Some folks on this thread have suggested that you open your own merchant account. FWIW, you're likely to face the same problems with that route if the underwriting department takes a good look at your business model. If you're selling "experiences", it's too hard to demonstrate whether your clients did or did not receive the alleged service. You're likely going to open yourself up to a huge risk of chargebacks -- remember, you're now vouching for the performance of each and every one of your "experience vendors". A chargeback rate of just a few percent would eat up all of your profits, and get your merchant account canceled to boot.
It would also be incredibly easy for me to launder money or commit fraud with your system -- I could just set up a fake experience, like navel gazing, at $100 per, and buy up unlimited sessions with stolen credit cards, or give myself a massive cash advance at purchase interest rates, with a small mark-up. Maybe I'm missing it, but if your system doesn't include some way to reserve the time for the "experience", then there's really no way to ensure that your vendors are not double- or triple-booking their time.
To summarize, the financial risks of your business model run far beyond PayPal. If you can come up with ways to hedge against these risks, you might even be able to convince PayPal to take you on (though I wouldn't count on it).
Hmm, this isn't a "Paypal horror story". This is a case of Paypal getting around to due diligence on a new customer and realising that they are not in line with the terms and conditions.
You are accepting payments on behalf of other merchants (those offering travel experiences) and that brings risk. Unfortunately this is not an issue limited only to Paypal, many other payment operators will reject you for the same reason; the fraud liability is just all over the place with such systems and they won't want to take the risk.
It sucks, but there you go.
If you are really looking at 10's of Millions in revenue over the next few years.... go to your bank and work something out with them, although it might be initially expensive while the offset the risk.
I know there are plenty of legitimate PayPal horror stories, but this I’m not sure this quite qualifies. The first parts of the story are vanilla PayPal evil, sure.
But at the end, PayPal accuses them of offering an aggregation service. They say they are building a “a global marketplace” that “enables a brand new community of merchants and transactions”. There is not a lot of detail, but it sounds like they are taking money from customers and paying it to sellers, which sounds like an aggregation service to me.
They compare themselves to Etsy. But Etsy doesn’t accept PayPal payments themselves. You pay to the seller’s PayPal account.
There may be something I’m missing—it’s not entirely clear, so maybe they do in fact operate more like Etsy—but from the account provided it seems like PayPal has a case.
You make a good point, I'd agree that this would seem to align with what PayPal is alleging in their letter.
However, it does also seem that Airbnb, which they mention as a comparison, is doing the same thing -- Airbnb is serving as an aggregator for its individual lodging vendors, and THEY offer PayPal as an option ...
Any Airbnb folks still here on HN who could explain if they've gotten around this particular hurdle with PayPal?
In the article, Paypal's letter doesn't say you're not allowed to be an aggregator, just that you're not allowed to be an aggregator that lets merchants get around Paypal's acceptable use rules. Maybe Airbnb has assured Paypal that it does not let merchants circumvent these rules.
Airbnb allows only one kind of "merchant"---the type who wants to offer living space for you.
This product on the other hand lets anyone offer "experiences". To put it lightly, you could have someone offer the "experience of sex" (illegal) or the "experience of touring the porn studios of the San Fernando Valley" (legal but against Paypal AUP).
So, it's not just because they're worried about what you sell, you're not allowed to process payments on behalf of others at all ... which makes the whole Airbnb-PayPal thing that much more interesting.
I've stopped being surprised at this genre of story showing up - on HN or elsewhere. This story basically serves to illustrate a couple of things about Paypal that are definitely salient, but haven't changed in years.
* Banks are still shitty and unwilling to actually compete, so Paypal has its market all to itself.
* Because Paypal does not fear disruption or competition, it is not worth their time to invest in good customer service. They know you're stuck.
This is pretty much the same as the stories about trying to get customer service from Google. There are no effective competitors - so, their accountants and shareholders say, who the fuck cares if customers complain? What are they going to do, go to someone else? Doing so would harm the customers more than it would harm the company that they are abandoning.
I use the phrase "not worth their time" even though it implies things about the employees of the company which are not true - I use it because it is true of the company itself as an entity. It's a corporation - it's a sociopath. So it is basically incapable of providing good customer service as long as the return on investment of good customer service is negative, epsilon, or invisible. The employees, as people, probably do want to provide good customer service! But when it comes down to the human, humane desires of a corporation's employees conflicting with the sociopathic requirements of the corporation itself, we only need a brief look at the history of commerce in America. Put your money on the corporation's interests winning every time.
PayPal (and Google) will keep giving customers the finger until the thought of customers leaving actually scares them.
I've been through the PayPal wringer (account frozen, then limited) and actually found the customer service to be stellar. I had a dedicated case agent who gave me his direct line, and he was always available and always polite.
There's a lot to hate about PayPal, but my impression is they have put quite a lot of effort into customer service.
The employees, as people, probably do want to provide good customer service!
There are other good points in this thread about PayPal's risk mitigation model. I think that this basically deepens the parallel to Google. When the service works, it's genuinely great - that's part of why they're such a dominant force. The problem is that when it breaks, generally it breaks in horrid ways. People like the HN crowd, who are strongly disposed towards trying to do new things that previous models may not account for, are the most likely to find cases where the system breaks, and to suffer the effects of the breakage.
For what it's worth, travel is a high-risk vertical and you're going to draw the evil eye from any competent operator if that is your focus. See also selling high end electronics or jewelry, among many other seedier business types.
Also FWIW: Paypal has processed close to 100k for me without complaint, and their review of my business for getting a merchant account was quick, professional, and successful. (Partly because I knew to avoid risk-adding activities like accepting yearly payments with a new business. Don't do that. Don't do aggregation. Don't do anything which envisions customers routinely receiving chargebacks or refunds.)
Sadly, for what you want to do, you essentially need to be a merchant bank yourself. Your business model seems to involve collecting payments on behalf of other people. Most merchant agreements from ANY bank or service provider would prohibit this activity.
Without the correct processes and procedures in place you open yourself up to issues involving money laundering and tax fraud. To do this right you need to spend the money on the identity, security and conflict resolution processes and procedures to ensure you mitigate this risk. The costs of real merchant services will pale in comparison to what you will spend on these issues.
> PayPal doesn’t want their cut of tens of millions of dollars of revenue we project in the next two years. Any idea of who does?
Get a real merchant account and a payment gateway. I recommend Authorize.NET. Get it from one of the re-sellers, it's cheaper than getting it directly from them. There are no shortcuts: you have to compare different vendors, do your research on what all the fees mean and who offers the best value. You CAN negotiate.
The provision forbidding accepting payments on behalf of others is going to appear in the merchant agreement everywhere you look. It's standard. It's not a PayPal thing.
This is still not really a good option. Have you looked at the contracts and requirements on payment processors? The options suck. Credit cards are a bad, bad system for merchants because the banks totally have everyone by the balls and in typical bank fashion they are not afraid to put the squeeze on.
I hope one day someone comes up with a real electronic payment method. Bitcoins are currently our best hope, but they're not a very good hope.
helpful plug-
Check out http://FeeFighters.com. We compare the different processors for you and cut the BS fees and there are NO contracts/cancellation fees (we started out as a blog to help merchants understand how to not get ripped off). Like zavulon says, auth.net is a highly recommended gateway (and works with nearly all processors)
I have less than no sympathy for businesses with Paypal horror stories at this point. Paypal's reputation is very well known, especially in startup circles, and there are a ton of other services available that will handle payments for startups. There have been several HN threads about them, and it's not too hard to find those on searchyc.com.
If you're starting a business, and you're relying on Paypal to do it, then you're foolishly adding totally unnecessary risk to your business.
Unfortunately, most of these payment handlers only allow US companies to use their services. I'm in Canada, and I've been trying to find said services, and every one that I've found using searchyc only accepts US companies. Some of them say that international services is "in the works" or "available sometime in the future", but business cannot wait.
parent is right.. you might have to use a less agile or easy to integrate solution, but many countries should have standard bank-level methods for allowing you to accept online payments, some way or another
Those threads are mostly full of recommendations that don't make sense. There'll be a couple actual recommendations of merchant account providers, which will have the exact same policies for reviewing accounts, freezing them if there's any red flags, holding funds for the exact same 6 month period, and forbidding factoring as PayPal cited in this case. The other recommendations will be for payment gateways (which do nothing without a merchant account) and some people throwing out names of the hot new subscriptions-as-a-service providers (Recurly, Chargify, etc) which again do nothing without a merchant account and have nothing to do with their policies.
Well said - I completely agree. Anytime I am speaking to a web development customer that wants to accept payments online, I give them the usual rant about the dangers of PayPal. It seems cheap and simple, but what's the different if they can freeze your account and leave your funds unavailable for your business? There's a cool start-up at Duke University that is developing a new way to make payments without cash that could evolve into a powerful payment system: https://www.facebook.com/NoochMoney
Paypal is a classic example of a fossilized bureaucracy:
1) The departments within Paypal are unable to share information, alert each other of status, or become aware of what they are each doing. The first clue that this is happening inside an organization is the requirement to submit (or resubmit) the same information multiple times.
2) Complete inflexibility. If you don't fit a pigeonhole profile of previously defined customer models exactly you can't use the service.
3) No humans. There were people once. There aren't anymore. The people you talk to on the phone seem human, but they are actually part of the machine's broken user interface. They can no more influence what goes on inside the machine than you can. They can't tell you why your account was frozen because literally nobody anywhere actually knows.
4) Insistence that you are wrong (or a criminal in this case). The customer is always wrong. Enough said.
Add to all this a moral hazard so large it almost completely guarantees it will never be fixed: when the system breaks, they just keep the money, and you're got a perfect recipe for perpetual fail.
The most valuable part of Paypal is the systems and strategies they've invented for risk mitigation and fraud prevention.
Before they developed those systems, online payment aggregators were a nonviable business.
Many people in the late 90's and early 00's felt that it was a failed experiment and that the risks were just too high. This after a long list of failed startups and failed infinitives at existing banks.
Yes, it can seem very obtuse. But they are in a risky business. Without their anti-abuse measures (which every other merchant aggregator has cloned to some extent), this niche would not exist. You would have to get your own merchant account if you wanted to sell online.
Why doesn't some start-up address this head-on? Providing a payment provider solution to selected customers, ones that have been carefully screened but are treated well after the initial investigation so long as they behave, would surely help out a lot of start-ups.
Maybe it's more trouble than it's worth, though, but I just want to believe!
I've been resisting the urge to market my startup as a PayPal alternative, because we're really focused on payments for in-person retail sales (largely to avoid competing with PayPal), but this is probably the fifth or sixth PayPal-froze-my-account posting I've seen on Hacker News and they all seem to garner enormous amounts of sympathy from readers. We've also built all of the infrastructure you'd need to do internet payments. As an aside, my non-profit's account was frozen once but I got it unfrozen in fairly short order, and at worst it was a minor annoyance. I gather that people have had much worse experiences, however. So that leads me to wonder:
- Would people really consider signing up for a payment startup's services they'd never heard of? Everyone complains about PayPal, and I'd argue rightly so, but at the same time everyone is also quick to say that they don't trust a company they don't know with their information.
- What's the most important service that PayPal offers that people are looking for? Just plain, vanilla, pay-me-through-my-web-site? Something else?
- Are these accounts that are routinely frozen related to international transactions somehow? Because we can't do business internationally and most payment startups can't. The regulatory and risk barriers are serious.
If there's a market for U.S.-based services that we can offer, maybe it's time to think more seriously about starting to compete.
The most important service: instant money transfer (mostly) irrespective of physical location.
I had one use-case this week where paypal would not work. I needed to withdraw the amount I was to be paid by my client and paypal has a $400/day ATM limit. So I asked the client to see if he can pay directly to my bank.
The obvious solution is wire. Of course, my client happens to be in a state that didn't have his business bank so wire was a no go. You have to visit a bank to wire.
In order for him to send me money he had to write a check from his business account to his personal BOA account, then withdraw from his BOA account and then run to a Wachovia and deposit into my wachovia account--all before 2pm cuz' after that the funds wouldn't be available until the next day for me.
After I got the money, I was to deposit it into a friend's account. I couldn't do it online through my bank's interface even though we share the same bank. I ran few blocks to Wells Fargo to withdraw cash I just received from my client and transfer to my buddy.
My story is probably one of the extreme cases in terms of urgency but it does point out all the hoops you have to jump to do a simple bank-to-bank money transfer just within the US.
American banks are really terrible with this, and I just don't understand why.
I live in Sweden, but I get paid for work I do for a U.S. company. Both my employer and I have Bank of America accounts in the states, and my employer sending a wire to my BoA account takes longer to process than me sending a wire from my BoA account to my Swedish bank.
So it takes longer to send a wire WITHIN THE SAME BANK thank it does to send internationally halfway around the globe. There's really something truly deeply wrong with U.S. banking.
Meanwhile, here in Sweden, cheques don't exist and everyone uses wire transfers to pay each other, pay rent etc. They're always free, can be done online, take seconds within the same bank, and half a business day between banks. And this system has been in place for literally decades.
The reason that paypal stays in business is not because they provide really great consumer support. The reason is that no one can operate at the scale they do and handle fraud at the level they can (and as you mentioned, international payments are extremely difficult). WePay may be a contender soon, but they aren't yet. There is really no easy way to do personal transactions, and certainly not at scale. This isn't a fight consumer support and a great product can win alone, you'd need serious talent and infrastructure both technology and business wise.
In terms of web startups, what PayPal offers over most other services is simple: let the user directly enter a credit card number to pay you some money - without the user having a PayPal account. There are lots of options for payments such as Google, Amazon and others but they all require the payer to have an account. PayPal doesn't - you effectively get credit-card processing with no setup and no hassles for absolutely nothing (apart from transaction fees). Compared to getting a merchant account etc, it's child's play. Of course, the "hassles" part turns out to be not so great once they suspend your account.
I think the only way to get around the awfulness of the payment systems is to break completely from the extant banking system and to find a way to define yourself outside of the normal regulatory definition. It's just too restrictive to allow us to do anything we want if you have to work with VISA or MC or even just follow the normal legal procedures necessary for a bank. Really there's no reason transferring money shouldn't be super easy and simple, and cost barely anything, except that banks like money and they like using regulation to stop new competition and innovation.
If anyone thinks they can set up online payment processing system that accepts payments from credit cards, debit cards, echecks, and direct debit transfers worldwide easier and with less hassle than paypal then they should do that. As it happens there are some very real niches where paypal has almost no significant competition.
I'm almost falling of my chair laughing (I do feel bad about this), but we've had so many similar issues with PayPal it is just crazy to think they once were the small guys fighting the establishment.
What you are trying to do is indeed very likely against their TOS, but the whole process is just appalling. I highly recommend looking at WePay. They might be a much better fit for you anyway (not just credit card payments, but also very low cost bank transfers).
Try to get a regular merchant account, but if I understand your business model you'll likely be rejected, or face unrealistic high fees. Maybe when you can show them some transaction history you'll have more luck.
I cash several tens of thousands Euro every year in Paypal, since 2003 I guess.
I have legitimate business in Germany and the money is deposits for apartments reservations.
I have never done anything illegal, never had a dispute with a customer, never, ever created a problem for them.
Nevertheless they freeze my account once every 2 months.
They ask me a few papers, I send thema and if I'm lucky in a few days it's restored.
If I am not lucky it goes one one month.
I would have many nice stories to say, this is the last one:
since I log in often from many different countries (since 2003), they block my account.
So I asked them to write down somewhere that I travel a lot and give me a break.
They told me this is not possible and I should use only my iPad to login, not a computer.
if you travel internationally, always log in to a VPN that makes you appear to come from your home country before logging in to paypal. Preferably a VPN hosted on your own infrastructure that makes you look like you are logging in from the same ISP you always log in from.
The only time my paypal has ever been frozen it was because someone who worked for me logged in from Vietnam. I set them up with a VPN, and never had problems again.
I'm confused. PayPal offers a 3-party payment product, where you can accept a payment and split the proceeds between yourself and another seller. They call it "chained" payments.
Wow, incredibly timely- this is EXACTLY what we've been going through for the last two weeks. EXACTLY.
The problem with PayPal is that there is absolutely "0" real customer support. We were labeled as a "money transfer service"- even though that's not our business- and had our acct suspended. Our site isn't public yet, we were just testing live payments as opposed to the already completed sandbox tests. We thought we'd be ok since we modeled our pay structure similar to a few others we had seen.
When you call PayPal, you get a nice enough customer service rep- friendly but really doesn't know anything. They put a "note" on our acct to have someone higher up call us back...and that's when the real fun begins.
If you're lucky enough to have the rep call you (we're like 2/7), you can get some limited info. If you miss the call, or have an additional question after the fact, you have to go through the first level of general cust. service and hope that someone will call you back. No left messages, no other phone number you can call, definitely no dedicated rep. it's taking weeks out of our production dev time.
What makes this mockery of service so severe is that our business depends on buyers paying sellers. We got a form email letting us know of our general "violation", but no specifics. It's up to us to interpret what exactly violates their policies. Thanks to this article, and everyone's comments, I do understand some areas where we possibly made an error- which I take responsibility for- but without a definite response we won't know if we accidentally violate it again when we spend more to retool our system.
I have heard enough horror stories about Paypal from others, and had enough hassle from them myself, that I never use them whenever there is another payment option.
How easy would it be to set up an online transaction site that was actually easy and hassle-free to use? One where:
(a) costs of transferring money to another account are low, and similar to the cost of performing the transaction, not the 3-5% of transaction that Paypal and credit cards charge. The only thing that might be expensive is getting money in and out of the site, because you'd have to go through the traditional banking industry.
(b) where there is no distinction between merchant accounts and other accounts. Why should there be? All accounts should be able to send and receive money.
(c) the site started off with some ways you could spend/get money, e.g. something like flickr, adsense/adwords, and web hosting.
(d) there would be no credit protection; if Alice give money to Bob and then isn't satisfied with the goods the she received from Bob, she should take it up with him not with the transaction service.
(e) the service would have apis that made it easy for other companies to build services around.
I'm assuming it would be difficult to impossible due to banking laws -- does anyone know better?
I don't even need to make any transfers. Log in with account A, log out, log in with account B (same browser, without clearing paypal cookies) - accounts A and B locked.
Take the same approach as grubwith.us and groupon did, avoid the PayPal risk.
However, if you believe there's a significant advantage of having PayPal (doubt it), then you may want to consider setting up an eBay store and handle all payments for reservations through BINs on ebay pages... vayable.com would then become a "wrapper" around your ebay store. Additionally if you get significant traction, you may get $10-40 for every person who registers with ebay through your links.
The intermediary has little control over the quality and delivery of the product being sold, and must be trusted to pay the third party. The risk of chargebacks and fraud is higher thus PayPal cannot afford to underwrite the transactions.
My dad had a small eBay business several years ago and his account was frozen for some very illegitimate reasons. I was too young to really understand then, but in light of this and several other similar cases I've read about online, I'd stay away from PayPal.
With all these Paypal horror stories(this one you could see Paypal's side at least) of inflexible bureaucracy, what I find most ironic is that it was started with highly idealistic libertarian aspirations in mind.
Somewhere along the way something important was lost.
I also find the fact that the official email from PayPal is just signed "Julie" with no surname and just comes from a generic sink account, thus eliminating any chance of actually following up the problem with a human being rather annoying.
It would also be incredibly easy for me to launder money or commit fraud with your system -- I could just set up a fake experience, like navel gazing, at $100 per, and buy up unlimited sessions with stolen credit cards, or give myself a massive cash advance at purchase interest rates, with a small mark-up. Maybe I'm missing it, but if your system doesn't include some way to reserve the time for the "experience", then there's really no way to ensure that your vendors are not double- or triple-booking their time.
To summarize, the financial risks of your business model run far beyond PayPal. If you can come up with ways to hedge against these risks, you might even be able to convince PayPal to take you on (though I wouldn't count on it).