PayPal did not make up this policy; it's based on Visa and MasterCard's Operating Regulations, which predate PayPal's very existence. I have first-hand experience that not only is this in virtually every merchant services contract at every bank in the US, but it's actually enforced, exactly the same way PayPal enforces it.

8 years back I had a sudden influx of chargebacks from a single scammer that used a bunch of different cards on one of my websites to buy services, back before I knew how to spot that kind of activity. My real, regulated bank (First National Bank of Omaha) terminated my merchant account and held several thousand dollars for exactly 180 days with no recourse for me. They never saw another chargeback against my account, but I still had no access to that money for 6 months. Exactly the same as PayPal does when it terminates an account for activity it deems high risk.

But I actually think holding an issues worth of revenue in reserve is a decent enough compromise. If the company goes bankrupt before an issue ships, for whatever reason, PayPal themselves are going to be on the hook for refunding every single payment, as well as chargeback fees that may apply.

PayPal's fees are around 5% - what's their gross profit on each transaction, 1-2% at most?

So if there's a 2% chance of an issue going awry and angry people starting chargebacks, a magazine 50 issues old could turn into a net loss for PayPal overnight, which is why even merchants with long and clean track records get stung by this.

PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs.

The way PayPal handles the customer service end rightfully earns their horrible reputation. But too many people act like the risk itself is not there, or that there's a clear, obvious line between fraudulent businesses that con artists start and solid trustworthy businesses that we start. If PayPal wasn't as aggressive with their fraud prevention, they'd be skinned alive.

And, as other people are pointing out in this thread, standard merchant accounts are not immune from the same level of shoot first, ask questions later fraud prevention.

I want to share two things with all of you:

#1 — there's a massive culture change happening at PayPal right now. If we suck at something, we now face it, and we do something about it.

#2 — you have my commitment to make this company GREAT again. We're reinventing how we work, our products, our platforms, our APIs, and our policies. This WILL change, and we won't rest until you all see it. The first installments are due very soon. So stay tuned...

It makes no sense, but if you don't like it your option is to not accept Visa. They own the customer so they make the rules. It doesn't matter if its PayPal, Stripe, or any other merchant - if your buyer initiates a chargeback, you'll lose the money until its resolved (~6 months, usually).

As such, PayPal/Stripe/any other merchant account will hold your money for a period of time, until they are comfortable that either:

    1) its been long enough that a chargeback is unlikely
    2) they'll be able to get the money back from you if a chargeback occurs later.

Also relevant to this specific case: its against the TOS of Visa/MC/AMEX/etc to charge the buyer before shipment. You're supposed to authorize at time of purchase and capture only when you actually ship the goods. The OP seems to blatantly violate this, and I suspect they'll have to change the practice regardless of their choice of merchant account.

None of this excuses PayPal's lack of customer support. But Stripe et. all may not be the panacea you're hoping for. Credit cards are where these crazy policies originate, and unless you're prepared to stop accepting them, you'll have to play ball.

I think the problem here is that they really don't have any kind of a real relationship with their customers.

As an honest business person --not a scammer-- when this kind of thing happens to you it is horribly disruptive and demoralizing. As honest people we should be spending time on our business rather than trying to get our money out of a company that has totalitarian control over it. It could, and has, sink a business.

That said, I feel the OP may have triggered the freeze by clearing the account of nearly all funds a couple of days after the phone interview. If I were looking at that data I would see it as a potential red flag. It would almost be irresponsible not to interpret it that way.

I've had sales in excess of $20K (meaning, the invoice for that particular purchase was $20K) come into one of our Paypal accounts and have never had any issues. Then again, the money tends to stay in the account for months. I don't think they've ever seen us clear large amounts of money out of the account immediately after a large sale. That, I am sure, builds trust, even at the algorithmic level.

He might have argued the point, but in this particular example a simple explanation of "We are concerned about liability if you cancel an issue before the physical version is delivered. The hold on funds helps protect us in that event".

The Paypal model fits small transactions and small volume. As soon as you are big enough to feel like you deserve / expect such an explanation it is probably just time to move on.

The result of this is Paypal saying I owed them £65, but that once paid they would not return this to the companies and the companies sating that I owed them nominal amounts each.

I repaid the companies in cash through the post (I even converted it to the correct currency) and have squared things with them, and Paypal is still saying I owe them £65.

I have told Paypal that as they paid out £65 and then took it back, they are currently level and are not owed any money and informed them to cancel the outgoing payments as I have paid them myself, but they continue to persist with the idea that I owe them money.

They refuse to let me add another card to my account to pay off this amount (the card I originally used is Spanish and I don't use it anymore, the balance on it is, however +£0.47) and I refuse to lose money having it converted over to Euros.

As a result I have cancelled all existing usage of paypal and now pay from a credit card instead and I refuse to either pay Paypal the money I supposedly owe them or add more funds to my old account to have them take it away (leaving them £65 in the green and me in the minus)

My experience of Paypal customer services is poor service and automated responses, if it was possible to talk to a human this would have been sorted months ago, but as a result of their ineptitude they have lost a customer who was doing daily business with them in the order of £100 - £200 incoming and outgoing.

It's not much income to them, but I will no longer use their service and if enough people follow suit it will make a difference.

And for the record, the freeze they placed on my account over such a nominal amount cost me around £750 in lost sales before I began re-routing to my credit card, but I doubt very much they will offer to refund this.

Are your customers exclusively in North America? Or do you just write those customers off (which is a valid option if PayPal integration would be that painful)?

Adding PayPal as a payment option has been an enormous pain for us but a non-consequently amount of our revenue comes from customers either without credit cards or with cards which always fail on international transactions. I see no alternative to PayPal for these customers.

Paypal is just giving every opportunity for someone else to come and get their market share. Hopefully it will happen sooner rather than later.

Stripe et. al. are the credit unions of the card processing world -- they can offer more personalized service. But they also can't really scale and meet all demand, or handle the very largest accounts, without putting many PayPal-esque structures in place.

Great, and I will keep not using your site, and I will keep filing complaints through every forum possible until we eventually end up on a new site and the circle of life of

useful startup--->gets an ego and stops caring about customers--->replaced by new useful startup

continues.

EDIT: The best part was they accused me of three things: 1) Being a newer member (I opened my account in 2000 so I'm not sure I agree.) 2) Not having enough account history. (In the 12 years I've been a member I tend to make 1-2 transactions per month). 3) The transaction being "abnormally large". (I get paid rent and pay rent through the account for thousands of dollars at a time, the transaction in question was for $400 dollars)

basically paypal can diagf.

We use Stripe and I couldn't be happier. Started with Paypal, wanted to shoot myself on a regular basis.

I've been hearing a lot about Stripe lately, but haven't used it yet.

So PayPal doesn't have to operate by the same rules. When you use PayPal, you are putting money into PayPal's bank account and hoping they act in your best interests.

A reasonable person (I feel) would conclude PayPal is a de facto merchant acquiring bank, especially given the volume, and therefore should be required to operate under those laws.

Of course, PayPal knows the real money is in becoming a card scheme, so it's only a matter of time before we see that (not co-branded with MasterCard). At least they'd have to operate under existing card scheme laws, but I sure as heck wouldn't use one.

I had nearly $40k (ALL of my upstart company's capital) held for 180 days, and I almost went out of business. My products unexpectedly sold better than we had planned for, and we received a few chargebacks, that we had asked Paypal how we should handle before they occurred. The chargebacks were a very small amount, but they held the ENTIRE BALANCE. I couldnt pay for any of the inventory, which led to a chain reaction of chargebacks.

What made it even worse - THEY NEVER REFUNDED the customers on time and did not allow us, the merchant, to process the refunds --- IT WAS THE ULTIMATE BUSINESS NIGHTMARE!!! We started out as victims of our own sucess. Instead of helping us, we almost became victims of Paypal!

The best part about them giving buyers refunds is that if you, as a seller, want to dispute their chargeback, you have to pay Paypal an administrative fee ^_^

Another cause that it will freeze an account is when it suspects the account is used for illegal activities (e.g. selling fake goods).

Please note I am in no way implying the OP is involved in any of these. I am just making some guess on why PP may shut down/freeze accounts.

In return for being cheaper and faster there are trade offs. As stated in the article, this person's business model is a "high risk" one in general and to PayPal in particular. This is a great example of where a merchant account with a bank really is the better option. They need to met you, understand your business and why it works the way it does. Once done, you're less likely to have ongoing issues. So, you can keep your "higher risk" business model and change from PayPal or you can change your business model to better fit with PayPal. I don't think you can have both.

PayPal is a family sedan. This guy is lamenting that his vehicle doesn't perform the way he wants it to at high speed on twisty mountain roads. Seems like an unfair car review in that sense.

As others noted - it would look very strange to PayPal if you basically pull all your funds two days after that call. Who knows what else he inadvertently did to raise suspicion.

That's especially true for PayPal now. Before merchants didn't have much choice. If PayPal continues to be seen as difficult and risky, the better-qualified merchants will be the first to shift to other services. That will leave PayPal with a much more risky customer base than they have now.

Money transfer systems are different. They draw a lot of dark, evil forces that try not just to hack their systems, but to game and abuse it through normal operations.

It's unfortunate that legitimate businesses get caught in the crossfire sometimes, but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)

So your suggested way around this is to incur credit charges & pay for the credit risk baked into the interest rate all so that Paypal is covered?

That's where the positives end for me however. For Paypal, I fear it's too little too late. You've done too much damage to yourselves. I get the reasons why you do things, but the communication over the last years has been atrocious.

We're in the UK and are just waiting for Stripe to come over. I think a lot of other businesses are thinking along the same lines as well.

Your fee structure is pretty expensive as well. There's also a lot of hidden costs:

- We're on an upper tier so should have a reduced commission rate. However, after scratching my head for ages as to why a majority of our sales are not at the lowered rate I finally find the link about cross border fees or whatever reason you use to charge us more. As an example, some of our $119 USD sales have $4.35 fees which is ~3.7%. Our current rate it says on our account should be 1.9%. Your fees structure is not as clear as it should be.

- Have you tried issuing a refund in a different currency? You have to draw money from your bank (even if there are available funds), which is converted to the correct currency which because your spreads as so expensive means sometimes refunds cost us money. I phoned up about this and they told me to open different currency balances which I did and which fixed the issue, but again, bad communication and a broken process

- Related to the previous point, your spreads on foreign conversions are high. I think they've improved a bit over the last couple of years but I still consider them an expensive hidden cost. I contacted Stripe asking what spreads they offer, and they told me they would consider it a hidden cost and they offer customers the same spreads the banks give them.

Also, your website is mind bogglingly slow. See this support ticket I opened: https://www.paypal-community.com/t5/Access-and-security/Why-...

The support person didn't do anything about it. I didn't expect them to though, as Paypal is an impenetrable behemoth that doesn't seem to care about these sorts of things.

Your website being as slow as it is, mind numbingly slow, is honestly enough reason alone for me to move service. Trying to find transactions just is a huge waste of my time waiting for each page to load. Try using your sandbox with pages that load that slow.

> there's a massive culture change happening at PayPal right now. If we suck at something, we now face it, and we do something about it.

So can you make your website faster for a start?

2. there were many instances where you were greedy ( diaspora, wikileaks). Alot of stories in IM forums that you freeze money from vendors and never return the money ( to either side).

3. tens of thousands vendors are waiting for stripe to go abroad including me so we could run away from your draconian "service"

Paypal, your transparency sucks. If my account is fishy, tell what it is. We're no longer in the McCarthy times.

And besides, I'm living in the EU. US rules are not always popular for us.

  If you don't use PayPal, how do you receive payment from 
  customers who don't have credit cards?

Moneybookers interface is terrible, and they will expose your customers to this horrible interface. Their customer service seems to be confused but I've never heard horror stories.

There are payment solutions geared towards European customers so that you can accept bank transfers, etc.

In fact, everyone I know has at least one debit card (either MasterCard or VISA), aside from the number of people who have an AMEX/VISA (credit type).

And debit cards work everywhere. I've used my VISA Electron (debit) pretty much everywhere in the developed world, both online and travelling abroad.

In the UK we have "prepaid credit cards"[1] which could be useful for some people who are otherwise unable to get credit.

[1] confusing name, because they never give you credit, and I don't think they have the same protections as normal credit cards.

If neither Amazon nor Google's brand recognition hasn't convinced folks (buyers or sellers) to start pushing it instead of PayPal for Internet purchases, I can only hope it's because their solutions are equally terrible - otherwise, I have a hard time seeing how a new player will make headway in this space. And I'd really like a new player. :/

You know how every time a new payment provider comes up and people kvelch that it isn't available in their country and how no provider is? This is because every payment provider which attempts to hit as many countries as Paypal does dies. They're killed by fraud. (Fraud kills domestic ones, too, all the time, but it's marginally less frequent.)

Luckily, Paypal is an anti-fraud AI company which also happens to run credit cards sometimes. When in doubt, they will always come down on the conservative side. This is why they still exist. (Early in their corporate history they lost -- no kidding -- one hundred million dollars to fraud.)

This perception does not actually match reality, though: most people bitten by this are unaware that similar activity would get them shut down by the fraud department at e.g. a bank. See comments by dangrossman, etc.

* At most merchant services providers, underwriting happens up front: you have to describe your business, what you're selling, expected volume, etc. on an application, and go back and forth with the bank, before you are allowed to accept credit cards. PayPal lets you start immediately, and only gets the information from you once you've started transacting some meaningful volume. So the risk problems are weeded out with other processors right at the start, where with PayPal it can come up suddenly.

* These people have never even thought about underwriting and risk assessment. They treat PayPal as if it's a consumer service, when PayPal has to treat it seriously -- they're essentially making a rolling loan in the amount of 6 months of your transaction volume -- because if you disappear, they're on the hook for the chargebacks for all your past payments. People do stuff no other processor would let them do -- like taking massive donations with no prior approval, selling pre-orders to software that hasn't been written yet -- and PayPal isn't OK with it either once they find out.

* PayPal merchants are disproportionately more often individuals than actual businesses compared to what other processors see... because it's so easy to open an account, and everyone that's used eBay already has one.

* Because the merchants are individuals, and have no experience with underwriting at other processors, and have previously used accounts suddenly limited or frozen, they're confused and surprised. Add to that customer service that won't really tell you much once an account's been closed, and you end up with a couple really angry people a month: cue blog post about how PayPal is evil and if only it were a bank, they couldn't do this.

The result is that the system is treating them identically to how a bank would treat a more organized company; however, with an accountant on hand and an understanding of the rules, the organized company is much less likely to make silly mistakes (such as selling people a product that is shipped more than 48 hours later, already in violation of VISA's rules, to a third-party's address and then claiming that it is a "donation" and not a "purchase" <- an example from earlier this year).

There are also simply more players, as we are now talking about a bunch of couple-person companies that are using PayPal to accept credit cards, and even individuals who may not be incorporated at all but are using it to launch and sell products on their websites. These kinds of people are also much more likely to decide to attempt "lynch-mob" as their primary means of recourse against a company doing something they disliked, so we are doubly more likely to hear about situations.

However, as a merchant who operates something that many people (incorrectly) call sketchy, and one who has spent much too long learning all of the relevant tax regulations, reading up on credit cards, talking to people with real merchant accounts, and having meetings with banks about possibly using their service instead, my opinion is: PayPal is not that difficult to talk to and they are not actually unreasonable; there are things they are incompetent at, but this isn't one of them.

Paypal's profit margin is a small percentage of the value of a transaction. The potential losses due to fraud can go as high as 100% of the value of the transaction. I.e. their losses can be 50-100x as big as their gains.

Further, the selling point of Paypal is they let anyone who wants to set up shop and use Paypal for money transfers. The tradeoff you make by using Paypal is much lower setup costs (relative to a merchant account) for much higher risk.