PayPal Horror Stories from the Media

[*Brum6y*]

WHEN banks get rolling on this - I am betting they will blow the market wide open.  Perhaps not overnight, but I believe there will be some revolutionary changes that will shake up a lot of smug thinkers.

There will, no doubt, be several issues to be addressed in regards to legislation, governance and risk management.  There will also be some technological innovation required - such as immediate inter-bank funds transfer.

On this latter point, a friend of mine had an outage with their internet banking latelast year ("Which Bank" Do I hear you ask...?) that was accompanied with an explanation that sounded suspiciously like a preparatory move for just such a possibility.

Banks could then provide 'instant payments' - without the need for a middle-man.

As for international transfer costs - I believe the high fees still around are a legacy of 50 years ago when it was a big deal to send money overseas.  Times have changed and I see these fees falling - in line with the expectations of todays global community and eCommerce demands.


Domestic and international funds transfer is a growing business that is reaching further into the hands of the smaller, by size, but greater by number, merchants - with no small thanks to the internet.


... and where there's lots of money moving around, don't you think the banks will want a bigger share of the action?

[Philip.Cohen]

Brumby,

So true, why would our greedy banks not be eyeing this bit of the “payments” market? After all, “payments” is their business. Why would they not want the whole of the action if they can take it? All they have to do is do it properly. They already have the greatest advantage of all over the non-bank providers, that of being able to minimize their risk by their better “knowing” of the participants involved in the transactions.

I say “greedy” because this is what drives all “for profit” organizations, particularly those publicly listed organizations whose directors and managing executives rely on the organization’s apparent profits to line their own pockets (sometimes they don’t even worry about any profits while lining their own pockets).

And if the banks can slot such a like system into their existing internet banking structure via their own “middleman” (as they do with the universal credit card system), is it not simply incomprehensible that they will not (eventually) do so?

I am not sure that we will ever see truly “immediate” interbank transfers as banks still have to settle with each other periodically and I understand that that is still a daily occurrence—they apparently still don’t trust each other for more than 24 hours. Regardless, I think that having such receipts credited directly to your account on a daily cycle, as is the case with local credit card transactions, would keep most people happy and would certainly be a great improvement on the PayPal system.

My only surprise is that the banks have not yet done anything. I just hope that they do it soon; hopefully, while “turkey” Donahoe is still at the helm of the good ship “eBay”; I dearly want to see this arrogant fool of a man do his little song and dance routine for the markets as his fleet of rusting hulks eventually sinks beneath the surface of the water.

[gr8-expectations]

Philip and Brumby,

Those last two posts sum it all up really, yesterday i got my BGPS in a twist over this but really it all boils down to what you say, if (or when prolly more like) the banks do enter the market it will have the effect of moderating savagely (the only type of action ebay and preypal understand) their ability to continue to unfairly dominate the market. It must only be a matter of time, banks are not perfect either but when the benefits outweigh what they have to trade off to fully enter the online payments marketplace they will do it and are probably as brmby hints doing it already or preparing for it, which would be a massive positive change, as Philip points out they have all the resources existing to do it safely.

RE why ebay australia dont allow Paymate when they do in the US that is a mystery to me but who cares, very dog has its day and they will have theirs.

My guess re why they have taken their time, the banks, is that its because of what they are trading off, by doing this they do away with their highly lucrative interbank exchange and money market plays and trade it imo for a better one, they gain far more on the roundabout than on the swing, because even though they lose the ability to charge $20 odd for an intercountry transfer, they gain all those extra funds from online trades and will get to play with that and probably only offer the same time terms as Paypal do to compensate themselves.

If another decent international player like google for example (it never happened yet but was muted) enters the ebay small auctions and bins market for the home sellers that really can deliver the global audience AND the banks do enter the online payments market ala paypal/paymate style, then that would be a pretty savage double whammy effect on ebay and paypal.

[cueperkins]

It does not really matter if such a payments system is infested with fraudsters or not, the difference is the banks know were those fraudsters live, PayPal doesn’t. And, the banks offer an effective resolution service; PayPal doesn’t. I have no doubt that if the banks do introduce a like system, PayPal will sink like a stone.

....and.....the Banks are EFT Code Signatories and are therefore accountable....Paypal isn't on both counts.

I predict that the Anti Money Laundering Legislation is going to squeeze Paypal either into compliance, or right out of the marketplace.  The one key factor underpinning the legislation is VERIFICATION....which we all know Paypal avoids kicking and screaming all the way.  As we know, they are in breach of the Anti Money Laundering Legislation and have been put on notice to clean up their act....Austrac is demanding verification, without which, money laundering and financial terrorism cannot be monitored or reported or addressed.....and of course, that's what the legislation requires them to do.

They are NOT lawfully able to suspend accounts or withhold funds under that legislation.....I may give AUSTRAC a call today and ask what they need to officially look into Paypal's unconscionable conduct in the name of this legislation.  Worth a call to find out.  I may also look into what the breaches were specifically and what they mean.  From what I can gather, the Noose of Mandatory verification is starting to draw tighter, and I predict that they'll have to start verifying all account holders in the future, or they'll be fined by AUSTRAC....

Simply put, they cannot comply with the legislation if they are refusing to verify account holders....it's NO HOW YA MAKE PORRIDGE !!!!

[Philip.Cohen]

And, don’t forget that PayPal is not a bank: everything PayPal does to move money about has to be done through the bank with whom they do their banking, just like you or I have to do when we want to move some money. PayPal is a parasite that has served its purpose by coming up with the original concept of this form of payments system, but unless they have some sort of protection via patent or copyright, then it is about time they retired (hurt) and let someone more able do the job.

Come on bankers, extract that finger!

[Philip.Cohen]

The other side of the coin is that PayPal would be a very desirable customer for any individual bank, as PayPal has to do all of its funds transferring through some bank, and you can bet that PayPal has permanent feelers out for an even better deal on their banking that they can get from any other bank that would like their business.

Obviously, there is an incentive for any individual bank to tout for this business; but why bother when they all could have it all (as they do now have it all with their credit card system) via a similar card-less system running in parallel with their credit card / internet banking systems.

After all, every internet banking customer is already set up to go with any banks’ system; they already have all your verified details; they already have your email address …

What else do the banks need but to put the various interfaces together and make the announcement …

[*CountessA*]

As I said, the issue of responsibility is an important one that has got to be addressed before any such process by banks can go underway.

Whose responsibility is it if I, for instance, buy a leather handbag handtooled by Federico Mileno, send my money instantly to the US account via a PayPal-like process (except through my bank to...? to their bank? to their...?), and when my parcel arrives, it contains a fake leather handbag mass-produced in China? Or the right sort of handbag but slightly scuffed? Or a different colour? Or I detected the stitching looked wrong and it seemed like a knock-off fake although genuine leather?

Do I expect the bank to reimburse me?

How does an Australian bank have any jurisdiction and power over a US citizen?

Does the Australian bank have the power to access the US citizen's US bank account?

US banks have a completely different set-up - different rules, different security... so I must ask again: into what account would my bank-issued instant payment go?

I love the idea of banks being able to offer a comparable payment method, but we must sort out these issues first. PayPal's answer is clearly not going to be a bank's answer, because banks have a much higher responsibility to clients than does PayPal. That is why I pointed out no bank is going to be able to be exactly like PayPal. It will have different complaints and fraud-dealing procedures - and we must understand this process before we speculate further, surely.

[*Brum6y*]

This is a classic example where legislation will need to evolve ... on a global front.

Which is no small ask...

Global 'laws' would be good to define, but each sovereign state has the right to determine their own legislation, so a universal playing field is barely conceivable, let alone ready to roll out.

Yet resolving these issues will become key to growth in eCommerce and since the convenience factor of the internet has become so incredibly powerful over the last few years, popular opinion will demand action.  This will put the politicians into a position where (eventually - after years of dancing around the issue and playing with smoke and mirrors) some of them will realise the best way to score brownie points is to 'make it so'.

Never happen?  O ye of little faith....

Would you have thought...

 - 20 years ago ... that China would be a modern manufacturing force?
 - 30 years ago ... that the U.S.S.R. would be no more?
 - 40 years ago ... that the Berlin Wall would crumble?
 - 50 years ago ... that you could buy a computer with a single week's wage?
 - 60 years ago ... that man would actually walk on the moon?

Perhaps we might find an intermediate position - say an international eCommerce treaty where abiding by it would represent a marketing advantage.  Similar idea to our 'EFT code of conduct' - but with a couple more teeth.


I don't know what, but I believe the question is not 'IF' ... but 'WHEN'.

[cueperkins]

You are right brumby....things we couldn't conceive of once are now a part of everyday life we take for granted. 

And it's not that far behind.....because of the cost to the World economy with E-Fraud, there is a agreement being forged with Western Countries at this stage, for international law enforcement cooperation.....I read an article about it a while back and will see if I can find it.  The issue of E-Fraud is MASSIVE, worldwide and projected to go beresque this century if Law Enforcement worldwide don't adopt a cooperative management approach....and it's coming.

Also things like Child Grooming crosses borders and that too is something that International Law enforcement is looking into addressing cooperatively.....

I'll post the article when I find it...it was very interesting because once Law Enforcement in terms of fraud, money laundering etc, takes an International 'NO TOLERANCE' approach, that should spread to E-Commerce in terms of accountability/liability etc....

It's the Civil law part of it, that you'd have buckley's trying to make uniform.....Criminal Law is a different kettle of fish though.

[Philip.Cohen]

Countessa,

Stop seeing issues where there are effectively none.

Users would have previously agreed (as they have with credit card usage) that the bank (or credit card company) would have the power to arbitrate such matters and if necessary reverse such a payment, exactly the same power as they now have for a credit card reversal; that’s what they get their 3% credit-purchase commission for.

The complaints and fraud-dealing procedures would be exactly the same as they are for a credit card transaction—probably the same call centre, one where you can actually speak to someone without having to hang on all day! The individual banks don’t moderate the credit card system, they agree to their middleman, the credit card company, having the power to arbitrate between the participants, and that arbitration works perfectly well—even internationally, in my personal experience.

Obviously, there is some greater risk with shonky small-time individuals trying to abuse the PayPal-type system, particularly where there is no additional vetting of “merchants” as there is with credit card merchants, but just about anyone can get a merchant’s account if they are in any sort of business and are “known” by their banker. And the banks are still in a better position to offer this service because they “know” the participants better the PayPal ever can.

So, what’s the difference between a credit card transaction and a PayPal transaction? Nothing, except that the credit card transaction is based on a unique card number and the PayPal transaction is based on a unique email address.

Having said that, there still needs to be a differentiation between the credit-purchase transaction for which the bank takes a heavier commission (and accepts some responsibility for ensuring the veracity of the transaction) and the simple transfer of funds (ie, a debit card-type transaction) that attracts a lower commission fee and for which the bank accepts no further responsibility except for the transferring of the funds.

Don’t worry about “treaties”, the international banking community will sort it all out so that the system works as smoothly as possible and they can maximize their profits—as they have done with international usage of credit cards.

Again, It all comes back to the fact that your bank knows you; PayPal does not, and because they are not your banker, never can know you.

We don’t really have any problem with civil laws; in Western countries they are mostly based on the logic of the English common law system, and such law is practically universal; even where statute law is involved such basic matters as the law of contract and of fraud are usually not dissimilar.   

[Roo]

I've been thinking....

What is to stop the banks from actually refusing to deal with anything to do with Paypal?

Could they argue that it is an unsafe payment method because of all the fraud that happens there?

They can refuse to deal with bartering systems....so why not a system that, as was pointed out earlier today in another thread I think, an organization that is nothing more than a parasite feeding off the banks.

If they timed it right....they could cripple Paypal....then roll out their own version of a similar product.

Could that be interpreted as 'unfair trading'?

[tellomon]

Not at all.

It's called "Busting PayPal's Chops"!

Amen.

[*Brum6y*]

Nice idea in one way, Roo, but whilst Paypal have huge dollars under their control, there will always be a bank that will be happy to oblige them.

No prizes for guessing why.

As for the idea: "they could cripple Paypal....then roll out their own version of a similar product." - I would say that the question of ethical conduct might come into it, depending on how such a move was implemented... but you could bet your boots that Paypal would be slowing up funds to build the coffers of the 'war chest' to back the litigation they would most certainly bring to the courts!  Lots of kicking and screaming - you could count on it - in the nicest possible way, of course.  Just watch your back.

I think natural competition would be much safer - and, oh, so poetic.