Why Isn't Paypal More Successful?

http://www.avc.com/a_vc/2009/05/why-isnt-paypal-more-successful.html

by terpua • 17 years ago

55 53 17 years ago

robg• 17 years ago

Because ebay bought it?

pmjordan• 17 years ago

This alone might not have caused it. (Skype did fine under eBay management, although I'm sure not to its full potential, as illustrated by recent events)

However, the eBay horror stories of people getting screwed over and the various facilities supposed to protect them failing miserably usually include PayPal in some way. PayPal has become known as the payment processor used on eBay, and not much else, and with eBay's reputation these days, that's not a good thing.

In fairness, the PayPal arm of the company seems to be just as much to blame for eBay's reputation as a scam haven as the rest of eBay.

It's kind of funny, PayPal was a buyout that had obvious strategic benefits for eBay's core business and has ended up as a disaster for PayPal. Buying Skype was a rather odd decision but didn't seem to prevent Skype from being a success.

obvioustroll2• 17 years ago

Indirectly, yes, I think that was a problem - by buying PayPal and closing their own payment service ("BillPoint"?) they ensured PayPal never had to worry about competition again.

weegee• 17 years ago

and not to mention completely blocking Google Payments from having any part in ebay auctions, and shutting down the excellent Western Union Auction Payments service, where the buyer pays the fee to send the payment, and ebay can't double dip in the fees (charging the seller a fee for the final value and then charging the seller a fee to receive payment through paypal).

ianbishop2• 17 years ago

I can think of a bunch of reasons:

* PayPal support leaves a lot to be desired. They lock accounts without reason and don't offer much support as to why.

* Transferring money from your bank to your PayPal account takes a long time. Even longer if you are not from the US.

* Many people have credit cards. Why add another middleman?

Less personal but relevant issues:

* PayPal makes you spend money that you HAVE. A credit card doesn't.

* Branding. Not everyone trusts companies with their credit card, why would they trust a company that has very little do with the process over one who is actually vending the item/service.

hellweaver666• 17 years ago

* PayPal makes you spend money that you HAVE. A credit card doesn't.

Not strictly true, you can register a credit card on your Paypal account and charge that each time you make a transaction if there are no funds in PayPal.

ajross• 17 years ago

Not true at all, in fact. Paypal has routinely refused, over several years of trying, to link to my bank account (a small "Internet Bank"). Credit card purchases are my only option, and they work instantly and without trouble. The occasional inbound money flow from an eBay sale or whatnot just becomes a credit on my next purchase.

As a customer, at this point I shop only at merchants where I already have a account memorized (which in practice means "amazon.com") or via Paypal or Google checkout payments, which I can also authenticate from memory. Everything else is just too much of a hassle.

I can see the seller-side complaints against Paypal as valid, I've just never experienced them myself. As a buyer, though, I completely sympathize with the linked blog. Paypal or something similar (Google checkout, Amazon affiliates) really should be more popular than it is.

TomOfTTB• 17 years ago

* PayPal support leaves a lot to be desired. They lock accounts without reason and don't offer much support as to why

I'm not sure this is what keeps people from using Paypal on the consumer side but from the vendor side I can attest to how damaging this can be. At my work we took PayPal for donations until one day a donor called and told us Paypal "wouldn't accept money" I looked into it and found they had, for whatever reason, decided we weren't a non-profit. They then locked the account with not so much as an e-mail to us.

There is pretty much no way to get an actual person at paypal so I had to upload scans of our proof and just wait for paypal to "review them." All in all it took 9 days to remedy the situation and who knows how much money we lost in the meantime.

Worse yet, I'm almost sure we lost a couple first time donors forever simply because seeing "This Paypal account has been locked" makes a company (us) look disreputable

omouse• 17 years ago

Transferring money from your bank to your PayPal account takes a long time

That's the banks' fault. They still take their sweet time clearing checks, and screw customers over in other ways so it's not surprising that it takes a long time to transfer cash from them

ianbishop2• 17 years ago

I don't know how true this is. I am in Canada, so I understand it likely isn't exactly the same.

PayPal says it should take 6-8 days for a money transfer. In my experience, I have found it takes 6-8 days before I see it withdrawn from my bank account. After that, it can be up to another 6-8 days to see it ever show up in my PayPal account.

randallsquared2• 17 years ago

But in the context of "why don't people use PayPal" it still looks like PayPal has a problem to the customer.

nradov• 17 years ago

Unless there is some unusual situation, check clearing doesn't take nearly that long. http://www.federalreserve.gov/paymentsystems/truncation/faqs...

froo• 17 years ago

PayPal support leaves a lot to be desired. They lock accounts without reason and don't offer much support as to why.

That's an understatement, I had my account locked (for no reason, it just randomly got locked one day) and spent about 45 minutes trying to get through the phone system (being hung up on by the phone system around 15-20 times, because it seemed at the time those options were unavailable).

It gets a little overblown when you start actually drawing tree maps to try and map out what options end up with hangups, what ends up with reroutes (and eventual hangups) and what gets you to speak to an operator, who redirects your call, which ended up in a hangup.

In the end, it took about an hour to sort through, but only about 5 minutes of talk time.

quoderat3• 17 years ago

Because they appear, from many people's perspectives, to be nothing but scam artists?

For instance, I auctioned off a motherboard on Ebay. The guy paid for it with Paypal. Sent off the motherboard. The guy refused delivery, and then accused me of not sending it.

Being a nice guy, as he actually didn't receive the motherboard, I refunded the guy his money.

Then he filed a complaint with Paypal for me not sending the motherboard. Paypal would not listen to my side of the story at all, even though I had proof of shipping and proof of his refusal of delivery.

So then Paypal gives him the money (from my account) for the cost of the motherboard. So the guy walks away with my $200, and Paypal doesn't care, and does nothing, and actively seems to want this to be the outcome. This wasn't bad customer service. This was company policy.

There's a reason this site exists, and why I tell everyone to never, ever use Paypal if they can help it:

http://www.paypalsucks.com/

axod• 17 years ago

I read somewhere that before acquisition, they were losing something like $1m/day in fraud? Wasn't it in founders at work?

That level of fraud and cases like the one you highlight seems like a really big problem that isn't easily solved.

zandorg• 17 years ago

Max Levchin in Cringely's interview series said calmly that they burned through $100 million TO (not incidental) solve the problem. Anyone who wants the same level of fraud protection is looking at a cost of $100 million. However, I think the credit card companies have shrunk down that barrier to entry by making their own anti-fraud systems.

DLWormwood• 17 years ago

The way this VC's own blog hints at how he may have overlooked PayPay's historically bad reputation. NoScript reports a total of FOURTEEN other websites embedding images, scripts and whatnot into his page; half of which are user trackers of some sort or another. In other words, this guy is socially promiscuous and hasn't had "his heart broken" yet with regards to being scammed or exploited online. (Or, if he has, he's not aware of it yet...)

fredwilson• 17 years ago

i've been scammed and exploited online. it's one of the hazards of being online. i run all these scripts because i want to try out a lot of new things. i am adding and taking off stuff all the time.

babul• 17 years ago

Totally agree and hence now avoid PayPal at all costs.

It seems they have this policy as it is cheaper to deal with an unhappy seller who has little/no protection legal or otherwise (especially if they have used thier PayPal balance for payment) and who will generally not chase them through the court system (in which case PayPal will argue it is a case between the buyer and seller, not PayPal and the seller), than an unhappy buyer who often has the backing of thier credit card company (or bank) to fight chargebacks on thier behalf and in most cases win.

As a vendor/retailer, especially if you have your own ecommerce store or sell high value items, be VERY wary of PayPal and only ever complete transactions if all buyer details match and protections are in place (buyers are verified and items sent only to card billing address).

Posted something similar a while back, http://news.ycombinator.com/item?id=361361, and it is sad to see little has changed.

jseliger• 17 years ago

Ditto. I just put up a variation on this response at the blog itself:

This is a great response and encapsulates many of the issues I have with PayPal. I would add to it that enough people have been burned by PayPal to give it a lousy reputation; you can't write a post about the company without people chiming in with horror stories. My family's business -- see www.seliger.com -- is the kind of company Paypal would presumably want to use their service, but after I had a bad experience with them, I never would.

The first comment on http://news.ycombinator.com/item?id=626518 Hacker News answers, "Because they appear, from many people's perspectives, to be nothing but scam artists?" With this kind of reputation, why _would_ people use Paypal.

rms• 17 years ago

If the guy refused delivery, wouldn't the motherboard have been returned to you?

quoderat3• 17 years ago

The motherboard was returned to me. That's why I refunded him his money.

But then, after he refused delivery, he claimed I'd never even sent the motherboard, and filed a claim with Paypal -- despite the fact that I had a tracking number, proof of it getting to his location, and then online indication that "recipient refused delivery" or whatever it said (don't recall exactly -- this was five years ago).

After that, he never responded to my emails, and just disappeared completely. He was obviously in it to scam someone -- likely many people -- and it worked quite nicely. Quite clever, actually.

rayvega• 17 years ago

Yet another reason to be cautious when using PayPal: http://news.ycombinator.com/item?id=611346

braindead_in• 17 years ago

I have heard one entrepreneur who runs 'company x' say that the day I hear about the site 'companyxsucks.com' I've made it!

CrLf• 17 years ago

I never used PayPal much, but I created an account to pay for a software subscription a couple of years back. A few months later I got an email from PayPal about an automatic renewal of that subscription that was failing because the associated credit card had expired.

Not only there was no indication that the payment would occur automatically, nor were there any way to cancel it. Absolutely unbelievable.

I immediately canceled my account and never used PayPal again.

sp332• 17 years ago

That sounds more like an issue with the software subscription being automatic, not some evilness on PayPal's part?

SteveC• 17 years ago

I use PayPal to sell subscriptions. If the card fails it will make two more attempts in three day intervals before cancelling the subscription. You should have been able to cancel any subscriptions when you log into PayPal. Your experience seems quite outside the norm.

T_S_• 17 years ago

Why is Paypal successful at all? It is really a pain to use, especially if you have a problem. If eBay and a few other sites didn't more or less force me to use it, I never would.

obvioustroll2• 17 years ago

Monopoly power - PayPal has no direct competition.

mikeryan2• 17 years ago

Google Checkout?

petercooper3• 17 years ago

I've been using PayPal for several transactions a month since 2002 with no problems. They did temporarily hold my account when I went over a certain limit, due to EU money laundering laws, but once I proved my ID, etc, it was back up and running.

It's quick, easy, convenient and they're the only company I'm aware of that makes it easy to pass money around from place to place internationally. (That is, there are many local services, but as a Brit who does 80%+ of billing in US dollars, it's pretty much unbeatable.)

ijuhytgjh• 17 years ago

But if you are a Brit that moves to the US you are screwed. Paypal.com won't let you have an account because you already have a .uk account and the .uk account won't let you have a US address. You can't close the account and use the same email/credit card to create a new account because they are already in the system. Calling support just gets you form letters

randallsquared2• 17 years ago

I don't know that they are successful, if you use actual profit as a criterion. I think eBay only bought them to keep them from going out of business; they're really helpful for eBay, but I don't think they make money.

robryan• 17 years ago

I find the fees for recieveing payments from ebay auctions kinda stupid. Just eBays way of hitting you twice.

skorgu• 17 years ago

Many sites perceive that accepting payment through paypal dilutes their brand. Whether this is valid or not is open to argument of course.

I've never had a problem with paypal (or ebay for that matter) but I use both sparingly. Most of my paypal transactions occur on Newegg and other large-ish online shops. I wouldn't use it for a large purchase with a private party simply because I don't trust private parties with large purchases, no way I see for any intermediary to smooth over human nature.

sireat• 17 years ago

I've had Paypal since 2000, and it was a boon when actively dealing with virtual properties. More recently, I've come to love their virtual credit cards for making one time purchases on sites which may not be entirely trustworthy.

That said, when things did go wrong it was a major PIA to correct them. When their fraud detection kicked in because of my traveling, the hoops to get the account reactivated were enormous.

When doing business through Paypal, I had to take in account the fraud rate, which for virtual properties was quite high.

Most likely, for normal people selling normal things, the hassle is just not worth it.

petercooper3• 17 years ago

That said, when things did go wrong it was a major PIA to correct them. When their fraud detection kicked in because of my traveling, the hoops to get the account reactivated were enormous.

I'm a platinum card holder of a major credit card and I had exactly the same issues (except my card was deactivated for 2 weeks). I don't think this is a PayPal problem per se but one of a general lack of customer service standards in the finance industry.

mblakele• 17 years ago

Hmm... I've had the opposite experience with my credit card issuers. When I'm traveling a lot for business, I seem to have a card number stolen every 9-18 months. When this happens, the issuer always phones me before I notice any odd charges (and then I phone them back to handle it, because anyone can claim to work for the fraud detection department). Both companies have also been good on the rare occasions when I've disputed charges.

Of course I always travel with at least one spare card, so it doesn't inconvenience me much if they need to cancel a card and send me a replacement. But I wonder how that would work if I didn't regularly return to a fixed address? How do the digital nomad types handle these problems?

tjic• 17 years ago

Comment I left over at the article:

I began using Paypal right when they launched, when it was an application for beaming payments over the IR ports of Palm Pilots (remember that?!).

I continued to use Paypal after they migrated to web payments and discontinued the Palm support.

About four or five years ago I became hugely disillusioned with Paypal and never use it, and refuse to support it at my two ecommerce companies.

Why?

As a customer:

* Supporting Paypal is a signaling mechanism. It says "I am too rinky dink to get a merchant account".

* The dispute resolution process drags a third party in.

* The account can be frozen.

* The appeals process is laborious and indeterminate.

* There are too many steps at checkout.

* Paypal wants to force me to upgrade to a full verified account. I have to supply too much information. I have to wait for 2 deposits to clear, then report their sizes.

* Even for the 1-off "act as a merchant account" process flow, if I try to use a credit card that has previously been registered with Paypal as a full account, Paypal will NOT LET ME do the one-off transaction; I have to come up with a (long forgotten) password to the Paypal account.

* There are about 50 more user-interface horrors that I don't recall right now, but I would seriously (seriously!) hit my fingers with a framing hammer before I would use Paypal again. I don't have emotional reactions to most brands. Apple? Eh. Windows? Sort of dislike it. Amazon? Sort of like it. ... Paypal? HATE HATE HATE HATE HATE.

As a merchant (http://Smartflix.com and http://HeavyInk.com), I won't use Paypal because

* all of the above

* crappy admin interface

* crappy interface to delegate rights to other employees

* fear of having funds frozen

* inability to re-charge a credit card for follow in transactions (unreturned DVDs, late fees, etc.)

I wish Paypal nothing but death.

--- Travis Corcoran, President http://SmartFlix.com "What do you want to learn today?"

vaksel• 17 years ago

What do you propose people use for user to user payments? If you buy something from another person on the web, paypal is pretty much your only option. And if you are the seller, its pretty much the only way to get your payment right away.

AaronChua• 17 years ago

How does TipJoy compared to Paypal in terms of ease of use, transparency, APIs etc?

jamroom• 17 years ago

I must obviously be in the minority opinion here, but I've been selling online for over 6 years using PayPal, many thousands and thousands of transactions, and really have had very few issues - no more then I have had with 2checkout or Moneybookers. Their procedures are fairly normal, I don't feel their customer service is any better (or worse) then other merchant providers I have worked with, and all in all they do what they say they will do.

netsp• 17 years ago

Paypal is a back-end company.

They haven't been able to (a) build a user experience that users really feel confident with. (b) find and fix all sorts of other problems their users might have.

I think b, while not a problem is the real issue. Missed opportunity. Online banking, managing your personal finances, investing, budgeting as well as paying & accepting payments online. All these things are still difficult and as such, most people don't do any more then the minimum to solve a very big problem.

They might use online banking to access accounts or pay a bill when the bank forces them.

The possibilities they missed out on by achieving so little in the past 10 years are enormous. From the creation of an alternative, underground economy that they talked about in early days to the creation of a platform where you manage all your money. They could have shaken up the industry become a bank focusing on transaction/small savings accounts and the rest of the small retail stuff that banks hate doing. They could have become the front end for banks.

* A lot of the dispute resolution, customers service issues and such that make up the bulk of comments here are a problem. But they are (I think) caused by a combination of regulation, oligopoly & problematic incentives.

zmimon• 17 years ago

I use PayPal and ShareIT to sell software. I originally set up two options because I specifically didn't want people to have to trust PayPal. In both cases people can buy directly by entering a credit card without having an account.

It turns out that at least 80% of people choose to use PayPal. Even big corporations where I thought PayPal would be an anathema choose PayPal in preference to ShareIT.

In cases where people won't deal with PayPal it seems like they won't deal with ShareIT either and they ask for a direct invoice. Despite my initial expectation, I've never had someone tell me they specifically wouldn't use PayPal who then chose to use ShareIT, even though I do make a point of asking in cases where they insist on a direct invoice.

I'm not sure what any of this means, but my experience is that when given a choice between PayPal vs another provider they probably haven't heard of, they do use PayPal. I think if there is a bias, it is against all such 3rd party payment providers vs. directly supporting credit card transactions. As one commenter suggests, not supporting credit cards yourself is a strong signal that you're not a well established, reliable software vendor.

SecurityMatters• 17 years ago

I have never understood why most people even created PayPal accounts. A PayPal like system that worked well would be very convenient. But, when I go try to create an account, I always get stopped by the Terms of Service. How could anyone think that is reasonable? Why should I waive my cardholder rights for an associated credit card? If you walked into a store and they asked you to waive your rights under your cardholder agreement in order to use a credit card, would you do it? And, then you read about the dispute resolution process. It is clear that if you ever get any money out of the system, you should just consider yourself lucky. I'd say that if you think of money in the system as play money and don't care about any associated bank account or credit card, then PayPal would be OK. Otherwise, it is not reasonable. I conclude that most people don't read the agreement, and just hope.

Why Isn't Paypal More Successful?

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