Paypal Screws Customers Again

2008.09.04

Seems like Paypal and its owners, eBay, are out to get the little guy again. They say it is to serve us better, but it is clear that this benefits Paypal's bank account more than anything else. This is about some new policies which Paypal announced earlier this year allowing Paypal to keep funds for up to 21 days. CNN already reported on this here.

How does it work? Simple, you sell something. Someone send you money and Paypal keeps it for up to 21 days. Now, they do not do that systematically, only for people who need it the most. How do they determine this is not entirely disclosed but the more expensive the item, the more chances of a hold. The less you sell, the more chances of a hold. This is of course designed not to annoy volume sellers which have a continuous stream of income but affects the occasional seller of used items. Under the terms of the hold, Paypal orders the seller to ship an item immediately. This way, the seller loses his item first and then waits to be paid. The catch is that any complaints cause Paypal not to release the hold.

Now, since eBay owns Paypal, they are into this scam as well. As a matter of fact, I remember getting this exact scam as a phishing email just two years ago. Someone bought an item I listed on eBay and then sent me an email from Paypal that said that the payment was on hold until I give a tracking number to protect the customer. Noticing that this was actually NOT from Paypal, because the font used was different, I kindly forwarded this to Paypal. Now I know where they got the inspiration!

Back to eBay... Along with the new Paypal policies, eBay now forces listings to either accept Paypal or a merchant credit card service. Again, this works out to: either use Paypal or be a big seller with your own credit card merchant account. Big sellers get it easy, the little guy gets screwed. Now, someone might believe that this is for buyer's protection but it is simply to beneficial for eBay. If you count that Paypal says they expect 5% of transactions to be affected and they affect higher-cost transactions more, we can easily expect Paypal to hold 15-20% of transactions values at any given moment. Having such transitional holdings has always benefited large companies because of the investment leverage it gives. Notice that even if a payment is on hold, Paypal takes it cut first too. On eBay, Paypal is all-powerful. Outside of eBay their power weakens, but even there one should be wary of a company with too much power and not enough regulation. Remember, Paypal is not a bank yet its users give it power to extract money at any time from their bank accounts.