posted on September 20, 2000 06:39:13 PM
Been doing some thinking on the paypal matter lately.
Paypal got a lot of people to join up in a short amount of time, by using their users as recuiting agents.
This got them very big, very fast.
The main thing that drew me to them was the "No chargebacks allowed."
But their service also allowed anyone to be able to accept credit cards, without going through a merchant account.
But it wasn't long until the credit card companies said "Sorry, not allowed".
This was their first snafu. Did no one in this company check on one of the main ideas the company was based on? Obviously they couldn't allow chargebacks, because they had no way to easily recover the money.
So we went on to the "chargeback allowed" rule, with a few being locked out of their accounts because of suspicion.
When asked by me what their procedure was for challenging a chargeback, or proving shipment, it took about a week for the rep to come back with an answer, one that only answered proof of delivery, never answered the step-by-step fraud charge.
Now they started charging for their service. Instead of "making the money on the float." Even then they could not tell us what they considered a business, then couldn't say the number of transactions.
How could a company, dealing with so many people, not have the questions answered before they are asked?
It seems like almost every question is taken to the "board" to be answered. And the answer took days to appear.
But here paypal sits, with millions(?) of members who are pulled in by the immediate payment method. Now they are charging for their services.
So, my question, do you think paypal started the company with the always free, paying users to recruit new users, no chargebacks and we make our money on float, and is the bumbling "we'll get back to you on that" and found out it didn't work, people were not leaving money in their accounts long enough to make money, or
Did they plan this all along and are now exactly where they wanted to be?
edited for spelling, 2X
[ edited by barrelracer on Sep 20, 2000 06:40 PM ]
[ edited by barrelracer on Sep 20, 2000 06:41 PM ]
posted on September 20, 2000 06:53:26 PM
Great question!
I think they started out honestly. The basic premise may have worked too, if they had taken pains to become credible. It is the flaky factor that has everyone withdrawing their money daily, or nearly daily leaving paypal high and dry.
I thought they would wind up like a bank, my bank, any bank. My checking account is free provided I maintain a specified balance. If I don't / can't do that, I am charged per check / per use. This is akin to what I expected the situation at paypal to morph into. I was wrong.
posted on September 20, 2000 07:10:02 PM
I don't think PayPal had a model to work with being the first to operate on the scale they've reached. Yup, mistakes have been made, they'll probably make more too. Will the other services that are just starting have to change directions as they get further down the river... I'm betting yes. The fraud issues were making headlines, PayPal had to fight the headlines or make changes. PayPal's goal in November of 99 was to get 1 million customers by December 2000, I think its safe to say they underestimated some things.
PayPal has made me money, via it's service and it's referrals. I guess that's generated a bit of loyalty on my part. No they aren't flawless. I don't think they are the villians some think they are either.
posted on September 20, 2000 07:11:47 PM
Give me a P! Give me a A! Give me a Y! Give me...never mind, I won't finish. Everyone knows how I feel about them. I love 'em, and they are the best thing since sliced bread. Heather
posted on September 20, 2000 07:12:07 PM
I don't understand one thing.I have a checking account and I have no fees whatsoever.As long you are homeowner you get free checking. So I am assuming they survive on floats.Then why can't paypal? Or maybe they survive other ways loans,etc.Which paypal don't have.
posted on September 20, 2000 07:17:44 PM
Hard to say- Guess you would have to have been "a fly on the wall" during its inception.
I HOPE that they started out "ignorant" but earnest, and had to change as they learned about the real world, rather than as deceptive, manipulative schemers.
I wouldn't be too surprised at the "ignorance" excuse, as from what I understand, the founder was not a business person, nor educated in business. Although one would think that the backers who ARE "high powered business execs" would have known better.
The merge with X.com probably was when the reality check occurred.
I'm not at all hapy about the prevarication and obfuscation that has taken place in the last couple of months- it has been a PR disaster for them.
However, forgetting that for a moment, I am encouraged that if they can overcome the "bad will" that they have generated (and they probably will if they don't have any more bad surprises for their established accounts) they have a better chance of success than they did with their original business model.
As it is now, they offer a very useful service for a reasonable price. I say this as someone who did upgrade to a business account (after much consideration) a month or so ago. SO FAR, I have had no occassion to regret this.
Had I not decided to voluntarily upgrade earlier, I probably would have been among those who closed their paypal accounts with the most recent changes and are still ranting about it. But for now, business is up and profits are up and a fair amount is because of the availability of the "PayPal Web Accept" features on my web stores.
The best thing that could happen is that other players take advantage of this situation and grow so that there is a choice! I signed up with PayPlace back in July and will now offer it as well as PayDirect as a payment option. In fact I'm going to offer a 1% discount if a customer pays with a free service for a while. Why not it's cheaper than using Paypal!
posted on September 20, 2000 08:19:15 PM
Paypal started out an independent company. I don't know who owned them, but if they had stayed that way I believe they would still be "free" and things would go on as they had planned.
However, seeing a good thing, X.Com quickly bought them out and I knew they wouldn't be free for long or quite as easy and uncomplicated once a real bank got hold of them.
posted on September 20, 2000 08:32:34 PM
I believe PayPal started out with good, honest intentions to provide a FREE service and make money on the float.
I think the service simply took off faster than their business model allowed for...
PayPal originally was designed as a way to pay for your half of dinner out, send money to your kid at college or share expenses on a vacation. PayPal would make money on the float as a growing user base simply left money in its accounts to "beam" to a buddy someday. PayPal also planned to encourage funding via checking account to reduce the credit card fees it would have to pay.
I think PayPal executives' eyes got really big when the online auction market became interested and sellers started signing up in droves, followed by bribed and willing auction buyers.. and more bribed and not-so willing sellers. Imagine all of those buyers, leaving piles of cash in their PayPal accounts as they waited for auctions to end. Imagine all of those sellers, using the auction gains in their PayPal accounts to buy supplies, inventory... even pay the rent!
They courted us, promised us free service.
But the whole thing grew too fast. Instead of the anticipated one million users by December 2000, PayPal attracted an unexpected, alleged three million. Credit cards are flying -- but too few customers are letting the money sit in their PayPal accounts. Credit card transaction fees are piling up at an unplanned-for rate for PayPal, even as leery customers drain their accounts on a far too-regular basis.
So the business model expands to include "services" that surely NO auction seller can do without! Of course people with web pages will scurry to sign on to this package with the 1.9% fee. Auction sellers will be dying to have "instant purchase" buttons on their listings. PayPal execs are delighted with themselves and their grand idea.
Problem is, not enough auction sellers find good value in the new accounts.
"We'll make the accounts mandatory!" exclaims one PayPal exec. "But we won't force anyone to upgrade. Remember, we promised 'always free'" shouts another.
So much for good intentions. So much for "always free."
I wonder where PayPal would be now if auction sellers had never signed on?
Who would it try to charge for its services?
Aunt Fanny, who only wants to pay for her share of a meal with the ladies who lunch?
Uncle Bob, who just beamed $30 to his buddy Bill for an upper-level seat to a sports event?
PayPal just might be falling victim to its own success. There's something to be said for slow, sustained growth.
posted on September 20, 2000 08:42:34 PM
I honestly don't know how well they thought this through. I would assume that when anyone is spending 10's of millions of dollars, they at least put a little thought into their business model, but countless dot.com failures have shown that this is not necessarily so.
But, at this point, this decision is probably a good one for them.
Forget about MAKING money. Personal accounts are COSTING them money.
As someone stated (possibly in another thread) Paypal has been far more "succesful" than they ever anticipated. Problem is that this "success" comes with a price, and that is covering the credit card charges for their "free" accounts.
Even if they lose half of their customers, this will result in a net profit. Not only becuase of the fees that they are collecting, but because they are getting rid of the accounts that are COSTING them money.
I would LOVE to see Paypal's books, but I think that we all understand that they have been operating at a very significant loss from the beginning. My guess is 20-50 million lost so far.
BUT, this is a way to approach profitibiltiy very quickly.
Sure, it might backfire. But, at this point, it is a GOOD thing for them to lose customers, if those customers are costing them money.
posted on September 20, 2000 09:07:09 PM
PayPal had an enormous reservoir of goodwill that it has all but squandered now by playing loose with the English language (it depends on what "free" is, and to whom, bla bla bla), or just changing the TOS as it pleases and saying, by implication, take-it-or-leave-it.
Most of us knew that the business model wouldn't hold and that charges were likely. But I agree that they way they handled this is a PR disaster. It makes them look like bait-and-switchers with a Clintonian command of the language.
posted on September 20, 2000 09:07:59 PM"Sure, it might backfire. But, at this point, it is a GOOD thing for them to lose customers, if those customers are costing them money."
No doubt. I'd be curious how many were making multiple transactions each day and at the close of the day "mail me a check". That had to be a losing proposition.
Some of those accounts I'm sure PayPal were praying would be closed.
posted on September 20, 2000 10:54:10 PM
Thank you all for an intelligent discussion of this issue, rather than ranting (which is tempting to us all!).
This is the email (names deleted) I sent to a buyer of mine tonight.
In context: I've been experiencing horrible email problems because we signed up with a new DSL service. They sent us a bum modem, which we attempted to install yesterday. Then when we called for tech support, told us to uninstall our Windows ME as they only supported Windows98 (meaning we had to wipe out all our programmes, including MicroSoft Outlook for email, then said "oops, guess we sent you a bum modem" blah blah blah ... won't bore you with the details. (They are scheduled to fix the problem tomorrow by bringing a new modem at 11.00)
So, anyway, I sent EOA "congrats" letters out with no Outlook mailbox explaining our problem, then got an email from a buyer who had actually sent an email before I sent the "congrats" (with apologies for the modem probs)who innocently asked about PayPal payment. Below is my reply to him (with names deleted). What do you all think? Is this okay?
Dear Mr. X,
I am sorry for not answering this email earlier. During our modem difficuties, I'm trying to work directly through email at X's web site, rather than through MicroSoft Outlook, as I'm accustomed. I'm not used to this, and make mistakes accordingly.
We still accept PayPal, but we pulled the PayPal link from those auctions we could on the morning of September 13, as that was the fateful morning PayPal put up a screen (before you could even access your account or anything) demanding an upgrade to "business" or "premiere" account from all ebay sellers. Which means we must now suddenly (and without any warning) pay a fee for their services, which they promised would always be free.
While many ebay sellers are outraged that PayPal now demands we pay for a service they promised would "always be free" and "we make our money off the float" ... we do recognise that the business and economic climate can change (hard to make money "off the float" when the stock market ain't what it used to be), necessitating such moves. We might well have been willing to stick with PayPal, given their excellent service so far, had they given us any warning. Unfortunately, they summarily changed their policy, with no warning, a few hours after we listed our auctions with their logo attached.
What we object to, is NO WARNING, and ESPECIALLY the deceitful practice employed by them in putting up an opening screen for ebay sellers (whom they actively wooed with promises of "never a fee -- always free" before one could even access one's account -- which required choosing one of the option three buttons ("business account" "premiere account" or "personal account" before the user could continue(!). Normally, when one selects a button leading to changing the status of an account and financial liability, one is offered a "confirm" choice. Not so with this PayPal screen. Once one punched a button, one was automatically changed to a new type of account, which obligated one to financial liability one had not been given a chance to review and accept. We find such a ploy reprehensible, and therefore plan to discontinue use of PayPal.
We researched alternative free credit card payment options, and, out of several, determined X to be the most fair and reputable at this time (with special emphasis given to users' security -- we do not wish in any way to lead our customers to compromise security of their credit cards. My husband, X, is a professional in this area, and we take it most seriously). At the same time, we decided, in all fairness to our customers, to continue to accept payment through PayPal until October 1 on all our auctions.
(If you would like us to send you a referral letter to X, we are happy to do so to make things easier for you. However, we would never do this, except at your request, as we do not wish to spam anyone. Hey--we've all got way too much "junk mail" in our inboxes as it is!)
Upon reveiw, I see this auction already had bids on it between the few hours' time we listed it and PayPal's sudden decision to charge sellers for their services, meaning that according to ebay rules, we were unable to pull the PayPal logo from it. We therefore feel obligated to honour our terms, regardless of PayPal's shenanigans. The link for payment via PayPal is: X PayPal email address: X last name: X.
I do hope I haven't bored you to tears with this. But I notice from your good feedback that you, too, occasionally sell on ebay, and I wanted to help you out by sharing this information with you, in a friendly way, seller-to-seller, as well as seller-to-buyer. That's what this wonderful community of ebay is all about at its best!
posted on September 20, 2000 10:56:34 PM
Egads! How did those little smiley faces get into my post? I didn't use any html at all and I'm totally stumped! Guess I'm just new to this and don't know what I did. Any help and/or sympathy much appreciated!
posted on September 20, 2000 11:13:56 PM
I can't believe that you would actually type that terribly long thing and then send it to a customer. I know perfectly well what is going on with Paypal right now, and if I received something like that I certainly would not buy from you. As for Paypal, if you want to close your account, and state in your auctions or in your eoa that you are no longer accepting payments that is fine with me. I can understand just a tiny bit where some of you are coming from, but something like that is scary. Heather
Why scary? (And I truly don't mean this defensively -- I certainly have no wish to scare anyone!) My genuine concern was to explain clearly and fairly, and to honour my agreement.
Please forgive how obtuse I am -- I was simply trying to help a buyer who has a less than 12 feedback, who also occasionally sells ((last sale ten months ago), to understand the situation, but perhaps did not do a good job of it -- my feeling that perhaps I didn't do a good job my reason for asking for constructive criticism such as yours.
Best regards and hoping for more fruitful dialogue,
Josie
posted on September 21, 2000 12:36:41 AM
Josie - Hi! I am glad you decided to post hear first before sending that letter. I think it might be something you would regret and I don't think you will feel any better by doing so. I know you are upset as are many of us. I can relate because I am very wordy when I write and tend to ramble on and on a bit.
This buyer doesn't know you - first you send her a letter about your modem problems and then to send this email might be a bit much. I am afraid it might make her rather afraid of you than of PayPal - I am saying this lightheartedly and hope you take it that way. Also, you rant on about PayPal but tell her you will take it and in fact are going to be accepting it until October 1st. That in itself is a bit contradictory and confusing. I had a person who won an auction and sent me payment by paypal the other day and my initial response was to thank her and also complain to her about what was going on with paypal but decided it was unprofessional. Again, this is just my opinion and you will have to do what you feel is best.
I do think that it was good that you wrote down how you feel and came here to share it. But since you asked for advice, I would not send it. Later if you have stopped accepting PayPal you can let them know why but you might be a little calmer and sum it up in a few sentences. This will sound a lot better and you can put the emphasis on the new company that you are using and what is good about it. I was upset when all of this happened because it was not handled well at all but I am still undecided and waiting to here what PayPal has to say. I am sure my case is different than yours but I am waiting to hear what the business policy is and also to see if they apologize and if so what they have to say - then I will decide if I will stick with them. Do what you feel is best but if there is a chance that you may stay with PayPal you might want to think twice and if not what good will it do? Once I make my final decision I am going to try and move on and make the best of my decision plus knowing that I have come away a little wiser from all of this. Best of luck to you. Peggy
posted on September 21, 2000 12:51:45 AM
I was really suprised when PayPal started that they would cut you a check for any amount. I had first assumed that they would do like Alladvantage does and only cut a check above a certian amount. Why? Because cutting and shipping the checks cost money.
I was also suprised that you could pull your money the second it was in your account, which most people did.
posted on September 21, 2000 01:58:40 AMI was really suprised when PayPal started that they would cut you a check for any amount.
I got to admit I don't understand that myself. Snail mailing the checks seems like something I'd cut out if I was PayPal, or at the very least discourage with a maximum number (per month) and a minimum amount.
The snail mailing of checks to me is a defeat of the system. It's like taking a trip from N.Y. to L.A., you hop on a plane in N.Y. and fly as far as Denver and then take a bus to L.A. and pay more for the trip.
posted on September 21, 2000 03:54:41 AM
It is contradictory as someone else pointed out, and it does not sound professional at all. I did not read all of your post close enough, I thought you meant you already sent it. That is way too much to be springing on anyone, and just because you feel that way does not mean the rest of the Paypal users do. I think you could probably say all that in a paragraph instead of a full letter? Or not say it at all until you do stop accepting Paypal. Peggy really said all that needed to be said about it. She is correct on every count. Heather
posted on September 21, 2000 08:34:14 AM
Here is a question I asked before to everyone including Paypal:
How is PP making money on the float? It costs them 1.9% to make a CC charge. Assume you pay someone $100 thru PP. It costs PP 1.90 to process that payment. Even if the $100 stays in the account for two weeks, PP has paid almost 50% APR for that money (1.9% X 26). In addition there are all the costs of running the business and the millions they spent on verification (over a dollar per user) and the cost of sending out all those checks and the referral fees.
I don't think PP ever planned on making money on the float. They planned on getting millions to sign up, then charging for premium services. But when the number of folks signing on for these services fell short of their expectations, they started looking for ways to encourage (or force) more people to sign up.
I personally have no problem with the fees. I think they are fair and I signed up. But I do have a problem with the way in which it was all handled. PP now has a big credibility issue. I think a lot of people are switching to alternative services (for as long as they remain free). While some of them stupidly suggest that they are "hurting" PP by leaving ("PP won't get the honor of paying me another dime - so there!", they are only hurting PP indirectly by reducing the number of users. If a thousand or even ten thousand leave, it won't mean much. If a hundred thousand or more start pushing other services, it could have a serious effect. Only time will tell if PP will weather the storm.
posted on September 21, 2000 09:21:01 AM
Last week I visited a few websites I had bookmarked because I really liked the design. They were all out of business. One had a letter posted that the company had filed for bankruptcy and their attorneys would contact all parties. It also said that if you are a customer that has not received your order do not contact the attorney, the company or the bankruptcy court.. Wow. can you imagine being hung out to dry like that. No product, no $$, and this was a site that sold really, realy expensive stuff.
It made me think about PayPal. Many people talk about X.com being a bank. But it was not a bank like a real bank, one that is insured by the FDIC or another government agency. It's because there's no way the FDIC would let a 28 year old with very little banking experience run a bank, they coud really screw around with people's money.
They are insured by Traveler's. I have nothing bad to say about them, but I imagine that if PayPal went belly up, there would be some issues with paying claims. What if you had to present proof of your PayPal balance and transactions to recover your funds?
With all the dot-coms dropping like flies, burning through cash so fast they cannot keep up, it seems to me that maybe PayPal's days are truly numbered and this is a rescue attempt to bring in a true revenue stream.
Exercise caution. If you use them, get that money out of there as fast as you can. There's too much trust given to this young company that could one day just disappear leaving you hanging.
With real banks, regulated entities, you have some security in knowing that they are audited, there are regulations, guidelines, standards, precautions, etc. Who knows where this company falls. What is it? Who regulates it? What laws apply?
Hey, with real banks, there are disclosure requirements and PayPal would not have been able to get away with the way they went about "enforcing" upgrades.
posted on September 21, 2000 09:41:29 AM
I have to say, I was leaning to paypal was just bumbling along until yisgood posted
<<I don't think PP ever planned on making money on the float. They planned on getting millions to sign up, then charging for premium services. But when the number of folks signing on for these services fell short of their expectations, they started looking for ways to encourage (or force) more people to sign up>>
That sounds like it makes a lot of sense to me.
I also think miracle118 makes a lot of good points.
Regardless of paypal's original plan, the bumbling and lack of knowledge they show is unsettling.
Had the company been running smoothly, and brought the fees in things might have turned out differently.
But they are not governed by banking laws, true, they say your accounts are protected, but that is what they say today.
To a lot of members, the fee introduction, improperly and unprofessionally introduced, was the last straw in a comedy of errors, including the no chargebacks, we only intended a "person-to-person" use, no definition of a business, and the verification process.
People that were never locked out of their own money, or had money taken away from their accounts maybe do not understand the helplessness of that situation. To receive an e mail saying your account is frozen until futher notice, but, hey, go ahead and put more money into it is not going to make it in the business world.
paypal is just too wishy-washy for me to allow them to have my credit card or banking info any longer. They have not proven to be a sincere, up-front operation.
Their only hope is to be able to stay in business long enough to recover from all of this, and build a reputable base with more new users. Maybe in time, the ones that left now will try it again.
before one could even access one's account -- which required choosing one of the option three buttons ("business account" "premiere account" or "personal account"