A discourse on eBay’s ugly adopted daughter, PreyPal
PayPal Is Not a Payments Processor, Apparently!
Oh yeah, then just what good or service does PayPal sell?
I suppose it could be said that there is the minutest grain of truth in this otherwise blatantly disingenuous and comically nonsensical statement. Anyway, the following is my layman’s understanding of what the “large merchant” PreyPal does and how it does it:
PayPal is apparently licensed in various places as a “money transmitter” (like Western Union); as such PayPal is usually not lawfully entitled to arbitrarily “hold” users’ funds, indeed usually just the opposite is statutorily the case. PayPal is not a licensed bank, nor is it a licensed provider of credit; nor is PayPal prudentially regulated as are usually retail banks with respect to users’ funds temporarily held by them. However, just about every apparent “banking” service that PayPal provides, has to be performed via a retail bank—a real bank.
For instance, if, as a PayPal user, you give PayPal the authority to draw funds from your real banking account, they have to do that, like any other entity that you may have given an authority to make direct debits on your account, via their banker (apparently, GE Money Bank—ugh!) and PayPal pays that bank a nominal fee for the bank’s performing of that transaction. That is why PayPal prefers to direct debit your banking account: the bank’s fee therefor is very small (about 0.09%, I think) because the bank performs only a simple transfer of funds and the bank accepts no responsibility for such transactions where such an authority has been given to the entity making the direct debit. PayPal will then charge the seller 30c + 2.9% commission (on top of eBay’s approx. 9.9% selling fee, if it is an eBay transaction); and therein is a nice, fat, little earner.
Where you have given PayPal the authority to draw funds only by debiting your credit card, then they do that, as any retail merchant would, via a retail bank’s credit card merchant account (with their banker, GE Money Bank) and the bank takes a commission of usually between 0.9% and 2.9% depending on the volume of business the merchant does. PayPal would undoubtedly be an extremely valuable “merchant” customer for GE Money Bank and probably PayPal would have negotiated a commission of somewhat less even than 0.9%. Still a nice, fat, little earner.
Conversely, the funds that PayPal collects on behalf of a seller are then nominally held (less PayPal’s commission) in a seller’s PayPal “account” (at GE Money Bank?); PayPal holds these funds for their own purposes until the time the seller is permitted to and does manually transfer the funds from the seller’s PayPal account to their own real banking account, or the seller uses the funds to make purchases for which PayPal would otherwise have to debit the user’s banking account / credit card. Regardless, in the meantime PayPal will undoubtedly have your funds invested on the short term money market, whereas a credit card merchant’s sales receipts are automatically credited to the merchant’s linked banking account the following day.
PayPal is apparently not licensed to provide credit; this is done by arrangement, again, with their retail banker (GE Money Bank); although you can bet that GE is kicking back a goodly commission to PayPal on any business so introduced by PayPal. PayPal’s credit/debit card is no more than a PayPal-badged GE Money Bank Mastercard.
PayPal is otherwise simply another middle man—in addition to the participating retail banks’ credit card payments processors, Visa and Mastercard—helping to facilitate the transfer of funds between the banking accounts of payers and payees.
PayPal’s only contribution to the scheme of things has been their using of the unique email address identifier which very well suits online transactions. However, unlike the credit card payments processors, PayPal is not underwritten by the participating retail banks; PayPal has no partnership arrangement with the retail banks and this is why PayPal’s risk management is so unprofessional and its transaction mediation effectively non existent or so algorithmically biased towards the buyer that it may as well be non existent. PayPal takes a similar commission on such transactions but, unlike the banks, PayPal effectively accepts no responsibility for any transaction fraud.
When you deal with your credit card company, you can immediately talk on the telephone to a real person and that person is an employee of your own bank, the bank that knows you; when you deal with PayPal, you “talk” to a buyer-biased computer algorithm; it’s very difficult to get to speak to a real person at PayPal because PayPal does not know you, nor does PayPal even want to know you, and there are very few real customer service people there anyway. As many an unhappy PayPal merchant can attest, PayPal’s is a most clunky, unprofessional operation.
In the final analysis, PayPal is a parasite on the retail banks’ payments system and ultimately anything that PayPal can do, the participating retail banks could do more efficiently and effectively via their partners Visa/Mastercard without the complications and unprofessionalism of eBay’s most ugly adopted daughter, PreyPal.
Outside of PayPal’s mandated use on the eBay Marketplace—or whatever will ultimately be left of this Donahoe-devastated area—where PayPal now represents (more than?) 40% of eBay’s revenue—it’s only a matter of time before the participating retail banks, via their credit card partners, will likewise utilize email addresses for simpler online payments processing (the banks already have the necessary email addresses for all their internet banking customers)—and consign PayPal (outside of the ever-shrinking eBay Marketplace) to the history books—It’s only a matter of time!
Needless to say, I’m always happy to hear from anyone who better understands the mechanics of the clunky PreyPal operation …
In the meantime, for PayPal to claim that PayPal is not a “payment[s] network” is surely a gross distortion of the English language; maybe it could be more accurate to describe PayPal as a “payments facilitator” in the same way that eBay can be described as a “criminal facilitator” because eBay does not obviously and directly defraud its users (although many of its seller-users would debate that), it only knowingly effectively aids and abets, before and after the fact, other unscrupulous entities to defraud eBay’s many naïve and trusting buyers.
Did Someone Mention Visa?
“Bank customers of participating financial institutions will have the option to select a Visa account as the destination for funds when making a personal payment. By simply entering the recipient’s 16-digit Visa account, email address or mobile phone number, consumers can send funds directly from their bank account to a recipient’s Visa account.”—Visa (16 March 2011).
“PayPal’s parent company, eBay, told the Wall Street Journal that it did not feel threatened. ‘As the leader in global online payments for the last twelve years, PayPal has unmatched advantages that we believe put us ahead of the competition’.” …
Draft eBay Media Release re PayPal:
“It is with great sadness that eBay’s Chief Headless Turkey, John Donahoe, announces the probable demise of eBay’s most ugly adopted daughter, PreyPal. Donahoe says that PayPal is expected to be soon stricken by particularly virulent strains of simplified Visa/Mastercard “online” payments processing systems, and this affliction will be greatly aggravated by PayPal’s lack of any underlying direct financial institutions support and a great deal of PayPal merchant dissatisfaction, particularly with respect to PayPal’s “all responsibility avoiding” user agreement, most primitive, if not non existent, risk management processes, and grossly unprofessional, buyer-biased and fraud-facilitating (indeed, effectively non existent) transactions mediation—to name just a few of the problems that PayPal “merchant” payees have to habitually endure.
“Donahoe says that following such affliction PayPal’s health may be expected to deteriorate rapidly and, if ultimately not completely incapacitated, will most likely be kept alive only with the aid of a third-world “life support” provided by his mandating of PayPal’s use on what little there will eventually be left of the Donahoe-devastated eBay Marketplaces. There is no cure for this condition and the “eBafia Don” is particularly saddened by the inevitable presumption that it is unlikely that PayPal will be able to continue to underpin the eBay Marketplaces’ deteriorating revenues too far into the future.”
Yes, it’s a caricature but, nevertheless, it accurately describes PayPal’s unregulated, unprofessional, “clunky” operation. Had the developers of the original “bankcard” concept ever behaved the way PayPal behaves towards many of its payees in particular, credit/debit cards would never have gotten off the ground, and we would still be paying for all our purchases with bits of paper and little metal discs.
PayPal is not a “bank” and is not prudentially regulated as are the retail banks. PayPal has been forced down the throats of eBay merchants—much to the distaste of many of them. Without eBay’s mandating the use of PayPal it would be little known (and conversely, without PayPal, eBay’s “bottom line” would be going down the toilet at an even faster rate than it presently is). A simple Google search will show that, in the opinion of many merchants, PayPal is the most despised, unprofessional, unscrupulous, fraud-facilitating payments processor on the planet.
No thinking person should ever allow PayPal to draw funds directly from a banking account, nor should merchants ever leave incoming funds in a PayPal account. PayPal should only be allowed to draw funds via a retail bank-branded Visa/Mastercard credit card account: that is the only way to ensure protection from PayPal’s lazy, buyer-biased, fraud-facilitating (effectively, non-existent) transaction mediation process and to get any effective transaction mediation—not from PayPal but from your retail bank via their real credit card transaction-mediation process.
The fact remains, those “payments processors” that do not have the underlying risk-managing and real transaction-mediation support of the participating retail financial institutions (the “banks”) that are ultimately involved at either end of each transaction—as does have the likes of Visa/Mastercard—all suffer all the same material handicaps that PayPal suffers: they can’t know as well the entities involved in any transaction, as the banks can, so that managing their risk is much more problematic and transaction mediation therefore must be potentially an ongoing nightmare. The “banks” may be disliked by some people but they at least provide a professional payments processing service.
I have no doubt that if and when the retail banks decide they want to take the final step (and probably the increased risk and therefore the extra work involved) and offer a simpler online payments process also based upon their customers’ unique email address identifier, similar to that which PayPal offers, to the many merchants who may otherwise not want (or may not qualify for) a credit card merchant account, and the participating banks offer that service in their usual professional manner via the likes of their partners Visa/Mastercard, the clunky, unprofessional PayPal, outside of the eBay Marketplace, will undoubtedly quickly disappear into the history books—there is simply nothing surer than the sun will rise in the morning.
Did Someone Mention PreyPal at Point of Sale
Unless PayPal issues every PayPal user with a swipeable credit/debit card—in reality a (GE Money Bank) Mastercard—PayPal simply cannot compete with the retail banks’ “cards” at POS. PayPal is otherwise as clumsy at POS as “card” transactions presently are relatively clumsy at online transactions. The parasitic PayPal’s only advantage is its pioneering use of the email address identifier, which very well suits online transactions only, and its mandated offering on the now sickly eBay.
Regardless, why would anyone want to leave funds idle in an unsecure PayPal account so that they could use PayPal at POS? Why would any off-line merchant risk providing goods/services and then have to wait possibly weeks or months before actually being able to get their funds from the “no responsibility accepted” PayPal process? Think about it for a moment—Frightening.
Then there are always the burning questions: How can PayPal manage the credit/transaction risk without knowing the users the way that the retail banks, ultimately at each end of every transaction, know their customers? They can’t. And what about PayPal’s effectively non existing, buyer-biased, transaction mediation?
“Actions by PayPal - Holds. We have updated our disclosures in Section 10 relating to your liability and the actions we may take. A User’s rights, responsibilities and liability under this section have not changed except for the addition of your acknowledgment that our decision to take certain actions such as holds and reserves is based on confidential criteria, and your agreement that we have no obligation to disclose the details of our risk management or security procedures.”
What this actually is saying is that their risk management is so unprofessional and ineffective that they prefer to not disclose just how clunky it really is.
Check with you current provider of banking/merchant account services; see if they have such an unscrupulous provision in their conditions of business that enable them to take such actions with regard to the management of your account and have no obligation to explain to you why so. I doubt you will find such a provision.
The Reality of PayPal “Holds”
“When they placed the hold on my account last year I went to my State’s Department of Banking & the hold was released 5 days after I filed the complaint, without explanation. That wasn’t enough so I filed a second complaint basically stating that if I didn’t know what I did, how could I avoid doing it again.
“The result was a pretty detailed letter from the PayPal Operations Legal Counsel explaining the risk analysis model used to examine account and the assurance they were changing their policy.
“My risky behavior was selling more than average in a month & issuing three partial refunds for postage overpayments within the same period.
“Stupid? Of course but PayPal has taken the position that they can reduce their risk by punishing small sellers whose accounts show the slightest deviation from month to month. If I were a conspiratorial type, I’d go as far as to say that PayPal would prefer not process payments for anyone who didn’t do millions a year.
“Anyone hear of a mega seller whose transactions have been held?”
So, it appears that complaining to your local banking ombudsman, or whoever, can affect the behaviour of PreyPal. Every merchant should have the contact details of their local banking regulator close to hand, and make use of it to put the spurs into this bunch of shysters.
The Utter Unprofessionalism of PayPal
If anyone wants to understand how PayPal can one day tell a seller that the buyer has paid for a purchase and a couple of days later (after the seller has promptly dispatched the goods) then tell the seller that the buyer has, in fact, not paid, see the exchange of comments between “pbreit” and myself on the AuctionBytes.com “Letters to the Editor” thread at:
Alternatively, in summary, if PayPal is authorised to access funds from a buyer’s banking account (~30% of their funds sourcing from buyers), they do that by direct debiting the buyer’s banking account (via their banker, GE Money Bank—Ugh!). This is the most cost-effective way of accessing buyers’ funds and so PreyPal will always prefer a banking account to be their first port of call.
Apparently, at the same time that they instigate that direct debit PreyPal also tells the seller that the buyer has paid, but, at that point in time, PreyPal has no way of knowing if there is, in fact, sufficient funds in the buyer’s bank account to honor the direct debit and, if there is insufficient funds a day or two later PreyPal’s direct debit will be reversed by the buyer’s bank. PreyPal will then try the “backup source of funds”, if one is supplied. If there is still insufficient funds—too bad for the merchant if he has promptly dispatched the goods.
Unlike credit/debit card transactions, with direct debit transactions there is no immediate confirmation that funds are or are not available. And, unfortunately, a seller has no way of knowing how PreyPal is accessing a buyer’s funds and therefore a seller has no way of knowing if they are indeed going to get paid even though PreyPal has told them that the buyer has paid.
It is therefore most unwise for a seller to dispatch anything of value within at least two “working” days of receiving PreyPal’s initial advice that the buyer has paid lest the seller then receive another advice that the buyer has, in fact, not paid. (Of course, that leaves the seller open to receiving low DSRs for shipping from a buyer for which eBay will penalize all but its most favored diamond sellers.)
In such circumstances, if indeed there is insufficient funds, then the clunky PreyPal does not want to be out of pocket so they will simply reverse their payment to the seller and the seller then loses both the goods and the money.
Thereafter it’s up to the defrauded seller to put a great deal of time and effort into pursuing the unscrupulous PreyPal, via the appropriate consumer affairs regulatory authorities, for a reimbursement of the seller’s loss which has been caused wholly by PreyPal’s negligence and, of course, any compensation ultimately offered by PreyPal will be on the basis of the seller signing a confidentiality agreement. (We must not let other merchants know just how clunky this PreyPal operation really is.)
Just how often does such unprofessionalism by PreyPal cause a seller to be so defrauded? We will never know as any compensation ultimately paid by PreyPal will be covered by a confidentiality agreement. However, the following is a link to one such PayPal horror story related by a third party. This regrettably rambling report is a shocker, and details PayPal’s total unscrupulousness—indeed their effective facilitating and/or committing of fraud on a merchant:
(Hopefully this particular story will eventually be more succinctly summarized, as it deserves to be a primary research document for anyone investigating the most unprofessional behaviour of PreyPal.)
What a totally irresponsible, unprofessional, potentially fraud-facilitating operation is this PreyPal system. No wonder PreyPal has such difficulty managing the financial risks involved in its clunky operation.
No one denies that the PayPal system is most convenient for online buyers. But there are two sides to every sales transaction and any merchant thinking of voluntarily offering PayPal would be wise to first peruse the very many PayPal merchant horror stories that abound on the internet. An examination of these horror stories and another prognosis for PayPal, (including a link to the “PayPal Horror Tour”) can be found at:
Undoubtedly there will always be a small place for PayPal—as the online merchant account provider of last resort. All those very small (or unscrupulous) merchants who cannot get a merchant account from their own bank, for whatever reason, will still be able to get one from PreyPal; of course, they will probably have to learn to live with 180-day holds on their funds and the possibility of occasionally losing both their goods and their funds.
Having said all that, one has to opine that eBay’s arrogant, ignorant, sociopathic chief headless turkey is also seriously delusional if he truly thinks that PayPal, outside of the ever-shrinking eBay Marketplace, will be eBay’s savior in the long term.
Shill Bidding on eBay: Case Study #4
This latest study provides an indication of eBay’s desperation to mitigate stagnating Marketplace sales and very effectively demonstrates eBay’s effective aiding and abetting of criminal shill bidding “wire fraud” activity by unscrupulous professional sellers on unsuspecting buyers:
eBay / PayPal / Donahoe: Dead Men Walking.