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PayPal
(and Billpoint) —
more detailed information
major revision September 2004

PayPal and Billpoint - more detailed information is one of a series of documents about economics and money at abelard.org.

moneybookers information	e-gold information	fiat money and inflation

disclaimer:

abelard.org takes no responsibility for any communications or transactions made with any of the organisations listed below, nor does abelard.org guarantee that the figures and other information given are accurate, complete, or up to date. Nor is this document to be read as any manner of advice or guarantee.

Caveat emptor (let the buyer beware).

PayPal:

Since this document was written in 2002, PayPal has evolved its services to seemingly become slightly less abritary in their requirements. For instance, entities giving donations using PayPal are not required to sign up to PayPal in order to give. Other additions to and clarifications from PayPal include:

Transactions can be made in one of five currencies: US$, Can$, £sterling, € or Yen. It is possible to pay in one currency, which is converted by PayPal to another currency (fee: exchange rate + 2.85%)
Businesses or consumers with an e-mail address can send and receive payments online, provided they are willing to conform to PayPal’s collection of personal data, such as bank account and associated credit card details.
PayPal is now owned by eBay, the online auction company.

There are still ‘horror’ stories about PayPal abounding. For instance, a PayPal user was paid by a ‘customer’ using a frudulent credit card. This was only discovered by PayPal after the goods had been sent out, so the PayPal user had their bank account frozen for fraudulent activity and lost the goods. There are a number of on-going class-action lawsuits regarding PayPal freezing accounts.

Certainly PayPal is very strict in their actions to ensure that they are not caught by a fraudulent action or involved in anything that might possibly be regarded as criminal. It may be that as long as the user is aware of PayPal’s behaviour regarding accounts, while protecting themselves against attempts at fraudulent transactions, there will probably be little problem.

Bear in mind, however, that in 2004, the following was published on the internet:

Paypal has a history of questionable handling of private data, adding people to marketing lists without permission, and so on.
Paypal's customer service is sucky beyond words. I tried to pay for something using paypal. They said "that card can't be used, send email to cardproblems@paypal.com for help". I sent email there. A day and a half later, I got back a note saying I'd have to call in - but not providing a phone number. I pointed this out, and got an email with instructions for navigating their page to find the phone number. The instructions, I assure you, were much longer than the phone number.
[...]
Paypal's association with eBay puts them in league with a company with a long history of abusive privacy practices and fairly solid tolerance for spam.

Thus, despite PayPal’s apparent improvements in user-friendliness and facilities, PayPal does not appear to be an attractive value transfer method, particularly when there are now many other methods to transfer value.

Here, we give some of the rules and conditions of using PayPal, with some practical suggestions gleaned through reading about the experiences of PayPal users.
(Note that abelard.org currently has no direct experience of using PayPal.
It is very much your own responsibility to decide whether to sign up to PayPal, or whether you choose to make use of any suggestions given here.)

Signing up to PayPal

USA: “Generally, accounts that have a confirmed email address and credit card on file may send up to $2000. Accounts that are Verified by adding and confirming a bank account will receive a higher Sending Limit or no limit at all [unlimited? - this is very sloppy language - ed.].”
UK: “In order to send a total of more than £500.00 GBP through our Service we require you to provide us with additional identification or complete your membership enrolment as described below [see Obtaining a Member Number and verification]. We require this information to authenticate your identity and to determine how much you may transact with your account.”

Membership/Extended Use of PayPal (the term depends on in which country you register with PayPal) is only completed “once you confirm an email address, add a card, and enter your Member Number”. Then, “your membership will be completed and your account will be treated as verified”.

Obtaining a Member Number and verification by PayPal

You pay a $1.95 USD membership fee through PayPal using your credit card. This payment will be recorded by PayPal on your credit card statement, together with a four-digit reference that is your Member Number.
You have log into your PayPal account, entering the four-digit Member Number associated with the $1.95 USD charge listed in your credit card statement. After the Member Number has been successfully entered, a $1.95 USD bonus is deducted from the next payment sent.

This is PayPal’s method of verifying that a credit card account belongs to a PayPal member. As a result, because most statements only arrive once a month, it may take up to a month for a first-time user to be able to pay out/send larger sums (over £500, for instance).

PayPal’s behaviour regarding bank accounts

PayPal will freeze any registered user's bank account registered with them, if PayPal decides that there may be any sort of fraudulent activity, including inward payments from a fraudulent account or credit card.

Thus, if possible, PayPal users should not register using their principal bank account, but with a subsidiary account holding only limited funds, so that their main bank account would not be frozen. If this is not feasible, try to only keep limited funds in the registered bank account.

Protecting yourself against fraudulent PayPal transactions

PayPal now informs you when the entity with whom you are trading does not have a bank account registered with PayPal (and so checked by PayPal's security department). By limiting transactions only to users with registered bank accounts, problems of being paid from a fraulent account/credit card should be reduced. Preferably, a trader should not release goods until PayPal has cleared a transaction. However, given that PayPal allows payments to reversed over a 180-day [approximately 6 months] period, if a trader keeps to this recommendation, customers would have a long wait for their purchase.

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Buyer concerns when using PayPal

To pay for any purchase, you must have at least a Personal PayPal account. Payment is made by PayPal first accessing that account.

“If there is not sufficient to fund the payment fully, PayPal will obtain the remaining funds for the payment by debiting a designated bank account or by charging the buyer’s credit card.”

“When you send a payment, until that payment is accepted by the recipient (which may occur [almost - ed.] instantly), you remain the owner of those funds and PayPal holds those funds as your agent, but you will not be able to withdraw those funds or send the funds to any other recipient unless the initial transaction is cancelled.”

Thus:

PayPal requires that the buyer provide full bank account, debit card or credit card details.
Further, if the buyer enrols in PayPal’s Money Market Reserve Fund, PayPal want their Social Security or other Taxpayer Identification Number.
When using PayPal to send money to someone else or request money from someone else, PayPal wants information related to each transaction, including the amount of the transaction, the type of transaction (purchase of goods, purchase of services, or simple money transfer [“quasi-cash”]) and the e-mail address of the third party. PayPal keeps this information in case of Bank Secrecy enquiries.
PayPal collects and holds the IP address of the computers used in transactions.
If PayPal perceive the credit card to be being fraudulently operated or the card account as uncredit-worthy, the payer’s bank account (the one associated with the credit card) may be frozen by PayPal during their investigations.
(See http://www.standardtransactions.com/paypal_troubles.htm.)
PayPal’s default payment method is now from the payer/buyer’s bank account. You have to know to click a small link that says ‘other payment options’ in order to change this.

Recipient/Seller concerns when using PayPal

To receive any payments, you must have at least a Personal PayPal account.
To receive credit card payments, you must have a Premier or Business account.
The recipient/seller is charged 2.9% + $0.30 per transaction.
If you are based outside the USA, to qualify for the appropriate PayPal account, you have to have an international merchant credit card account—not easy to obtain, even in Europe.
To take money out of the PayPal system you must have a bank account in one of ten specified countries world-wide.
PayPal may access a seller’s bank account as they wish.
In case of a ‘dispute’ with a buyer, “PayPal may also restrict the seller's PayPal account”. There is complete reversibility of any payments made; either by the payer as they wish, or by PayPal. During any investigation period, the seller’s bank account associated with their credit card may be frozen by PayPal. (See http://www.standardtransactions.com/paypal_troubles.htm.) It appears to be possible to obtain a Seller’s Protection Policy. However, I have not yet found any details other than its restrictions, which are wide-ranging.
“If you open a Premier or Business Account, you authorize PayPal to debit your bank account linked to that PayPal account for the amount that you owe PayPal on transactions which were not covered by the Seller Protection Policy and which were not recoverable from your PayPal balance.”

PayPal claims over 45 million ‘members’. It is unclear how many members were recruited with a marketing incentive of about $10 already in their account. (See http://www.standardtransactions.com/paypal_is_not_gold.html.)

Some figures from 2002:

200,000 transactions a day, of which 1% (2,000) had problems
seller fraud rate: 0.42%
buyer fraud rate: 1 – 3%
[for this reason, sellers should check the buyer’s
- IP address
- email address
- land address
- phone number]

Billpoint

Billpoint was withdrawn from use in 2003.