I am not going to get in the middle of a huge discussion, but the main reason people can have free checking or reduced costs on telecommunications products is because businesses pay more for their services.
posted on September 21, 2000 02:06:41 PM
Barrelracer, I love your question, and find the various opinions very interesting. Lots of good thinking in this thread.
Someone (and I can't see the name now as this has gone to the second page) made an excellent case for the entire Paypal drama having been pre-planned, but that would presume that there is a much smarter mind behind Paypal than I have ever seen evidence of, although I will concede that it is a possibility.
Surely most of you have known some people who are like some I have known...they have these grand ideas for making money, but are either lacking in something that is necessary to execute the scheme, or there is a basic flaw in the scheme itself. In my own humble opinion, that is the case here.
Money is being made 'on the float' every day; it's nothing new. People are also transferring money from one to another every day, whether it's to pay bills, or auctions, or sending the kid some money. And in most instances, the sooner, the better.
Online payment services were already available in one form or another, and it was only a matter of time until someone whistled at the idea of buiding such a huge customer base - by offering such a service for free - that the profits from the 'float' on millions and millions of dollars would be highly profitable. The problem was figuring out how to keep it long enough to make that profit.
Paypal saw a way to hold on to it long enough: online auctions were the way to go! Buyers put it in, and sellers left it in until they became buyers themselves (which looped it back into the system), or withdrew it when otherwise needed, after first having allowed it to accumalte.
And they were RIGHT! Sellers and buyers signed up in droves - so quickly, in fact, that Paypal couldn't keep up with it. Paypal grew much too quickly; the expense of hiring an unexpectedly large staff, and the cost of (is it safe to say?) millions of transactions in a short period of time was staggering. And then the real problems began.
Problem number one was when we discovered that Paypal could and would 'freeze' an honest person's account while something or another (including ALLEGED spamming) was being 'investigated'. Sellers became uncomfortable about leaving any large amounts of money in the system, and many began pulling it out almost as soon as it came in. Every online seller faces the possibility of having to deal with a nut or a crook; who was willing to have their money frozen as a result? (And I have gone on record as questioning the validity of the 'freezing' of some of these accounts. I have asked how many, why, how much, and for how long, but have never received a straight answer....but for a company operating 'on the float', these accounts had to be a boon, whether they deserved 'freezing' or not.)
Problem number two, and actually still a part of number one, was the fraud/chargeback issue. Again, this was not something that the founders had the foresight to anticipate. Suddenly Paypal is eating charges from both fraudulent sellers and buyers, and quickly went to a policy of chargebacks, which cost them some more sellers, and resulted in more of the remaining sellers moving their money out even faster.
Problem number three was when they tried to stem that tide by setting up the verification process, thus insuring against chargebacks. Again, that might have been okay, but they mishandled it too. Sellers objected to a clause in the terms, and more pulled out. Adding insult to injury, legitimate sellers discovered that if they did not knuckle under to Paypal's demand (to be verified through their bank accounts, whether or not that gave Paypal the right to withdraw funds from said account), they would have their customers 'warned' that an unverified seller was a risk. Needless to say, this angered many sellers. Faced with the optiion of giving Paypal potential access to their accounts, or being vilified by Paypal, many more left the service. And again, the process of removing money was accelerated.
Bear in mind that the original premise was making money off of other people's money....but the money just wouldn't stay there long enough!
At that point, Paypal (which had been floundering all along) was drowning. Having nothing to lose, they have now imposed charges to the sellers, hoping that they can survive with whatever is left of their customer base until they can rebuild the company as a paid service.
It would have been much simpler if, in the beginning, they had specified that money had to be left in the account for a certain number of days for the service to be free; if withdrawn sooner, a small service fee would be charged.
The sad part is: They could STILL implement such a policy..instead of trying to define who is, or is not, a business, etc., etc.
So, chumps or champs? Depends on how you're looking at it.
If you define champ as someone who is basically honest but got in over his head and can't figure out what to do next, then they are champs.
If you define chump as someone who is basically honest but got in over his head and can't figure out what to do next, then they are chumps.
posted on September 21, 2000 05:22:03 PM
PayPalDamon,
I don't want to be rude but you deserve it with your false statements. Having examined banks for almost ten years including the largest banks in the United States such as Citibank, Wells Fargo, Bank One, etc. I can tell you the main reason individuals are offered free accounts is NOT because businesses pay more. Please watch what you say to defend your company. I don't know where you received your banking education, probably the same place Mr. Musk did - NO WHERE!
posted on September 21, 2000 06:29:02 PM
Hi topprospects,
I made no mention of what banks do this, but this does happen. This wasn't a blanket generalization by any stretch of the imagination. I only brought up something that can and does happen, not what always happens.Businesses subsidize a fair amount of items for consumers because it is good for them (consumers buy from them). An illustrative example is not an example that applies to all cases.
posted on September 21, 2000 06:48:05 PM
Damon is definately right about telecom companies doing this. I believe it was initially mandated by the federal government as a way to achieve universal service for residential customers.
I'm not sure about banks, but I think that it is clear that in many instances, banks offer free checking in order to bring in customers who will eventually take out loans, get credit cards, etc. In fact, the original mention of free checking in this thread was for homeowners. Home equity loans are extremely profitable for banks, and I would bet that the monthly statements for these free checking accounts contain endless solicitations for home equity loans, as well as other profitable services.
posted on September 21, 2000 07:10:08 PM
Well I agree with whoever said we'd have to be a fly on the wall to know Paypal's original intentions. Sort of like that whole "New Coke" vs. "Classic Coke" brouhaha years ago.
I think Paypal probably hoisted itself on its own petard, for a couple reasons --
a) It courted eBay auction users without a full understanding of the true buying/selling model going on. eBay itself has helped blur the lines of distinction between "individual users" and "businesses." Suddenly Paypal finds itself with personal accounts being used more like business and eeek !!! that throws a monkey wrench into the plans.
b) Paypal overestimated the "loyalty" of its new users. If others thought as I did, "if it sounds too good to be true, it probably is." Therefore, I used Paypal because it was advantageous for me to do so -- but I was quite skeptical and therefore withdrew my own balance on a weekly basis so no significant funds could accrue. My loyalty and trust does not extend farther and I imagine most sellers feel the same way.
From the beginning, I would have entertained the business applications and fees only now being proposed by Paypal if they had been more forthright and candid. But since they haven't, the courtship is over and as of today, I've taken advantage of Billpoint's trump offer.
posted on September 21, 2000 07:43:55 PM
As I said in another thread, you have to consider the Internet/investment start up climate that Paypal operated in at the time. Up until April, if you said you were a dot com and going to lose money for the next few years, Wall Street asked how much money you needed. After the April Internet crash, they actually wanted to know how and when you were going to MAKE A PROFIT!
So I think that's why Paypal is doing this now. They started thinking in April about how to increase revenues, came up with this plan, and are finally implementing it. Because they need to make money - like we all do.
BTW, the only business I've heard of that actually makes enough money on the float is American Express for its travelers checks... you know when you have one or two left over from your trip and don't cash them......Amex keeps the money until you find it and cash it.
posted on September 21, 2000 08:23:42 PM
Josie -- as a buyer, I really wouldn't give a sh!t about your problems or thoughts about PP. If I got that email from you it's the last auction of yours I'd bid on.
sideslam, banks offer free checking because they don't take deposits by credit card.
