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EcommerceBytes Letters to the Editor Letters to the Editor
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Sun May 29 2011 09:23:32

PayPal Earns Float on Subscription Payments?

By: Ina Steiner
Sponsored Link
Dear Ina,
This is something that just happened to me - my monthly subscription to my web host provider was canceled by PayPal because I did not have an active backup funding source. This is what the first letter said:

The payment for your subscription to www. .com failed because you do not currently have a back-up funding source for your instant transfer payment. .com has been notified of this failed payment.

We will try to make payment again on May 26, 2011.

To correct this problem, you must update your funding source to be an eCheck or a credit card.

My primary source had ample funds to cover this expense and when I talk to PayPal they come out with the excuse that "what if my primary source didn't have enough money". So, I compare my PayPal payments to my payments at my Web provider and guess what? PayPal removes funds every month on the 18th and pays my provider on the 27th!

Figure out what the interest is on Millions of transactions being held by Paypal for 9 to 10 days! Another way we get ripped off by them. I went to my provider and am now doing a direct payment to them with a credit card. Paypal loses.

Please keep me anonymous.

Note from the Editor: The reader provided a screenshot of his PayPal account showing a withdrawal for the web-hosting payment on 1/18/11, and a screenshot of his web-hosting account showing payment was made on 1/28/11.

Reading EcommerceBytes Letters Blog: PayPal Earns Float on Subscription Payments?
Comments (55) | Leave Comment | Permalink
Readers Comments

PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Anonymous Annie
       
Mon May 30 20:57:19 2011
"PreyPal is only a money transmitter is to truthfulness and accuracy what ebay is to a only venue."

Best quotable line from this entire blog-thread!
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: El at Tantalizing Stitches This user has validated their user name.
       Web Site
Tue May 31 07:51:44 2011
I believe paypal has been doing this all along. I mean how long does it really take to transfer funds to your bank account? Not the duration it takes them to do it.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: Moonwishes
       Web Site
Tue May 31 08:03:43 2011
Long ago I had a subscription via PP and it got horribly messed up. Since then all my transactions of that type are charged to my business credit card. PP is only used to collect money from customers that won't use Google Checkout and then I sweep the money right into my ING checking account which allows free transactions between people and businesses. Life is bcoming much easier.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: Scott T
       
Tue May 31 16:20:22 2011
I luv PayPal and all the fine people in their employ!
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Wed Jun 1 00:24:20 2011
There is a *lot* of mis-information on this thread. PayPal is by no means perfect but many of you demonstrate your inability to make fair observations with all of the unsubstantiated conjecture. If your transfers are taking 7-10 days then you are most likely using an "echeck" in which case PayPal waits for the check to clear before making the funds available. This is pretty much the same as your bank not making your funds available immediately when you deposit a paper check. Nothing nefarious.

99% of PayPal's float earnings are on funds sitting in customer accounts, not funds in transit. This argument is weak.

Backup funding sources are exactly what that implies, a backup in case the primary funding source fails.

Even if we stick to facts, I'm sure we can find ways to criticize PayPal.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       Web Site
Wed Jun 1 05:52:46 2011
Hey, is that a PayPal troll I just read?

All anyone needs to know about the clunky PayPal:

http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

Is that PayPal’s blood in the water, and are those “sharks” (oops, “banks”) I can see circling?

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: PayPalophobe
       
Wed Jun 1 12:53:47 2011
"PayPal is by no means perfect..."

That's got to be the understatement of the century!

It must getting crowded under the PayPal Bridge, they're rotating the trolls to air them out a bit.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: OP
       
Wed Jun 1 18:03:16 2011
@pbreit

    Nice try - too bad you don't have a clue about this.

    It was an Instant transfer and was pulled from my Bank account the following business day so there was no need to wait for the 3-5 business days Paypal says they need for an echeck.  No, Paypal sat on my money. Like I believe I said earlier, I was surprised that they didn't sit on it the whole 14 days.
 
  And where do you get that 99% figure? Got any sources?

    And as to your ''backup in case the primary funding source fails'' comment - PRECISELY! the primary source has not failed in three years and if it did - THEN would be the time for Paypal to contact me and request an alternative!  But to simply cancel my subscription in May when the backup card doesn't expire until June is BS.

    In my mind, they just wanted another piece of information about me and I refused to give it to them
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Wed Jun 1 19:48:39 2011
I worked at PayPal for 6 years. I know a lot about how it operates. I have not worked there in over 3 years so don't have much vested in the matter. Calling me a troll is ridiculous.

There are many variables that can slow down bank transfers such as cut-off times, manual reviews and the fact that ACH transfers never generate "successful transfer" message. Banks literally have to wait 3-15 days and will only learn if there is a bounce, not that the transfer was a success. So they make funds available based on a variety of factors.

Regarding float: if 100% of PayPal's $100 billion payment volume were bank transfers and PayPal earned 2% (annualized) on 10 days of float, they would make around $50 million. Compare that to earning 2% on the $5 billion or so sitting in PayPal accounts which would net $100 million. But only around 1/3 of PayPal's volume is bank transfer and hold times are less than 10 days.

I worked on the subscription product and do recall that expiring backup funding sources did pose some complications. I am surprised it caused your subscription to lapse because we would typically error on the side of "getting the payment". I used to investigate issues like that and the casuses usually made sense on some level.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       
Sat Jun 4 17:58:31 2011
Apparently, the correct entity to complain to about PayPal's (and eBay's) nefarious activities is:

www.ic3.gov

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       Web Site
Sat Jun 4 18:20:16 2011
@ pbreit,

“3-15 days.” Nonsense. Seven days was probably standard in the twentieth century for paper checks. Since all “online” transactions are indeed electronic, an online payment between two different retail banks would normally be completed within two working days (within the same bank, immediately). Direct debits (via its banker, GE Money Bank), which I assume PreyPal uses to access funds from a buyer’s bank account, would, if the funds are available, be approved immediately: how else can PreyPal tell the merchant that the good/service has been paid for. Same applies to PreyPal accessing funds via credit card accounts. The buyer’s retail bank involved either accepts the charge, or not, immediately.

All anyone needs to know about the clunky PayPal can be found at:
http://forums.auctionbytes.com/vbulletin/showthread.php?p=165263

Is that PayPal’s blood in the water, and are those “sharks” (oops, “banks”) I can see circling?

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Sun Jun 5 13:14:10 2011
Transfers to/from PayPal typically take 2-3 business days. If they take longer than 3 or 4 it would either be an error or there was a bounce. GE Money Bank plays no role in PayPal's ACH processing (GE supports PayPal's lending products). I tried to explain that ACH does not work like credit cards. There is no instant approval or decline. There is no positive confirmation of success, only of failure.

PayPal has two types of bank transfers: Instant and Echeck. With instant, Paypal makes the funds available to the recipient immediately and then attempts to collect from the payer, first via ACH and then with a backup funding source. With Echecks, the payment begins as "Pending" and does not complete until the ACH transfer is considered successful.

You can criticize PayPal but I think it's helpful to stick with facts.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       Web Site
Sun Jun 5 16:38:24 2011
“[PayPal is] not a debit card or payment network – it is a large merchant of sorts.”—PayPal, in letter to the US Fed.

http://www.cnbc.com/id/42916668/

“Paypal makes the funds available to the recipient immediately and then attempts to collect from the payer …”

Your statement suggests that, unlike real retail banks, PayPal will tell the seller that the buyer has paid for the purchase before PayPal has any indication from the buyer’s retail banker that the funds for the transaction are indeed available. If that is what you are saying, that PayPal takes such financial “risk” on every transaction, then I simply don’t believe that you know what you are talking about. Indeed, I suspect that you know about as much about how PreyPal works as John Donahoe knows about how the eBay Marketplace works—and that it very little.

“PayPal has two types of bank transfers: Instant and Echeck.”

So, what has that got to do with the price of eggs? If PayPal is not a real retail bank, then PayPal has to do their other than intra-PayPal financial transactions through a retail banker—a real retail bank.

Unless I am seriously mistaken, PayPal is indeed not a retail “bank” and does not have direct access to the retail banks’ payments clearing network. Therefore, any financial transactions (other than those between PayPal’s users’ own PayPal “accounts”) have to be performed via PayPal’s retail banker, just like any other non-bank, “merchant” entity would have to do. Direct debits are performed via PayPal’s retail banker. Credit card transactions are performed, as a credit card merchant, via PayPal’s retail banker.

Please, do explain to me which “facts” I have wrong. You may also like to respond to my dissertation on the clunky PayPal at:

http://forums.auctionbytes.com/vbulletin/showthread.php?p=1
65263


Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Mon Jun 6 13:15:35 2011
I'm not really sure which parts you want me to re-explain. For payments funded by bank transfer (instant or delayed echeck), yes, PayPal contracts with a "real bank" to process the ACH transfer. Just like a payroll processor would to execute a direct deposit of your paycheck. Same with credit card transactions.

As I explained above, this is how an "instant transfer" works: the payer chooses (or is defaulted) to "instant transfer" as the payment funding source. PayPal analyzes the situation and decides to allow the transaction. The funds are immediately available to the recipient. PayPal requests a debit via the ACH network (through a bank intermediary). If the ACH transfer bounces, PayPal tries the backup funding source. If the ACH transfer does not bounce, PayPal considers the transaction completed.

Please let me know if there's anything else you'd like to know about. I am intimately familiar with how PayPal works.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       Web Site
Mon Jun 6 17:12:59 2011
Patrick B,

I will simply repeat your statement and my comment thereon.

“Paypal makes the funds available to the recipient immediately and then attempts to collect from the payer …”

Your statement suggests that, unlike real retail banks, PayPal will tell the seller that the buyer has paid for the purchase before PayPal has any indication from the buyer’s retail banker that the funds for the transaction are available. If that is what you are indeed suggesting, that PayPal takes such financial “risk” on every transaction, then I simply don’t believe that you know what you are talking about. Indeed, I suspect that you know about as much about how PreyPal works as John Donahoe knows about how marketplaces work—and that it very little.

However, I do love your one-liner response at

http://forums.auctionbytes.com/vbulletin/showthread.php?t=24
148&goto=newpost


“Have you tried contacting PayPal? …”

He mentions a 15-page complaint and you ask the poster has he tried contacting PayPal? How naïve can you be?

All anyone needs to know about the clunky PayPal can be found at:  

http://forums.auctionbytes.com/vbulletin/showthread.php?
p=165263


Is that PayPal’s blood in the water, and are those “sharks” (oops, “banks”) I can see circling?

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Mon Jun 6 20:55:47 2011
"PayPal will tell the seller that the buyer has paid for the purchase before PayPal has any indication from the buyer’s retail banker that the funds for the transaction are available"

That is correct for "Instant Transfers". PayPal makes the funds available to the recipient immediately and then initiates an ACH transfer which can take several days to confirm success or failure. That is why there is a backup funding source associated with instant transfers.

The 15 page complaint letter was sent to "the Division of Banks", not PayPal.

I am happy to continue providing as accurate information as I can (as I said, I worked at PayPal for 7 years and was intimately involved with many of its systems and procedures) but I would appreciate if you not attack me personally.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       
Tue Jun 7 00:31:54 2011
@ pbreit,

You say, “That is correct for "Instant Transfers". PayPal makes the funds available to the recipient immediately and then initiates an ACH transfer which can take several days to confirm success or failure. That is why there is a backup funding source associated with instant transfers.”

First of all, as a buyer I have given PreyPal no back up funding source.

If there is any delay it is probably because PreyPal has to do all its “debiting” via a middle man, its banker, GE Money Bank (Ugh!). And, what happens if the seller, on the basis of PreyPal’s advice, despatches the goods and then it turns out that the funds are not available?

Regardless, have you never noticed that an online credit card transaction is approved, or declined, immediately?

Given that PreyPal will give a PayPal account to absolutely anyone, I find it very hard to believe that PreyPal would tell sellers that items have been paid for before the buyer’s banking account (or credit card) has been satisfactorily debited for those funds. Indeed, I don't believe it! And I think that regardless of how many years you worked for PreyPal, you really don’t know how a financial institution, or a "money transmitter", in PayPal’s case, works. I can tell you that they don't transmit money or tell the creditor that funds are available until they have the funds to transmit; nor, without appropriate prior arrangements, do banks electronically transmit funds until they know they have the funds to be transmitted. And, if the funds are available, the bank will debit the sender’s account before they transmit the funds, not some time afterwards! To do it any other way is simply unprofessional. Then, we all know that the PreyPal operation is far from being “professional”.

Having said all that, PayPal is not licensed to provide credit, and to nominally “transmit” money to a seller’s account that PayPal has not yet received, nor can they be sure they are going to receive, from the buyer would in effect be a providing of credit to that buyer. In those circumstances PreyPal is acting like a “bank”. I suspect that such activity by PreyPal would possibly be unlawful.

PreyPal would like a back-up funding source in the form of a credit card simply because a credit card is possibly less likely to bounce than is a banking account. But, let’s face it, if the credit card bounces, the banking account undoubtedly probably would too. Naturally, PreyPal prefers to direct debit a banking account because it costs them considerably less to do that than to “on-sell” the service/good via the buyer’s credit card.

On the matter of the “15-page complaint”, do you really think that the complainant would have compiled a 15-page complaint (to anyone) without having first attempted to communicate with PreyPal about his problem. Please give me a break! Are you sure you’re not still working for PreyPal?

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: pbreit
       
Tue Jun 7 11:10:14 2011
I don't know how to tell you any other way. What happens when someone makes an "instant transfer" in PayPal is that PayPal gives money to the recipient immediately and then initiates and ACH transfer which does not complete for a couple business days later. What you might be missing is that in order for a payer to be able to pay via "instant transfer" they would have previously been required to "verify" their bank account as well as provide a "backup funding source".

Also please understand that "instant transfers" have historically only made up around 1/3 of PayPal's payment volume with 50% credit card and 20% PayPal balance. "Echecks" are only around 1%.

I don't know how to explain it any better to you but that is the way it works. I was involved with the creation of "instant transfer" and it was one of the most significant features we built since it enabled bank transfer payments without waiting. I know the details of it very well.

Since the complainant did not provide any information about his/her communications with PayPal, I thought I would ask.

I know you don't like PayPal and there are a lot of things not to like about it. But your complaints lose credibility when they lack accuracy.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
This user has validated their user name. by: Philip Cohen
       Web Site
Tue Jun 7 21:12:22 2011
@ pbreit,

You state: “I don't know how to tell you any other way. What happens when someone makes an "instant transfer" in PayPal is that PayPal gives money to the recipient immediately and then initiates and ACH transfer which does not complete for a couple business days later. What you might be missing is that in order for a payer to be able to pay via "instant transfer" they would have previously been required to "verify" their bank account as well as provide a "backup funding source".  
“Also please understand that "instant transfers" have historically only made up around 1/3 of PayPal's payment volume with 50% credit card and 20% PayPal balance. "Echecks" are only around 1%.
“… I was involved with the creation of "instant transfer" and it was one of the most significant features we built since it enabled bank transfer payments without waiting.”

Firstly, initially “verifying” the actuality of a bank account by making a 10c credit/debit thereto does not ensure that there are sufficient funds in that banking account or in any other “backup funding source”. In my case PayPal has only my credit card; under no circumstances would I give them an authority to draw funds from my banking account as I would then lose the “professional” transactional protection that my credit card provides me.

Echecks I know nothing about (sounds like some sort of clunky hybrid instrument from the early twentieth century). Obviously, payments from a PayPal “account” are made only if there are funds in that “account” (sounds like PayPal is effectively in the banking business: holding depositors’ funds—without a licence). Payments sourced by PreyPal, as a credit card merchant, from a buyer’s credit card are approved or declined online instantly by the buyer’s bank. That, again, leaves us with what you refer to as “instant transfers” which I presume are funds sourced by direct debit from a user’s banking account.

My question, again, then is: If a seller’s banking account, if available, will always be PreyPal’s first port of call (because of the lesser bank fee), and PreyPal does not know then for a “couple of business days” whether or not there is sufficient funds available therein and, if there is not sufficient funds, and it then transpires that there is also insufficient funds available from the backup source (if any backup source provided), what happens if the seller, on the basis of PreyPal’s advice, that the goods have been paid for, despatches the goods and it then turns out that funds are indeed not available from the buyer?

Notwithstanding that PreyPal, in these circumstances, appears to be “providing credit” without any ability to manage the risk thereof, if this is indeed the way PreyPal works, is it any wonder they have a serious problem managing the financial risk for about one-third of the transactions that comprise their so-called “money transmitting” operations.

Enron / eBay / PayPal / Donahoe: Dead Men Walking.
PayPal Earns Float on Subscription Payments?   PayPal Earns Float on Subscription Payments?
by: reader615512
       
Wed Jun 8 09:07:08 2011
@ pbreit

In one comment, you say you worked at PP for 6 years, then in another you say 7.

Why do you say 2 things?

Which is it?
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