posted on October 15, 2001 03:47:37 PM new
This topic is very relevant to our ebay sales and the fact that PayPal has filed for an IPO. By filing for an IPO, PayPal will be under much more scrutiny and its business practices toward us may change, just as ebay changed when it went public.
As a former federal bank examiner, I have always believed that PayPal may operating an illegal bank. This issue is finally discussed in its IPO filing and is serious since they could face substantial penalties and/or be required to cease certain banking activities. I was a federal bank examiner for eight years and even participated in exams with the California Department of Financial Institutions (CDFI). Essentially, PayPal is claiming they are a money transfer agent and is finally pursuing licenses they should have had long ago even for these activities. It appears that the state of New York believes that PayPal is a bank but has deferred to CDFI since PayPal is based in California. Also, I would not be surprised to see federal regulators eventually involved since PayPal has been operating nationwide without appropriate licenses and/or bank charters.
Also, after reading the SEC filings, I have a much better understanding why PayPal has implented some of its new rules over the past year. Some were done to move the company away from these potentially illegal banking activities to more of a money transfer agent while others were to be in compliance with approprite laws and regulations.
Additionally, as someone who has a strong banking and financial background and passed both the CPA and CFA exams, I am quite hesitant to invest in PayPal. Some of the reasons I may not invest are not even financial reasons, the management team appears to be lacking in key areas. Also, I am not impressed with who they lined up to do their credit card with - people in the industry know that it is certainly not one of the better financial institutions - what is that saying, birds of a feather flock together - something like that.
Personally, as a full-time ebay seller, I hope PayPal succeeds since competition is good for us. I do receive over 50% of my on-line payments from Billpoint since the fee is really not that much different for high volume sellers. PayPal would have kept more of my business if it were not for its consistent poor public relation moves. In my opinion, PayPal is not going to make money for quite awhile. It's greatest asset is really the number of customers it has and what it can potentially do with them. And to be fair, that should not be downplayed, it is a significant asset. It would not surprise me if PayPal was eventually bought out just for its customer base.
If you want to learn about PayPal, go to the SEC Edgar database, search for PayPal and read the new filings for the IPO which are at the bottom of the list of filings. There is a lot of good information here. I will be interested to hear opinions on how going public will affect ebay sellers.
[ edited by topprospects on Oct 15, 2001 03:50 PM ]
posted on October 15, 2001 03:52:43 PM new
Thank you for posting this information.
I have a business account with PayPal and have not shirked from paying their fees (OK, maybe for the first few months ) and accepting all forms of payment through them. And I've never had any account difficulties with them.
However, while I obviously am not a PayPal basher, neither am I a cheerleader. I like to read about both the good and bad sides of the issue and make my own decisions.
Times change and like many say here, "It's adapt or die."
I never want to be so stubborn or close my eyes to a situation that I refuse to adapt if necessary.
posted on October 15, 2001 03:55:15 PM new
Very well stated, Top. I applaud you for an excellent point.
I totally agree, and have been saying for awhile that paypal.com needs to come under regulations and they way they operate they SHOULD be under banking rules and regulations.
Finally, someone who has experience in the banking industry.
posted on October 15, 2001 03:56:56 PM new
topprospects
I want to thank you for your well thought out and intelligent post of the Paypal subject. So often we read the Paypal bashing threads, and I often wonder if the writers have a clue as to what they are talking about. You are obviously well-informed and rather than bash Paypal, you state the facts, problems and Pros and Cons.
I sell full time on eBay and I use paypal, and I've never had a problem. I get my funds quickly with Bank Transfer, and many of my customers love the ease of paying with Paypal (my bidders pay about 1/3 of the time with paypal, 1/3 with Billpoint and 1/3 with checks and money orders)
I have to admit, I'm very cautious about paypal, using Del. confirmation with items over $15.00 and I transfer money out quickly. With high end items, I don't accept electronic payment. (Not a risk I'm willing to take, Billpoint or Paypal.)
I hope Paypal makes it, and I hope they are successful. I like using paypal and I know my bidders like Paypal as well.
posted on October 15, 2001 05:14:51 PM new
topprospects
WELL SAID. Thanks so much for posting this. I really like the "paypal" concept and want to see it succeed as well, but the more paypal changes and the more they change their user agreement, the less I like them.
It is like dealing with my brother in law. Sometimes he's honest, sometimes he isn't. Either way, I'm left feeling like I just got fleeced by a used car salesman. :P
This is relevant, and I'm grateful to have the information, and am curious if damon will weigh in on this situation? Damon, is he accurate?
posted on October 15, 2001 05:37:58 PM new
i have been using my paypal debit card and enjoying a 1 1/2 % cash rebate .
i wonder how many of you use your debit card??
i know paypal has been monitoring its debit card and see where it is being used and so far so good down here in the south-post office,supermarket,gas station,restaurant.
since the merchant is getting cash when we use this card ,he is making more by not having to pay cc discount fee.
do you think paypal will eventually pitch this card to the merchants,like i have 8 millions customers who come into your store and pay you instant cash which is deposited into your account instantly,how about displaying our logo in your store and paying us something in return.
i know visa and mc discount fee could be 2 1/4- 2 1/2,so what if we charge you the merchant 2 % instead.
just wondering?? as paypal seems to be tracking its development.
posted on October 15, 2001 05:46:05 PM new
http://www.sec.gov/Archives/edgar/data/1103415/000091205701533855/0000912057-01-533855-index.htm
Above, is the link to the PayPal filing to read the information directly filed with the SEC, no reason to go anywhere else. If you can not click on it, just cut and paste it into your browser address. Scroll down and click on Document 1 since that is the main portion of this filing. Pay particular attention to the risks outlined by the company. For readers unfamiliar with SEC IPO filings, all companies are required to identify risks so do not over react - this is a requirement and there are often mitigants, each potential investor needs to evaluate them for himself/herself in light of their individual circumstances and risk tolerances.
posted on October 15, 2001 06:13:03 PM new
wowwow85
I have a regular merchant account. Unless Paypal has some weird arrangement, the merchant pays the SAME fees on a debit card as they do on a Credit card.
The processor does not treat them any differently.
posted on October 15, 2001 06:42:16 PM new
THANK YOU KIDSFEET!!!!!!!!!!!!!!
now i know why paypal is so keen on tracking where its debit card is being used.
so when i use my paypal debit card,paypal is collecting from the merchant and giving me back 1 1/2 %.
they even called me one day just to tell me the card is working at usps,supermarket,exxon gas station etc.
so now i know.
SO it is working to reduce ebay dependence.
posted on October 15, 2001 07:19:50 PM new
are you referring to PROVIDIAN BAnk as birds of the same feather flock together??
this could change,as paypal goes ipo and still have 8 million subscribers,it could have some one else to share the bed with.
what about us>someone would say the same thing,what kind of merchants who sell from home,scout the garage,dumpster and flea market looking for merchandise,stealing packing supplies from usps for private use ,scamming orphans and widows in cyberspace ??
paypal and us-birds of the same feather??
posted on October 15, 2001 07:56:12 PM new
Other than confirming the bank, I will not discuss any specifics because of confidentiality issues. I am sure there are plenty of great stories about them in the public realm though.
In regards to us, I consider myself a professional and I am sure most other sellers feel the same way. I love what I do and the happiness I bring to the world on a daily baisis. Though, I loved being a bank examiner, needless to say, many bankers did not love me - though most are very cordial toward examiners but then again, they have to be. On a serious note, if you have nothing to hide, examiners are a great resource and can definitely improve your business through recommendations, best practices, etc. Bottom line, I have high ethics and moral values which has been discussed enough on this board about PayPal so let's not go down that path since this is not the topic of the thread.
Perhaps, you should take a step back before you analyze sellers such as us and look at the future direction of banking. In regards to banking, I believe that we will be one of the most sought out groups. Perhaps we already are, Citibank, who I have examined, is no slouch and we all know they have established an on-line payment service and are offering bonuses to attract customers. We are clearly early adopters of banking technology and it is a fact that on-line transactions are much cheaper to process. Again, the 8-10 million users PayPal has is clearly its most valauble asset. Can you imagine the revenue you could potentially earn if you could successfully market and cross-sell other financial products to these users. Many traditional banks would pay quite a premium for these users such as you and I and in my opinion, they will. We are all valuable assets!!!
Finally, I am still interested in opinions on how PayPal going public will affect us. We all know ebay changed.
posted on October 15, 2001 08:07:15 PM newAs a former federal bank examiner, I have always believed that PayPal may operating an illegal bank.
I assumed that Providain Bank, Robertson Stephens, DSB Bank, Temasek Holdings, Vertex Management, Clearstone Venture Partners, Credit Agricole, eBank, Bankinter, Deutsche Bank, JP Morgan, ING Group, Goldman Sachs, Sequoia Capital, etc. would have had a clue on the legalities of the operation before investing millions.
I'm not a former federal bank examiner, but it seems odd that PayPal would have such investors on an illegal operation. Doesn't it?
posted on October 15, 2001 08:38:17 PM new
are these institutions investors or just ready to peddle the shares of paypal ??
true,paypal has amassed 8 million users,i hope it is 8 million warm bodies not email addresses ?
its business model could call for them to remain as a pure cyberplay,cultivating a complete personal banking relationship with its members-send and receive payment for sales on ebay and wherever,debit card,money market management,other mutual funds such as stock or bonds or reits?insurance for your home and auto and pet?
credit card i believe is already offered,will line of credit to follow soon??buy and sell stocks??
if there are changes after successful ipo,i would say the trend is towards more professionalism,it is very common for companies to analyse their clients and see where majority of the revenue comes from,and i bet 80 % of the revenue comes from 30% of the members(just a guess)and decide to cultivate the 30 % and raise fee on the other 70 %.
you can see some of it now-get lower fee schedule if you give paypal at least 1000 worth of business a month ,or prove you have a competitive offer from a proven cc issuer.
i think every conceivable product offered by a financial institution on land could be considered by paypal,whether it is legi or doable is another story.
as to be bot out,i think it will be too early to tell,most venture backers look for huge reward and the way to do it is to watch the stock price rise and rise and rise.
i personally is never too impressed with citicorp/citibank,i was in nyc for 4 years and within walking distance of a citibank branch,it did not wow me,it is better than its competitors becasue they are so bad.
posted on October 15, 2001 08:38:36 PM new
Your point is well taken and of course, these comapnies have done due diligence but they certainly do not enforce the laws and regulations of this land. I only gave you one opinion from me as a former federal bank examiner that they may be breaking laws and regulations and even the company had had to finally acknowledge this in its filings. Please read the company's own filing so we can have a good discussion and debate of the issues if you feel that PayPal is not breaking the law.
In regards to PayPal, illegal banking operations most likely center around the acceptance of deposits without a banking license/charter. Read the SEC filings, even PayPal discloses these facts and the facts are it has no banking charter/license and in fact only has money transfer agent licenses in two states.
PayPal is using vague terms like, we believe we are not subject to bank licensing requirements, we assume we are subject to the Electronic Fund Transfer Act and, the provisions of these laws and related regulations are complicated, and we do not have extensive experience in complying with these laws and related regulations. These are definitely red flags, a company should know what laws and regulations it is subject to and have appropriate compliance procedures.
In fact here are some of PayPal's exact words. "Our analysis is subject to significant uncertainty, however, and we cannot assure you that state regulators will agree with our interpretations...We also filed an application in California in July 2000 for a license to operate as a money transmitter. The California Department of Financial Institutions has not acted on our application, and has indicated that it does not expect to act on the application at least until we have addressed questions regarding our potential status as a bank, as described in "Bank Regulation" below. We will need to refile the California application to update information regarding our business."
A couple paragraphs later the company says, "California banking regulators have asked for our analysis of whether we are accepting deposits and are engaged in a banking business. We have engaged in substantial discussions of this issue with California banking regulators over the past year, and have submitted legal analyses to support our view that we do not take deposits and are not engaged in a banking business. Our discussions with California are continuing. New York regulators have expressed their view that the ability of our customers to leave amounts on account for future transfer represents impermissible banking."
That's right, New York said they were undertaking illegal banking activities. And people in the industry know New York has the finest state banking department in the country.
Again, I have never bashed PayPal and will not since I like their product. And I think they are good for our business. I even think that it would be neat to work for them in addressing some of these complicated issues. It certainly will be very interesting to watch and see how it affects you and I as ebay sellers.
posted on October 15, 2001 08:43:03 PM new
Well, maybe I have bashed PayPal before during some of those rule changes but I really do like them!!! In fact, I keep money on deposit with them all the time at 0% interest and that's unfortunately part of the problem here - they take my deposits without a banking license.
posted on October 15, 2001 09:11:55 PM new
many respectable land institutions have just seriously consider the role of e commerce and internet and how they would be affected.
it is possible that an entity like paypal is forcing some of these regulatory bodies to think of this new frontier and what and how they should act and inter act.
take retail for example,amazon is the only retailer who is truly integrated starting with the order entered on your pc thru order processing ,packing and labeling /
all the other retailers treat their cyber orders just like their mail orders,print out the order and give them to the order processing dept.
whatever happens to the big talk of sears spending 200 millions on internet commerce,what about walmart vp who said the walmart of cyberspace is walmart itself??
okay so they say they are doing a great job taking flowers orders,whoopee !!!!!!!!
pity some of the antique dealers who heard of all that gold paved on cyberstreet,so they have a website and dont have time to check emails or act nimble enough to compete.
there are some ebay sellers who have done very well,take a guy who sells packaging tapes and mailers,he has many repeated customers,i am one of them.
ebay wants to embrace corporations just as yahoo embraces corporations,thats inevitable.
but there will always be a turkish bazaar and the bargain hunters,treasure hunters will come.,to each his own.
will paypal be profitable serving bazaar sellers,well does anyone ever see the movie IVANHOE,elizabeth taylor played the daughter of a jewish moneychanger,she seems to be well providied by her father!!
posted on October 15, 2001 09:39:16 PM new
Interesting post, I've enjoyed.
I've slogged my way through the registration statement, well, most of it anyway. Very informative, especially as to how they source their revenues and the charges they incur. I recommend it to everyone who uses paypal.
One thing I would add: I sincerely hope we do NOT hear from Damon on this point. That would mean that PayPal's attorneys had failed miserably. As the registration statement is on file with the SEC, any written comments by PayPal may be considered to be a "prospectus". That is why all of PayPal's employees should have received the memo informing them not to comment on the IPO. Hideous consequences, if the SEC chooses to get involved.
And yes, this is my profession. And no, it's not legal advice.
posted on October 16, 2001 12:02:02 AM new
It's my opinion that PayPal's management do not wish to manage a bank that issues its own lines of credit, etc.
I believe this because they used to be X.com, and when X.com/PayPal.com merged, they sold off the lines of credit to a collection agency. From my discussions with a (very friendly) representative of this agency, the rep indicated that many former X.com customers had extremely low opinions of the service provided by X.com in relationship to their credit line. In fact, the rep was extremely surprised to hear that X.com did indeed send out monthly statements (in postal mail) to those who owed money on their credit line. Myself, I always received such a statement; this rep's experience seemed to indicate that she had talked to many customers that claimed they never did.
They seem to be willing to offer affiliated services, like the PayPal VISA which is actually issued by a different institution. This sort of thing doesn't require much work from PayPal beyond signing a contract and putting a link on their website, as far as I can tell.
And, I will explain the PayPal debit MasterCard - the reason they want you to put it through as a "Credit Card" when it's used is so they get the full rate that a merchant would pay to take any normal MC/VISA. Whatever this rate is, the 1.5% rebate to us is coming out of it. I think PayPal either figures they don't have costs that require them to keep this money or that giving this money back as a rebate is worth it, to help maintain their hold on a very fluid market of online payment services.
Auctions are listed every day, so if there was ever a significantly better online payment service, it would be easy for it to spring up largely "overnight" as sellers could simply start inserting the HTML into the next listings they create.
posted on October 16, 2001 06:45:26 AM new
grantje,
thanks for the insight on paypal debit card,i have been using it at various retail places and the only way it would work is as a credit card not an atm card,so it goes thru as a credit card charge and like you said they will get the discount and yet they dont have to fund it like the cc issuer does and send out statements .
i dont believe the debit card is widely used among its members,in the future,i think they will need to send out statements as we can reconcile what is going on ??
you said-----------------
so if there was ever a significantly better online payment service, it would be easy for it to spring up largely "overnight" as sellers could simply start inserting the HTML into the next listings they create. --
to some folks there is already better service like citibank's service but few people use it ,why,because many of us are so used to using paypal and billpoint,and it is not that easy to insert the html in auction listing,sellers dont want to be bothered and paypal does it automatically for them every day.
i am not even sure it is worthwhile for another service to come in and compete,it is not that lucretive .
it takes a lot to start a business from ground level,it takes both && and hours,most of us have spent relentless hours growing our business,if we could just take the hours we have spent and work for starbuck or mcdonald,we would have a tidy sum of money stashed away in our savings acoount
posted on October 16, 2001 06:57:40 AM new
And PLEASE before we all get overwhelmed by none proved background...... WHY is this in the eBay Outlook section?????? When there is an appropriate section for it..........
posted on October 16, 2001 07:07:50 AM new
reason why it is in ebay outlook is that the author of this thread wondered if paypal would have major policy chnages after ipo.
as majority of paypal revenu comes from ebay sellers,this is a good place to get some discussion going.
posted on October 16, 2001 08:20:49 AM new
"One thing I would add: I sincerely hope we do NOT hear from Damon on this point. That would mean that PayPal's attorneys had failed miserably. As the registration statement is on file with the SEC, any written comments by PayPal may be considered to be a "prospectus". That is why all of PayPal's employees should have received the memo informing them not to comment on the IPO. Hideous consequences, if the SEC chooses to get involved."
I'm fairly sure that Paypal will be dotting their i's and crossing their t's in regards to an important issue like that. I'm fairly confident that they are aware that public and even private comments regarding the IPO are not allowed.
I think Paypal is in a very gray area and a lot of regulation may have to be re-written in some respects to accommodate them.
[ edited by katiyana on Oct 16, 2001 08:21 AM ]
posted on October 16, 2001 10:00:32 AM new
Some of the posts here (and elsewhere on Auction Watch) would be a lot easier to read if posters used paragraphs; began sentences with an initial cap; added apostrophes where required; inserted a space after commas and spellchecked.
posted on October 16, 2001 11:14:00 AM new
Is PayPal in a gray area? Perhaps, it's only gray because that's the interpretation they want. What do you think???
I am almost certain we will see changes down the road and sure hope they do not have an adverse impact on us sellers. Definitley interested to hear what anyone else thinks will change.
For one, I think it's almost a guaranatee that they will have to stop taking deposits. They will be smart though and hopefully get around this by placing the funds in a real bank or some type of investment vehicle. That's probably why the money market account was formed but many people do not use it so PayPal is still accepting deposits which is clearly against the law - i.e. illegal banking activities.
posted on October 16, 2001 11:26:08 AM new
I think it is safe to assume, based on the sheer size of Paypal's entity, that they have sufficient legal council to address any regulatory concerns facing the company.
It is also safe to assume that many of the questionable legalities that are being raised relate to the fact that Paypal's business model is unlike any that has ever been seen in the financial sector. As such, the laws that are currently in place do not specifically or sufficiently cover or address Paypal's unique business practice.
I'm of the belief that Paypal is on sufficient legal ground as they move forward towards their IPO and that any and all0 of the possible exposures and liabilities are currently being properly addressed. At this level of play, you get bet that they have the greatest minds available to accomplish these tasks.
) and accepting all forms of payment through them. And I've never had any account difficulties with them.
