PayPal's one of the truly ubiquitous names of the internet. It's been around since e-commerce first became a Thing, and it's even got its own Mafia. Like every Mafia, though, some of its practices are a bit shady, bordering on the downright nasty. It's time for that to change.
PayPal was started way back in 2000, born out of a merger between a Palm Pilot payments system and the perilously-close-to-porn-named X.com. The founders are huge names in Silicon Valley -- people like Peter Thiel, one of the first investors in Facebook, and Elon Musk of Tesla and SpaceX fame. PayPal's star rose with eBay; on its debut to the auction site, it rapidly became the eBay transaction platform -- 70 per cent of auctions in 2000 accepted PayPal. Consequently, eBay bought out PayPal in 2002, and the rest, to use a terrible cliché, is history.
PayPal has risen to a meteorically massive position in online payments. In 2012, PayPal processed around £91 billion of payments worldwide. Unsurprisingly, PayPal's making a killing -- it took £3.5 billion in cold, hard cash for eBay in 2012.
So, PayPal's a successful business. Why? Simple: it's incredibly useful to consumers and businesses alike. If you've bought pretty much anything off the internet recently, you will have noticed that PayPal is more omnipresent than most minor gods, with pretty much every online retailer, big and small, offering PayPal.
For the average Joe, PayPal checkout is pretty handy. Rather than having to plug your credit card details in to some dodgy website, you can just log into your PayPal account, mash "OK" a couple of times, and buy your dubious goods, safe in the knowledge that you haven't just given your credit card details to some villainous Ukrainian identity thief. It's an awesome, legitimately 21st century way of buying stuff that cossets us in a warm blanket of familiarity and security.
As well as all this, PayPal should also be a great tool for small businesses. Instead of having to set up a mind-boggling merchant banking service, businesses can just stick a PayPal checkout into their website (making things easy for web developers as well), and get money with minimum hassle.
Given all these advantages, it's no surprise that PayPal is in a great business position in the UK. The fact that it's so dominant, however, is a problem. PayPal isn't always what it's cracked up to be. Yes, if PayPal works, it works beautifully. But as soon as you crack the veneer of slick perfection, you run into problems.
Probably the classic problem with PayPal is that it freezes accounts for no good reason. Take an example from close to Gizmodo's heart: Haje Jan Kamps is a former writer for Giz UK, and currently the owner of Triggertrap, a startup that sells a neat little device for cameras. Like many tech startups, Triggertrap chose to take pre-orders. But, PayPal didn't like that Kamps was taking payment without delivering the product straight away (even though it was incredibly clearly marked as a 'pre-order'), so it froze the entire Triggertrap PayPal account.
Arbitrary freezing of accounts is kind of a PayPal classic. Whenever it gets the merest whiff of fraud, it freezes accounts as fast as a Siberian blast freezes your balls. In fact, there are whole websites dedicated to accounts of PayPal doing just this. Even I've had it happen when I sold something for about £100 on the internet. PayPal's justification is that by doing so, it protects buyers -- freezing accounts gives them time to investigate any potential problems and correct any fraud. (This is regardless of the fact that if it registered properly in the UK and acted like a bank, PayPal's buyers and sellers would have legal protection under the Consumer Credit Act.)
This wouldn't be such a problem if getting an account un-frozen wasn't such an intergalactic ball-ache. In Kamps's case, PayPal wanted him to provide invoices, bank statements, proof of postage, 'business documentation', and fax PayPal information about his business. Remember, this isn't some massive multi-national corporation we're dealing with here, but a tiny team of two people, who, incidentally, were also slap-bang in the middle of going into production with a product. There are other hang-ups as well -- check out Haje's hilarious blog post for full details (Spoiler alert: he ends up invoicing PayPal for the wasted time. What a dude.).
And if you manage, against the odds, to provide the metric tonne of paperwork demanded? Well, PayPal says it aims to respond within 14 days. But that's an internal target, one it has no obligation to meet. In fact, according to its terms and conditions, PayPal can freeze your account for a whopping 180 days -- basically half a year. For a small business, having all your cash frozen, tantalisingly out of reach, will ruin you. It's insane, and what's more, the totally arbitrary nature of who gets their account frozen, and when, makes it very difficult for small businesses to rely on PayPal.
So, if you have a problem with PayPal, what are your options? Well, you can make a complaint to PayPal, but we've already seen how god-awful its customer service is. Trying to get a PayPal agent on the phone -- one who can do more than blow smoke up your arse -- is a voodoo art form that probably works best if you perform an ancient rain dance first.
Moreover, PayPal's got a sneaky trick up its sleeve -- according to the Financial Ombudsden (we'll come onto them later), if you open a PayPal complaint, then close it, there's no way to reopen it again.
The case study the Financial Ombudsmen gave to me was of a woman who ordered something which never arrived. She made a complaint to PayPal, who investigated it and sent the poor victim an email promising action, and telling her that she could withdraw her complaint. Nothing happened, so the woman tried to complain to PayPal again. No dice -- in PayPal's view, the matter was closed, and couldn't be reopened again. The Financial Ombudsmen called this -- and I'm quoting -- "massively dubious". I'd call it down-right evasive.
So, what if you're rightly pissed off with PayPal holding your money, and want to tattle to someone? Well, PayPal UK isn't actually registered in the UK -- it's registered in Luxembourg, so it doesn't come under the jurisdiction of the Financial Services Authority in the UK. "Wait!", I hear you cry -- "isn't it registered (voluntarily, no less), with the Financial Ombudsmen here in the UK?". Well yes, it is, but there are a few caveats.
Firstly, as a result of its ever-so-generous voluntary registration, PayPal can choose which business areas can be investigated by the Ombudsmen. Although the Financial Ombudsmen can't reveal exactly which areas PayPal is signed up to, I find it incredibly suspect that a corporation should be allowed to pick and choose how it's regulated.
Secondly, the Financial Ombudsmen can only really investigate claims relative to PayPal's own Terms and Conditions and a basic 'fairness test'. Basically, this means that if the regulator has found that PayPal has acted fairly and reasonably within its T&Cs, there's nothing it can really do. Given the draconian nature of PayPal's Terms and Conditions, this gives PayPal a whole shitload of leniency. It means that PayPal is making the rules it has to play by -- pretty shady if you ask me, especially when it's others' money it's playing with.
The final problem with the Financial Ombudsmen is the speed it can work at. A ballpark figure for resolution of a complaint by the Ombudsmen is three to six months. That's an absolute age when all you're money's parked in a PayPal account. Therefore, under current UK law, there's not a lot you can do to quickly resolve issues with PayPal.
Yes, you can take PayPal to UK court. In fact, an enterprising law student did just that in 2011. With two grand frozen in a PayPal account (after selling unwanted crap on eBay, and having the whole thing marked as fradulent), Shelley Michaels took PayPal to county court and got a ruling in her favour. I reckon this shows that in many cases, PayPal is actually acting illegally, since Ms Michael's case isn't really different to many other PayPal cases. It's just that not all of us are trainee lawyers, and therefore we don't have the time, inclination or money to go nine rounds with PayPal.
There are, of course, a few arguments in PayPal's defence -- it's a 'free' service, so it doesn't really owe us anything. Free my arse. It takes a fairly hefty fee on transactions -- either 2.3 or 1.9 per cent, depending on the transaction and the type of account.
Going back to the example of Triggertrap, Kamps reckons he's paid PayPal around £1600 over the years. Contrast this with banks -- most accounts are either free, or you pay a tiny amount of money per month in return for stuff like insurance and awesome customer service. Oh, and the bank actually gives you money in the form of interest.
Yeah, I know that banks invest your money to generate return, whereas PayPal just sticks it in a low-interest current account. So, on this basis, I can accept PayPal's fees. But in return, I want to be treated like a goddamn customer. On the few occasions a bank froze my account because of suspected fraud, I got friendly customer service reps ringing my ears off telling me how to sort it out, and normally the whole thing's solved in about 20 minutes.
And this is a bank that's free! Compare that to being royally fucked around by PayPal at every turn, and you see why people become rapidly frustrated with PayPal.
Of course, we don't live in a communist society, and PayPal isn't operating in a vacuum. But it does hold an effective monopoly. The most shocking example of this is eBay, where PayPal is the soles means of payment. Fun fact: the UK is the only country in the whole sodding world where this is the case.
As well as eBay, PayPal is the only method of giving companies your dough on a whole plethora of other sites. To put it bluntly, if you want to engage in serious e-commerce, you're going to need a PayPal account, there's no two ways about it.
And that's a problem.
It's a problem because of PayPal's whole "guilty until you've rammed your innocence down our throats" culture.
It's a problem because this firm, which handles a shit-ton of UK money, is only really responsible to Luxembourg regulators.
It's a problem because it's basically a bank, but it's not treated anything like one by the government.
I get why PayPal does it. I really do. It's not like it does it for the sake of it -- it deals in online payments, one of the most fraud-ridden, shady armpits of the internet, and as a result it's incredibly cautious and risk-adverse. I admire that, I honestly do.
But its culture needs to change. Ultimately, it's a twofold problem: money and attitude. Money, because the first thing it needs to do is invest some of its billions of profits in the biggest and best customer service network known to man. Freezing accounts wouldn't be a problem if it could be un-frozen in a matter of minutes, and that should normally just be a matter of getting a rep with a +100 IQ on the phone.
The second problem, attitude, is something that needs to change from the top. Without trying to sound too much like a management consultant, it needs to start treating its customers more like valued paying customers, and less like the scum of the earth. When it does that, everything else will fall into place.
How is all this going to happen? Well, as much as I hate the government meddling, it needs to stand up and have the sheer balls to confront PayPal. Start aggressively regulating, and especially whacking PayPal with some punitive fines, and I think you'll find that PayPal starts investing the time and money to avoid the government's attention.
This won't be an easy process; government intervention is always a fine line between stifling innovation and letting things run rampant. But in this case, the system is properly broke; people are suffering, and the people in power need to sort the bloody thing out.
Updated: PayPal responded to us with the following statement:
"PayPal recognises that we can do better, and as such we have started a huge programme of change to address the problems that frustrate some customers. We are investing heavily in customer service, and have recently opened another major service centre for our UK and European customers in Dundalk, Ireland. We are committed to change - and businesses and consumers will see a big difference by the end of 2013.
We know we need to get better at helping people - and when we do need to place restrictions on an account, for example to protect other customers, we will improve the way we explain what we're doing and why. We take many factors into account when deciding whether to place a reserve or a hold on an account, such as our level of experience with the seller, a sudden spike in payments compared with previous experience and the financial strength of the merchant in relation to the financial exposure. We don't place arbitrary restrictions on accounts."