems that have haunted the payment provider giant. There have also been class action suits filed against the company. Some time spent on the web researching these suits is an enlightening and alarming experience but one any person whose business relies on Paypal should undertake.

Paypal also has a problem with phishing scams and spoof sites. Paypal customers and vendors will sometimes receive emails requesting personal information in order to fix some error or computer glitch Paypal has encountered. If the unsuspecting target clicks on the provided link they are sent to a site that looks very much like an authentic Paypal site. Like all phishing trips the site is just an attempt to steal credit card and other personal information.

Paypal cannot be held responsible for information stolen from their customers in this manner but they have been accused of security lapses that have allowed their systems to be hacked by identity thieves. Regardless of who’s to blame thousands of Paypal accounts have been opened to crooks. Customer and information security experts have said that the company has lied in order to cover up the break-ins and so have hindered attempts to get to the bottom of just whose information has been stolen. Some steps have been taken recently to improve the payment provider’s security.

Despite these serious drawbacks, the overwhelming majority of people who depend on Paypal for their business have never had a problem and use the service with confidence. Handling approximately a million transactions a day Paypal is a corner stone of Internet business and a possibly bad habit no one is likely to break.