Redditor burnt by Paypal's "Rolling Reserve" feature(reddit.com)
reddit.com
Redditor burnt by Paypal's "Rolling Reserve" feature
http://www.reddit.com/r/reddit.com/comments/l4q2y/please_help_me_expose_this_newest_paypal_fraud/
19 comments
Actually thats not true about dumping the whole problem on customer. A customer could be a buyer or seller, i believe you are talking about the seller. If you read the SEC filings paypal/ebay takes some loss based on what type of scam/stolen/other it is.
As a merchant account provider PayPal has lots of competition.
I suspect OP (both here and at Reddit) would be interested in pointers to some providers who share PayPal's low cost of entry with hopefully much better service. I know I would be :-)
WePay has a dead simple to use stores product and we just released a new API (with iframe checkouts - https://stage.wepay.com/developer ). Our goal is to be the 'anti-paypal' by providing over the top support, and making it really easy to get integrated.
The only contender seems to be (as it's linked in the reddit thread) http://www.stripe.com.
Unfortunately, they're still US-only (so far).
Bitcoin. :)
If by customer, you mean both buyers and sellers; then you're right. I hate doing anything related to either EBay or Paypal for that reason. I typically exhaust my other options first before I use either service.
Even traditional banks have way better customer service and terms.
Even traditional banks have way better customer service and terms.
I don't see how he got burnt. He decided he wanted to accept credit cards directly, instead of having customers use their PayPal accounts to pay him, and so started using a PayPal service he had not been using before.
That means he's going to be subject to the same kind of things other merchants who accept credit cards have to put up with (everywhere, not just at PayPal), including acquiring banks deciding to hold a reserve to offset their risk.
The acquiring bank is on the hook to the credit card associations and issuing banks for any chargebacks that he can not cover. Worst case would be if he goes out of business leaving no money, and a year's worth of his customers chargeback. The acquiring bank is on the hook for all of that.
From a risk point of view, an acquiring bank is in about the same position as a bank that is giving you a loan, collateralized by your business, in the amount of a year's worth of your credit card sales.
That means he's going to be subject to the same kind of things other merchants who accept credit cards have to put up with (everywhere, not just at PayPal), including acquiring banks deciding to hold a reserve to offset their risk.
The acquiring bank is on the hook to the credit card associations and issuing banks for any chargebacks that he can not cover. Worst case would be if he goes out of business leaving no money, and a year's worth of his customers chargeback. The acquiring bank is on the hook for all of that.
From a risk point of view, an acquiring bank is in about the same position as a bank that is giving you a loan, collateralized by your business, in the amount of a year's worth of your credit card sales.
I think there are a few key points that highlight why offsetting risk is not a valid justification for this behavior:
-A 30% default rate is absurdly high. There is no way 30% of the cards being used over the phone are stolen.
-Even if usage of the service stops, the Rolling Reserves are a permanent change to they way PayPal handles his account. He cannot turn this off, even if his risk profile goes to 0.
-PayPal is not even authorized to act as a bank in the state he lives and operates in.
-A 30% default rate is absurdly high. There is no way 30% of the cards being used over the phone are stolen.
-Even if usage of the service stops, the Rolling Reserves are a permanent change to they way PayPal handles his account. He cannot turn this off, even if his risk profile goes to 0.
-PayPal is not even authorized to act as a bank in the state he lives and operates in.
PayPal will re-evaluate your rolling reserve periodically. Assuming steady volume and low charge backs they will lower it.
Rolling reserves are not uncommon for merchant accounts. PayPal didn't event them. 30% is on the high side but if PayPal feels the merchant is risky they should have the right to ask for it. There are other merchant accounts out there this guy can use.
Rolling reserves are not uncommon for merchant accounts. PayPal didn't event them. 30% is on the high side but if PayPal feels the merchant is risky they should have the right to ask for it. There are other merchant accounts out there this guy can use.
The reserve isn't to offset the risk of stolen cards. It's to offset the risk that the merchant will not remain solvent over time, leaving the acquiring bank responsible for the merchant's debts to the credit card associations and issuing banks.
It's not at all clear that merchant account providers are banks as far as state banking law goes.
It's not at all clear that merchant account providers are banks as far as state banking law goes.
PayPal is not even authorized to act as a bank in the state he lives and operates in.
Does this matter? I use a bank which isn't authorized to operate in the country I live in (Harris Bank, operates in the US; I'm in Canada).
Does this matter? I use a bank which isn't authorized to operate in the country I live in (Harris Bank, operates in the US; I'm in Canada).
I don't think it matters. Some don't seem to realize that when you sign up for any of the PayPal Pro features you're getting a real merchant account underwritten by a real bank. PayPal isn't underwriting it, it's usually JP Morgan Chase or Wells Fargo. You are asked to accept a separate agreement specific to that bank your account is assigned to when you apply for the upgrade.
No, most businesses that use PayPal are using it as a credit card processor. Either by using a form hosted on the merchants website itself (via PayPal IPN) or a cheaper version where the user is redirected to a form on PayPal's site.
This is what the author was using before. His change was to enable a feature that gave him access to a "terminal" wherein he could type credit card numbers himself.
In high-risk markets, and new merchants, it's not uncommon for funds to be held. But apparently this was neither. This is just paypal doing what it's always been known to do -- Assault the merchant while whispering in his ear "this is for your own good."
This is what the author was using before. His change was to enable a feature that gave him access to a "terminal" wherein he could type credit card numbers himself.
In high-risk markets, and new merchants, it's not uncommon for funds to be held. But apparently this was neither. This is just paypal doing what it's always been known to do -- Assault the merchant while whispering in his ear "this is for your own good."
In high-risk markets, and new merchants, it's not uncommon for funds to be held. But apparently this was neither.
We really can't tell from the OP what market this guy is in, and what he is really selling. He is deliberately vague..
"I run a few online stores which sell various products (non-Ebay, just regular old stores that sell stuff I make or provide)"
If he's going to attempt to draw such a large amount of attention, it might be helpful to know what specifically he is selling from all of his "regular old stores."
I'm thinking there is far more to this story.
We really can't tell from the OP what market this guy is in, and what he is really selling. He is deliberately vague..
"I run a few online stores which sell various products (non-Ebay, just regular old stores that sell stuff I make or provide)"
If he's going to attempt to draw such a large amount of attention, it might be helpful to know what specifically he is selling from all of his "regular old stores."
I'm thinking there is far more to this story.
Yeah, the vagueness makes me wonder if he's one of the folks selling "get rich with Google" e-books and whatnot.
When he upgraded to PayPal Pro to get the Virtual Terminal, he separately applied for and received a real merchant account underwritten by a real bank (usually Chase or Wells Fargo). He accepted a separate agreement with that bank including the boilerplate Visa/MC agreements and the stuff about risk reserves. It's not the same as just turning on a feature.
I cannot tell if you are serious. Are you saying this is appropriate on Paypal's part?
I'm saying the underlying behavior of holding a reserve is reasonable. I can't comment on whether or not HOW they did it is appropriate--I don't know if they did a poor job of documenting how it works (most payment processing companies have crappy documentation), or if he did a poor job of researching before deciding to use their virtual terminal service.
Other services suggested as alternatives in the Reddit thread, such as Google Checkout, also can hold reserves. This is not a PayPal thing--it is a credit card system thing. The system is designed so that if you end up owing money to the credit card association and member banks (say, for chargebacks), it is the responsibility of your merchant account provider to collect that money from you, and if they can't for some reason (e.g., you are involvement) then THEY have to pay it themselves. Essentially, your merchant account provider is guaranteeing to the credit card associations and the issuing banks that your debts to them will be covered.
Other services suggested as alternatives in the Reddit thread, such as Google Checkout, also can hold reserves. This is not a PayPal thing--it is a credit card system thing. The system is designed so that if you end up owing money to the credit card association and member banks (say, for chargebacks), it is the responsibility of your merchant account provider to collect that money from you, and if they can't for some reason (e.g., you are involvement) then THEY have to pay it themselves. Essentially, your merchant account provider is guaranteeing to the credit card associations and the issuing banks that your debts to them will be covered.
PayPal did something similar to me earlier this year. They instituted a 21 day hold on incoming payments because they suddenly decided my business was prone to chargebacks. This is after 8 years of service with zero problems. Never a complaint or chargeback and 10's of thousands of dollars through my account.
I no longer have anything for sale (I open sourced my AIS Parser SDK late last year) so it didn't have a dramatic impact on my income. I decided to drop my PayPal and eBay accounts without argument -- if that's the way they want to play the game then I'll just take my business elsewhere.
I no longer have anything for sale (I open sourced my AIS Parser SDK late last year) so it didn't have a dramatic impact on my income. I decided to drop my PayPal and eBay accounts without argument -- if that's the way they want to play the game then I'll just take my business elsewhere.
It is still clear to me that all of the people complaining about Paypal as a merchant account provider have not dealt with regular merchant account providers.
Regular merchant accounts are actually not as bad as people think. One major difference is that merchant account providers make getting started a pain. That's when they do all of their analysis to determine if they are comfortable processing for the merchant. PayPal on the other hand does little vetting up front, making the signup process smoother, but can come down unexpectedly later in a merchant's life when it detects risky activity.
This also affects how each implements reserves. While merchant account providers may institute a 5% or 10% reserve over 3-6 months, it is more of an insurance policy spread across all of its accounts since it doesn't have a good handle on which individual account will blow up. Whereas PayPal implements reserve only after it has detected risk, it immediately places a larger reserve.
It never ceases to amaze me how negative the sentiment is towards PayPal from an audience that I would expect to be much more understanding of how difficult it is to process payments in real-time. And that PayPal became successful because of its actions, not despite them.
This also affects how each implements reserves. While merchant account providers may institute a 5% or 10% reserve over 3-6 months, it is more of an insurance policy spread across all of its accounts since it doesn't have a good handle on which individual account will blow up. Whereas PayPal implements reserve only after it has detected risk, it immediately places a larger reserve.
It never ceases to amaze me how negative the sentiment is towards PayPal from an audience that I would expect to be much more understanding of how difficult it is to process payments in real-time. And that PayPal became successful because of its actions, not despite them.
I don't see how the notion that other merchant account providers are worse than paypal somehow justifies their poor service.
On the complaint he raised - "Oh no, I hand delivered it and wrote it with help of a lawyer. The complaint itself is about 50 pages long outlining everything from deceptive advertising to several violations of their state license."
Square (https://squareup.com) is pretty cool. I have an account with them and can charge credit cards through my iPhone. They even sent me a small swiping device for free, which you plug into the headphone slot. No monthly charges and mobile capability are great, but I haven't had big sums processed with them yet so can't compare the customer service.
They don't do everything that Paypal does, but Amazon Payments is working out very well for me with LiberWriter, so far. Anyone who wants to publish with Amazon is going to have an account already, so that makes for a very natural overlap that not everyone would have with their service, but... so far so good.
Another shot in the arm for https://stripe.com/
I guess that, to take a phone order over Stripe you would need a small app to talk to the API, live. Someone should build that!
I guess that, to take a phone order over Stripe you would need a small app to talk to the API, live. Someone should build that!
When will people realize what a terrible company Paypal is? They've been screwing their users in the name of security and fraud prevention since day 1, myself included. I've lost track of how many class action law suits there have been against them.
This needs more attention. I want to hear a response from Paypal.
"We don't have any physical presence in Illinois, so we don't really care about their laws," is what I'm guessing.
I was thinking "We're rich, sucks to be you.". But lying that the physical presence determines the location of a transaction would be high on the list.
Amazon no longer has an affiliate program in Illinois, despite not having a physical corporate presence there; affiliates in the state were considered (incorrectly, IMHO, but my opinion doesn't really matter) enough of a business presence to tie them here for the purposes of taxation and regulation.
Merchants physically located in Illinois, and directly selling goods, using PayPal to accept funds from Illinois residents and businesses and dispense those funds to Illinois businesses...that's a much stronger argument for tying PayPal to state regulation.
Merchants physically located in Illinois, and directly selling goods, using PayPal to accept funds from Illinois residents and businesses and dispense those funds to Illinois businesses...that's a much stronger argument for tying PayPal to state regulation.
huh. I thought 'rolling reserves' were fairly typical for merchant accounts for people with bad credit. I don't remember what the rolling reserve was when I accepted credit cards directly (a loong time ago) but it was significant.
Part of the reason why I think the new entrants Stripe and Samurai will kill it.
http://samurai.feefighters.com, http://stripe.com
http://samurai.feefighters.com, http://stripe.com
Samurai doesn't solve this problem. A merchant processing through them still needs to obtain a traditional merchant account, and therefore exposes their business to the same risk of having a reserve assessed on their account. If Feefighters is acting as an ISO (merchant account servicer / reseller), they can perhaps cushion the blow delivered to merchants in these cases, but likely not by much.
Stripe allows businesses to process on their merchant account, similar to how PayPal works. This removes the direct impact of a reserve, but if Stripe observes behavior that could increase their exposure to risk, I'm sure they will take action. It seems likely to me that Stripe will be more reasonable than PayPal in these instances, but that remains to be seen.
Stripe allows businesses to process on their merchant account, similar to how PayPal works. This removes the direct impact of a reserve, but if Stripe observes behavior that could increase their exposure to risk, I'm sure they will take action. It seems likely to me that Stripe will be more reasonable than PayPal in these instances, but that remains to be seen.
As you say, they've all got limitations.
The difference will be if they're straight-forward with their customers and let them know of policies long enough before they're implemented so that they could plausibly leave the service if they disagreed. The problems with Paypal in the linked article were their refusal to discuss, especially beforehand.
Paypal, like EBay, (go figure) is an early entrant whose ubiquity has made them think they're successful on merit, and whose sheer size has kept competition away to re-enforce that image to themselves. As soon as a capable competitor steps up customers will flee these user-hostile companies.
The difference will be if they're straight-forward with their customers and let them know of policies long enough before they're implemented so that they could plausibly leave the service if they disagreed. The problems with Paypal in the linked article were their refusal to discuss, especially beforehand.
Paypal, like EBay, (go figure) is an early entrant whose ubiquity has made them think they're successful on merit, and whose sheer size has kept competition away to re-enforce that image to themselves. As soon as a capable competitor steps up customers will flee these user-hostile companies.
You're missing my point regarding Samurai. It's main value prop is a gateway with developer friendly docs. This has nothing to do with risk.
Feefighters tells their customers to go with the absolute lowest priced merchant account provider because they are all the same otherwise. As this post points out, that's horrendously inaccurate.
Feefighters tells their customers to go with the absolute lowest priced merchant account provider because they are all the same otherwise. As this post points out, that's horrendously inaccurate.
If either of these new groundbreaking services gets very popular and attracts the eyes of the scammers, they'll be backed into the same corner that Paypal and every other merchant provider is in.
To sign up for paypal you must supply an email address (actually somebody else will have to).
But what if some other service required you to provide a copy of a goverment issued id as well as the address associated with that id?
But what if some other service required you to provide a copy of a goverment issued id as well as the address associated with that id?
I'd like to think that some hackers can stay ahead of other hackers, enough of the time to balance it out.
Is Paypal considered a bank and subject to similar regulation? I find that they seem to be getting away with a lot of things that wouldn't be acceptable with other financial institutions.
No, the article makes it clear that PayPal is not a licensed bank in the state of Illinois and this behavior is presumably illegal. The author claims to have filed a complaint with the state's attorney general.
The author of the article doesn't really understand the situation he's in. He signed up for a merchant account underwritten by a licensed bank (Chase or Wells Fargo) when he upgraded to PayPal Pro to get the virtual terminal. He accepted an agreement with that bank. That bank has the right to hold a reserve as outlined in that agreement.
I think they are a bank in the EU due to, I presume, stronger regulations.
In Luxembourg http://en.wikipedia.org/wiki/PayPal#Bank_status
A consequence is "It is therefore not possible for UK customers to obtain legal redress from (PayPal) in the English, Scottish, or Northern Irish Courts"
Another reason for not using PayPal in the UK.
A consequence is "It is therefore not possible for UK customers to obtain legal redress from (PayPal) in the English, Scottish, or Northern Irish Courts"
Another reason for not using PayPal in the UK.
My site runs deals every couple of days leading to big sales influxes when a new product goes live and is sent to our customers. We've had these problems before meaning we haven't been able to refund clients or pay merchants. It's lead to a lot of stress.
One sure way to earn my sympathy is to litter your post with image macros and troll faces.
He posted it to Reddit, not HN.
Hmm, strange, seems to works pretty well. So far about 3000 upvotes and 2000 comments.
Well, 90% of the comments are "yeah, Paypal sucks!!", and it really has about 25000 upvotes and 22000 downvotes. And the dude is just ranting more in the comments. I'm not surprised he didn't name his product.
This is why people should use Wepay.com
I've been using them for years.
I've been using them for years.
WePay.com does not do what PayPal does (yet), unfortunately.
Try getting a false charge on your paypal card - the moment you notify them, they instantly cancel the card - but to get the money back you have to file a written snail mail report - and then they do not send you a replacement card automatically, they allow it to remain canceled and never support you otherwise unless you specifically ask for another card which will take at least two weeks to receive.
They have no problem with people leaving them as there is an endless supply of newbies and near zero competition with easy entry, because they aren't competing as a bank and don't have to obey banking laws.