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Comment by ck2 | Hacker News Reader

There are precious few "victory" stories over PayPal.

Unlike a credit card company, if they feel they might have to dip even 1 cent into their own profits to deal with a bad transaction, they will immediately kill an account, no matter how large or how old.

I simply do not understand why there are not more competitors to PayPal - don't these corporations see the billions PayPal has made (THREE BILLION profit per YEAR) and how they get to skirt all the rules and regulations that banks have to follow? Why not jump onboard and give consumers some choices?

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> I simply do not understand why there are not more competitors to PayPal

If you read the excellent interview with Max Levchin in Founders at Work, he alludes to the fact that PayPal is really just a state-of-the-art, best-in-class fraud detection system with a payment frontend. He also says that Banks are more conservative than PayPal - in that they can't go after a business model where there is going to be fraud - and the game is to minimize the losses.

He forgot to mention it has an extremely large number of false positives using that system. The reason it might work is because they take/freeze money from innocent customers. The amount of horror stories about Paypal significantly outnumber the horror stories about regular banks or credit card companies.

The amount of horror stories about Paypal significantly outnumber the horror stories about regular banks or credit card companies.

I surmise this is because you're a techy and you talk to people who run businesses online on a regular basis. If you spent a lot of time on, e.g., credit card discussion boards (they exist), or spoke to "regular people" about their payment issues on a regular basis, I suspect you would come to the opposite conclusion in a hurry.

Paypal is not a scam which achieves profitability by freezing accounts. That is crazy talk.

You are right I'm a techy, I talk to people who run online businesses, they use PayPal and other methods. PayPal is by far the biggest problem when it comes to payment solutions. Also I'm from Europe, which means I talk to people who use the common solutions in Europe to deal with payments, which is direct bank transfers or an online alternative provided by banks (such as iDeal in Holland). While our banks don't require as much documentation as PayPal sometimes requires, you also don't have to threaten them with lawsuits to get your money (I've seen that happen). They even have an chief escalation officer who jumps in in case clients threaten them with lawsuits.

PayPal doesn't have the right to just freeze money for periods of 180 days without providing sufficient methods for their customers to quickly resolve the issues. 180 days for freezing all money for one suspicious transaction is absolutely ridiculous. I don't claim PayPal achieves profitability by freezing accounts, I do claim they regularly screw their own customers with questionable account balance freezes.

Banks in Europe are tightly controlled. You have no idea what it's like in the US.

Imagine a system where…

1. You pay a 20% fee to withdraw money from an ATM that doesn't belong to your bank.

2. The bank puts thru a charge they shouldn't, you run out of cash, and you get whacked with a $35 fee.

3. The bank charges you a monthly fee after that - another $35 fee.

4. The bank shuts off your card because you're in another city, meanwhile you're lost in the dark, and alone, and out of money, and can't get a cab.

And on and on and on…

Not to mention outright defrauding.

The biggest problem with the North American banking system is the reliance on the antiquated cheque system. In the EU I can send money to any other EU bank account quickly with little or no fee. You can pay bills and send money - and no need for an intermediatary like paypal. The inherently insecure concept of letting others pull money out of your account don't exist. Pushing money also reduces the whole range of service fees relating to bounced cheques and insufficient funds.

1. It's a 20% fee when you request $10, or a 2% fee if you request $100.

2. Overdraft fees are disallowed by law and are opt-in now.

4. Also, it's not typically the banks that cancel cards, it's the processing network that does.

Most problems people have with banks are user-error, plain and simple. When you misuse a computer program, you waste time. When you misuse a bank, they charge you money.

re #2: Overdraft fees are only opt-in for certain classes of transactions, namely ATM and non-recurring debit transactions.

Checks, ACH transfers, and recurring debit transactions can still generate overdraft fees without an opt-in consent.

re #4: The networks pulls the trigger, but the standing orders come from the issuing institutions. Fraud detection is often used as a differentiation feature by the networks to attract bank customers, the networks themselves don't have a direct incentive to prevent fraudulent transactions beyond this: they don't stand to take a loss.

The most I paid was $6.50 to withdraw - $2 on my bank's end and $4.50 on the end of the usurious ATM.

That kind of thing is illegal in other countries.

Even a 2% fee is usurious. That right there sucks up any potential interest gain you'd ever have.

In Austria, all ATMs are free, on both ends.

It's not crazy talk. I had a terrible experience with PayPal six months ago. I didn't believe all the horror stories and opened an account with them. They decided there was a problem and froze my account - but they neglected to tell me and continued accepting deposits, the freeze only applied to withdrawals. It was extremely difficult to recover my money.

The point is, there are no rules, there is no transparency. Their decisions are entirely arbitrary and you are at their mercy. Never again.

Paypal is not a scam which achieves profitability by freezing accounts. That is crazy talk.

I don't know that Paypal ever achieved profitability. They raised a whole lot of capital, and then when it looked like they might fold, eBay stepped in to make sure they didn't. Paypal's lack of profitability was legendary when I was in online payments, since they were the Microsoft of the industry.

They have achieved profitability, in dump truck loads. In the beginning, they didn't take any fees and so were burning through cash at a terrific rate, now it's around 3%, which is well above the CC processing fees for them, and miles higher than the bank ACH fees on those transactions.

This is probably only because the bank horror stories are (mainly) small: a late fee here, an overdraft fee or two or three there, a bumped up credit card interest rate, etc. The banks probably do as much per customer as PayPal, but they spread the pain out, so it isn't quite as noticeable.

Yeah that probably explain why their customer service is horrible, they see it as an afterthought. I don't have an issue with them trying to kill fraud but there needs to be better communication between Paypal and it's business customers.

I wouldn't be surprised if at one point the government come in and tries to apply credit card regulation to them if thats not already the case.

Paypal is already a bank in the EU.

http://en.wikipedia.org/wiki/PayPal#Bank_status

Paypal has roughly 8000 employees of which 7500 work in fraud and customer services none of which is outsourced. It's not that they are not taking it seriously..

Their customer support tends to be really good in my experience, don't base too much on the one in a million horror stories that make it to this site.

> one in a million horror stories

Even if the stats are really that low ... why does that horror story have to exist? Why can't they be fair to everybody?

law of large numbers. At 100 million customers, just about any conceivable thing that can happen will happen.

"He also says that Banks are more conservative than PayPal - in that they can't go after a business model where there is going to be fraud - and the game is to minimize the losses."

It seems to me that deal with fraud is an important part of any bank's business.

From the interview:

"We started with this, 'Fraud is going to kill us. What can we do to save ourselves?' They started from, 'We have no fraud. How can we build this and not let any fraud in'

He also goes says something about how in the Internet world it is very hard to verify someone - the more information you get to verify (e.g. PayPal verified account) - the more 'safe' user you are. And something about how the Banks couldn't do this (virtual transactions) because most of them were public companies and couldn't hide $10m/month in fraud losses (what PayPal was losing a month to fraud at that critical point) and not spook their institutional investors.

Are you familiar with epassporte?

https://www.epassporte.com/

One of the reasons why newcomers have relatively little chance is because credit card companies hate start-ups that do wallet systems.

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