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.
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.
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 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.
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.
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.
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.
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.
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.
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.
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.
Even if the stats are really that low ... why does that horror story have to exist? Why can't they be fair to everybody?
It seems to me that deal with fraud is an important part of any bank's business.
"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.