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PayPal

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PayPal is an Internet business which allows the transfer of money between email users and merchants, avoiding traditional paper methods such as checks/cheques and money orders. PayPal also performs payment processing for e-commerce vendors, auction sites, and other corporate users, for which they charge a fee. Corporate headquarters are in San Jose, California; it is now an eBay company.

Accounts

To have a PayPal account, the user must have a debit/credit card and must be 16 or over. However, if you want to use the bank account system you must be over the age of 18. Previously to have a PayPal account you had to be 18, however in November 2005 due to growing demand the age limit was lowered.

History

Beginnings

PayPal was founded in December of 1998 by Peter Thiel and Max Levchin. One of its first premises was the 165 University Avenue office in Palo Alto, California, home of a number of other noted Silicon Valley startups. On the business side, many of its initial recruits were alumni of The Stanford Review, which was also founded by Peter Thiel. Most of the early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. In its initial incarnation, PayPal was a service for users to send money via PDAs, with actor James Doohan, Star Trek's "Scotty," as its spokesman. The PDA software was later discarded in favor of a web-based system that became popular with eBay's millions of buyers and sellers. Coupled with aggressive marketing campaigns offering $10 (and later $5) for new users to sign up, the firm grew at a meteoric rate of 7–10 percent per day between January and March 2000.

Unknown to many people is the fact that PayPal is one of the few Internet companies which has a single letter domain name, (http://www.x.com) in use. As of June 2006, this URL still resolves to the PayPal home page. This domain name was associated with PayPal in early 2000, when X.com acquired Confinity, the parent company of PayPal. [1] After the acquisition, the leads of X.com ran PayPal before being ousted by both companies' investors. During this time PayPal attempted to port their service from UNIX to Windows NT, which was later scrapped when Peter Thiel was reinstated as company head.

Though growing rapidly, PayPal was losing $10 million a month and was fraught with internal turmoil that led to three CEO changes in its first year of operations. Foreign organized crime rings found ways to steal millions from the young company by automatically registering accounts using stolen identities. To block automated systems from using this form of fraud, PayPal devised a system (see Captcha) of making the user enter numbers from a blurry picture; according to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented the system now in common use.

eBay saw the rise of online payments and how they would be an essential match with online auctions. Rather than work with PayPal, eBay purchased a competing payment service named Billpoint to compete with PayPal. Although eBay made Billpoint the official payment system of eBay, dubbing it "eBay Payments", eBay crippled the functionality of Billpoint by limiting it to only payments made for eBay auctions. PayPal was listed in several times more auctions than Billpoint. In February of 2000 there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint (in beta) had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks — an accomplishment that ironically backfired when PayPal's new high profile status helped prompt a slew of class action lawsuits and regulatory probes, including one by NY Attorney General Eliot Spitzer.

Near the time when PayPal went public (first quarter 2002), it filed an anti-competition complaint against eBay on the grounds of using its auction venue to attempt to force PayPal off its site. The company eventually reconciled with its former rival, eBay. [2] [3]

Acquisition by eBay

In October 2002 PayPal was acquired by eBay. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint. eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. PayPal’s major competitors have phased out, most recently Western Union’s BidPay closed in December 2005, Citibank’s c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004.

In Q1 2006, the total value of transactions through the PayPal system was $8.8 billion, up 41% year over year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.

In 2005 the total payment value on PayPal was 27.5 billion dollars according to the corporate presentations on Ebay's website.

Today

As of the end of Q1 2006, PayPal operates in 55 markets (including China) and it manages over 105 million accounts. Every second PayPal processes an average of $1,128 in total payment volume. PayPal supports payments in U.S. Dollars, Canadian Dollars, Australian Dollars, Euros, Pounds Sterling and Japanese Yen.

PayPal operates locally in 13 countries.

In China, PayPal offers two kinds of accounts[4]:

  • PayPal.com accounts, for sending and receiving money to/from other PayPal.com accounts. All non-Chinese accounts are PayPal.com accounts, so these accounts may be used to send money internationally.
  • PayPal.com.cn accounts, for sending and receiving money to/from other PayPal.com.cn accounts.

It is impossible to send money between PayPal.com.cn accounts and PayPal.com accounts, so PayPal.com.cn accounts are effectively unable to make international payments. For PayPal.com.cn, the only supported currency is the Renminbi (RMB, ISO: CNY), whereas for PayPal.com accounts the only supported currencies are USD, CAD, AUD, EUR, GBP and JPY.

PayPal’s operation center is located near Omaha, Nebraska and PayPal’s international headquarters is located in Dublin, Ireland.

Continuously recognized for its innovation, PayPal has received more than 20 awards for technical excellence from the Internet industry and the business community at large, most recently the 2005 Webby People’s Voice Award for the Best Financial Services Site and the Electronic Payments International Award for Best Non-Card Payment Product 2005.

Bank status

PayPal’s service builds on the existing financial infrastructure of bank accounts and credit cards and uses one of the world’s most advanced proprietary fraud prevention systems.

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. Although PayPal is not a bank, the company is still subject to and adheres to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA Patriot Act.

Safety

PayPal's business model involves providing safety to buyers and merchants/sellers. Buyers are protected by the PayPal Buyer Protection Policy, they may appeal if they did not receive an item or if the item they purchased was not as described by filing a claim. If the buyer used a credit card, they might get a refund via chargeback from their credit card company.

PayPal protects sellers in a limited fashion via the Seller Protection Policy. In general the Seller Protection Policy is intended to protect the seller from chargebacks or buybacks but it is subject to various terms. PayPal states the Seller Protection Policy is "designed to protect sellers against claims by buyers of unauthorised payments and against claims of non-receipt of any merchandise". This policy should be read carefully before assuming protection. In particular the Seller Protection Policy includes a list of "Exclusions" which itself includes "Intangible goods", "Claims for receipt of goods 'not as described'" and "Total reversals over the annual limit". There are also other restrictions in terms of the sale itself, the payment method and the destination country the item is shipped to (simply having a tracking mechanism is not sufficient to guarantee the Seller Protection Policy is in effect).

Sandbox

PayPal's live site can be used for testing basic PayPal integrations such as a PayPal Buy Now button. Making a $0.01 payment from another PayPal account and then refunding that payment is an easy way to test your button and may suffice for small projects.

Developers implementing larger PayPal projects, however, will likely want to avoid using real money. PayPal has a "sandbox" version of its website geared towards such developers. Though very useful, the sandbox requires a lot of effort to configure and may not be appropriate for faint of heart.

For more details, visit PayPal Sandbox.

Criticism

The Paypal site doesn't answer basic questions like what it costs and how money is to be transferred to them, and questions can only be asked by people who already have an account, which begs the question.

PayPal has received criticism over the terms of its User Agreement for limiting account access and access to funds. According to the agreement, users give PayPal the power to limit access to funds in the account for 180 days. Banks and financial institutions provide chargeback rights for a specified period of time that vary depending on the financial institution. Account limitation prevents the movement of funds until discrepancies or terms of the limitation are resolved.

In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California law. Most of the allegations concerned PayPal's dispute resolution procedures. The two lawsuits were merged into one class action lawsuit (In re PayPal litigation). An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices (including changing its dispute resolution procedures to make them EFTA-compliant), as well as making a $9.25 million USD payment to members of the class. PayPal denies any wrongdoing.

PayPal's Seller Protection policies do not cover intangible goods or goods that are "not as described". Many scammers have used this lack of policy to their advantage. They will buy a product and pay for it via PayPal. When the product is received, they will dispute the charge as "not as described." This freezes the seller's account until the dispute is finalized. After this, the seller is left without his or her money and product. PayPal makes no attempt at making arrangements for the buyer to return the product.

Additionally the sellers who use credit cards can authorize a chargeback for the payment used to fund their PayPal account that went to purchase the service up to six months after the date of the charge. For PayPal merchants that provide monthly services, PayPal will collect some basic information to contest the charge on behalf of the merchant with the credit card issuer. But in real world experience, PayPal rarely if ever succeeds in getting the chargeback reversed because the credit card transaction was deemed a "card not present" transaction. Until January of 2005, PayPal protected its merchants by allowing them to prevent a transaction funded by a credit card to be accepted as a payment. Since PayPal removed this feature, fraud against its merchants has skyrocketed. Because PayPal's fees and volume increased when they removed this option, management doesn't care about their merchants' increased fraud rate, the cost of which falls entirely on the merchant.

PayPal does not allow people from certain countries to use its services, and in some occasions where it does, it only allows the participants to send and not receive. This has brought criticism from people from within these countries.[5]

Paypal's decision to allow online gaming companies in the European Union to use its services in early 2006 angered anti-gambling advocates in the U.S. Although the changes do not officially apply in the U.S., some are concerned that American gamblers may nonetheless be able to use Paypal's European servies to gamble online and evade American laws.

A credit card is required in order to spend the money in your Paypal account.

In the news

Startups by former employees

Former PayPal employees have started several high-profile companies

  • LinkedIn was started by Reid Hoffman, a former VP at PayPal.
  • Palantir Technologies was started by Nathan Gettings, who developed PayPal's anti-fraud models. Palantir received funding from Peter Thiel.
  • Slide was started by Max Levchin.
  • Yelp was started by Jeremy Stoppelmann, former VP of Engineering at PayPal, and Russ Simmons, one of the first employees at PayPal. Yelp is funded by Max Levchin.
  • YouTube was started by Chad Hurley, Steve Chen, and Jawed Karim, all of whom were early employees at PayPal. YouTube is funded by Sequoia Capital. Roelof Botha, the former CFO of PayPal, is a partner of Sequoia Capital who sits on YouTube's board of directors.
  • Room 9 Entertainment was started by David Sacks, who founded PayPal's Product Group and later served as Chief of Operations (COO).
  • SpaceX was started by Elon Musk, who founded X.com and served as the CEO following the acquisition of PayPal.

See also

Books

  • Shannon Sofield, Dave Nielsen & Dave Burchell (2004). PayPal Hacks: 100 Industrial-Strength Tips and Tools. O'Reilly. ISBN 0-596-00751-5. (Paperback, 368 pages) PayPal Hacks
  • Eric M. Jackson (2004). The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth. World Ahead Publishing. ISBN 0-974-67010-3. (Hardcover, 360 pages) The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth
  • Victoria Rosenborg (2005). PayPal for Dummies. Wiley. ISBN 0-7645-8392-1. (Paperback, 410 pages) PayPal for Dummies

Company Websites

Critical Sites

Other Resources

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