“Is PayPal good for your microISV business?” A short PayPal horror story

[app103]

I’m running my Mac indie software business for more than 3 years now. For the first 2.5 years all my sales went through Kagi and later I decided to switch to PayPal. The sales were not high, PayPal worked well and all was good.

This year, me and my partner Kosta decided to do some creative marketing for our application, ImageFramer. We decided to partner with several other developers of graphics software for the Mac and to sell all the software together, as a bundle, for 2 weeks. After months of preparations, negotiations and development, finally, MacGraPhoto bundle was launched on Nov 16.

We, at Apparent Software, were responsible for all the execution of the sale and part of it included handling all the money related issues, such as collecting the payments and distributing to other developers their shares. There were 6 other developers in addition to us. We corresponded over email, sent them a Terms and Conditions document and got their agreement to it by email.

We chose PayPal as our payment processor for several reasons but the main were low fees, the fact that we already knew how to integrate it to the sales backend and that it should be easy to pay them and to affiliates. We used our regular PayPal account, which we used for regular sales. We didn’t expect what happened next.

The launch was successful and we were pleased with how the sales progressed in the first days. Three days into the sale I’ve got a phone call from PayPal and the person on the other side asked me about nature of the spike in account activity. I explained that we had a 2 week sale, a special promotion and it looked like the call went fine.

What happened next and what they put these poor developers through can only be described as a complete nightmare. Paypal has since resolved the issue, but what happened to them could happen to anyone.

http://blog.apparentsoft.com/business/124/is-paypal-good-for-your-microisv-business-a-short-paypal-horror-story/

[f0dder]

Well, PayPal sucks for anything but small funds - no big news there, and the developers really should have done a bit of googling before they decided to handle things this way... Not saying that how PayPal handles business is good, but it's not exactly news that they screw people over.

[Carol Haynes]

Strewth - what a mess! Seems the simple rule with PayPal is if you are going to be successful make sure you move away before you make any real money!

[mouser]

im a big fan of paypal.. i know people occasionally have trouble with it, but they seem to be the best deal for small payments, and i've had nothing but good experiences with them.

[Kamel]

wow, for once i actually read the whole thing.

it's really a shame how they acted. i really know how it feels to be put in a situation like that (to some extent), i've had to deal with fraud crap that wasn't fraud at all with companies and it was never fun. it's as if they assume you're the bad guy, and don't want to talk to you because of it.

glad i read this though, i know a certain company i will not use for collecting funds :O

[TucknDar]

Incredible story. Do companies like PayPal actually take note of all the criticism or do they just ignore it since most people will have ok experiences anyway?

Are there any good alternatives to PayPal?

[app103]

Here is another story passed to me by someone on friendfeed: http://www.hackersforcharity.org/259/paypal-shuts-us-down/

[zridling]

Holy smokes! The 'Hackers for Charity' guys need some big nasty lawyers. That's cruel.

[rxantos]

Why is legal for paypal to steal your money? And since when a private entity has the right to freeze someones assets without going to court to do so. Specially when is not something to do with a payment.

They are crooks. Glad to know this before doing business with them.

[phitsc]

Kafka - The trial, for anyone who hasn't read it yet. Very frightening when it actually happens in the real world.

[OldElmerFudd]

im a big fan of paypal.. i know people occasionally have trouble with it, but they seem to be the best deal for small payments, and i've had nothing but good experiences with them.

Agreed. For small amounts, or even the occasional larger transaction, PayPal has always worked well enough for me. The apparent incompetence of the "representative" layer for problem-solving is an eye-opener, though. Definitely Kafka-esque, but then so are many experiences when dealing with bureaucracies.

[JavaJones]

Why is legal for paypal to steal your money? And since when a private entity has the right to freeze someones assets without going to court to do so. Specially when is not something to do with a payment.

They are crooks. Glad to know this before doing business with them.

Last I heard, Paypal is not considered a "bank" and is not regulated like one. So yes, it's scary, they deal with huge amounts of money and have much less stringent requirements on them. That may not be true anymore though...


- Oshyan

[Innuendo]

Last I heard, Paypal is not considered a "bank" and is not regulated like one. So yes, it's scary, they deal with huge amounts of money and have much less stringent requirements on them. That may not be true anymore though...

Was just jumping in here to post this very thing. PayPal is not a bank. They don't have to follow any rules or regulations except the ones they make themselves....changeable at will. I'd never trust my business to PayPal. Just ask the guys over at the Newzbin web site. They've had thousands upon thousands of dollars seized by PayPal due to erroneous judgment on PayPal's part & Newzbin has yet to see any of that money years later.

I think if I were a business wanting to look into a PayPal-like system for receiving payments I'd look into Google Checkout.

[f0dder]

Isn't newzbin merely a warez aggregator?

Not saying that it's OK for paypal to do what it's doing, just saying that some of the people having trouble are doing shady things.

[Innuendo]

Isn't newzbin merely a warez aggregator?

Newzbin catalogs binary content posted on Usenet. Some of the content could be considered illegal, but a lot is indeed legal. I'd rather download *anything* off Usenet when the only official way to get some programs is through torrents (some Linux distros and other stuff).

Not saying that it's OK for paypal to do what it's doing, just saying that some of the people having trouble are doing shady things.

Here's another, more recent, example of Paypal's tomfoolery affecting a 100% above-board endeavor...The foobar2000 homepage used to have a donation button on their homepage which allowed users to show their appreciation for the program by donating money through Paypal.

Now the foobar homepage no longer has this donation button along with the following posted:

2009-12-31
The donation button has been removed due to PayPal being thieves.
Thanks to everybody who donated so far, your funds mostly got through.

I'd love to see the reason Paypal gave for seizing the money in the account of a freeware music player.

Paypal (and their parent company eBay) are punks, thieves, and bullies.

[f0dder]

Newzbin catalogs binary content posted on Usenet. Some of the content could be considered illegal, but a lot is indeed legal. I'd rather download *anything* off Usenet when the only official way to get some programs is through torrents (some Linux distros and other stuff).

Hm, I feel quite the opposite way - torrents are efficient (multi-sourced, built-in integrity check, error handling) and transfers in binary. Things might have improved since I used binary usenet ages ago , but back then binary resources required text encoding (even yenc has some overhead - back then it was uuencode which was nasty). Also, how are you sure you're getting from a verified source? Afaik it's not hard spoofing usenet posts? Harder to hack a server and post a modified .torrent file.

[Innuendo]

Sure, it's easy to spoof Usenet posts, but with md5 signatures to verify the files & par2 files to keep the spoofers at bay most of the worry about Usenet becomes moot.

I cannot argue with yenc generates overhead & torrents give multi-sources, but when I can connect to my Usenet server and fill my connection speed, but connecting to a popular torrent swarm only gives me 20-30% of my full connection speed even those torrent benefits become irrelevant.

A further point that I don't have to worry about, but a lot of people do, is that a lot of ISPs throttle torrent speeds heavily. Not nearly as many ISPs throttle Usenet.

This is all off the topic, of course......we now return you to your regularly scheduled program of Paypal/eBay screwing over and stealing from freeware authors.

[Lashiec]

I'd love to see the reason Paypal gave for seizing the money in the account of a freeware music player.

The explanation is provided in the forum.

[Carol Haynes]

Last I heard, Paypal is not considered a "bank" and is not regulated like one.

It seems to depend on the region where they are based.

PayPal in the UK briefly set up offices in the UK and the government imposed full Financial Services restrictions on them (ie. all the restrictions that banks and insuracne companies are subject to). Unsurprisingly shortly after that PayPal decamped to Luxembourg for its European operations.

Luxembourg is in the EU but as I understand it has far fewer restrictions on financial service providers.

What we really need is a campaign for financial regulation enshrined in law for companies that hold money for customers.

Someone above suggested using Google Checkout - but in what way is that any better than PayPal - presumably they are also subject to their own policies without outside regulation.

I will continue to use PayPal for small sums of money and I always withdraw all funds as soon as they are deposited and don't keep a balance in my PayPal account. If I have problems I will simply stop using PayPal as a potential way to receive payment. Actually I am considering using my Banks payment service which allows me to process credit cards directly - it is slightly more expensive but at least it is regulated in the UK and there are independent regulators who will allow appeals if you encounter problems.

Some interesting info on WikiPedia:

Bank status

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.[31] PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.[32] On May 15, 2007, PayPal announced that it would move its European operations from the UK to Luxembourg, commencing July 2, 2007 as PayPal (Europe) S.à r.l. & Cie, S.C.A.[33] This would be as a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA.[34] PayPal Luxembourg will then provide the PayPal service throughout the European Union (EU).

and

Regulation

In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sarl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, the Commission de Surveillance du Secteur Financier (CSSF)[42] (note that all of the company's European accounts were transferred to the PayPal's bank in Luxembourg on July 2, 2007.[43]) Prior to this move, PayPal had been registered in the UK as Paypal (Europe) Ltd, an entity which was licensed as an Electronic Money Issuer with the UK's Financial Services Authority (FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg,[44][45] however the Luxembourg entity is still regulated by the FSA, as it is an entity from the European Economic Area which conducts regulated activities in the UK.[46]

see http://en.wikipedia.org/wiki/PayPal

[shobazi]

I have found many horror stories about pay pal - among that one is aboutpaypal.org/another_paypal_horror_story_over_a_pair_of_sunglasses

[mouser]

By the way, the Amazon payment system is now quite competitive with paypal for small amounts.

[tomos]

By the way, the Amazon payment system is now quite competitive with paypal for small amounts.

having read some of the linked pages I think I'll be avoiding PayPal where possible, I only use it for making payments but I don't want to support a company that works like that.

I dont know much about Amazon, - they have made buying stuff dead easy which I'm sure has helped them - it's a pleasure to buy stuff there it's so easy!
hmmm  . . .  Amazon Payments only seems to be available to United States residents - it doesnt allow me to change the country in the activation form. Also they only allow US residents to add Bank Accounts, which would actually be the more common way of paying online in Germany (also via PayPal). I wouldnt care what I pay with (CC or Bank a/c) but it looks like I'll have to wait for Amazon