| Type | Subsidiary of eBay Inc. | ||
|---|---|---|---|
| Founded | Palo Alto, California, USA (1998) | ||
| Founder(s) | Ken Howery Max Levchin Elon Musk Luke Nosek Peter Thiel |
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| Headquarters | San Jose, California, USA | ||
| Area served | Worldwide | ||
| Key people | Patrick Dupuis, CFO | ||
| Revenue | US$2.23 billion (2009) | ||
| Owner | eBay Inc. | ||
| Website | https://www.paypal.com | ||
| Alexa rank | 33 (January 2012[update])[1] | ||
| Advertising | Yes | ||
| Registration | Optional | ||
| Available in | Multilingual | ||
| Current status | Active | ||
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PayPal is an American-based global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders.
Originally, a PayPal account could be funded with an electronic debit from a bank account or by a credit card at the payer's choice. But some time in 2010 or early 2011, PayPal began to require a verified bank account after the account holder exceeded a predetermined spending limit. After that point, PayPal will attempt to take funds for a purchase from funding sources according to a specified funding hierarchy, regardless of what funding source is listed as "primary" in the account-holder's profile. The funding hierarchy is (1) a balance in the PayPal account; (2) a PayPal credit account, PayPal Extras, PayPal SmartConnect, or Bill Me Later (if selected as primary funding source); (3) a verified bank account; (4) other funding sources, such as non-PayPal credit cards.[2]
The recipient of a PayPal transfer can either request a check from PayPal, establish their own PayPal deposit account or request a transfer to their bank account.
PayPal is an acquirer, performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type.[3] In addition, eBay purchases made by credit card through PayPal may incur extra fees if the buyer and seller use different currencies.
On October 3, 2002, PayPal became a wholly owned subsidiary of eBay.[4] Its corporate headquarters are in San Jose, California, United States at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska, Scottsdale, Arizona, and Austin, Texas, in the United States, Chennai, Dublin, Kleinmachnow (near Berlin) and Tel Aviv. As of July 2007, across Europe, PayPal also operates as a Luxembourg-based bank.
On March 17, 2010, PayPal entered into an agreement with China UnionPay (CUP), China's bankcard association, to allow Chinese consumers to use PayPal to shop online.[5] PayPal is planning to expand its workforce in Asia to 2,000 by the end of the year 2010.[6][7]
Between December 4–9, 2010, PayPal services were attacked in a series of denial-of-service attacks organized by Anonymous in retaliation for PayPal's decision to freeze the account of WikiLeaks citing terms of use violations over the publication of leaked US diplomatic cables.[8][9][10][11]
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The current incarnation of PayPal is the result of a March 2000 merger between Confinity and X.com.[12] Confinity was founded in December 1998 by Max Levchin, Peter Thiel, Luke Nosek, and Ken Howery, initially as a Palm Pilot payments and cryptography company.[13] X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both Confinity and X.com launched their websites in late 1999.[14] Both companies were located on University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm Pilots[15] with email payments as a feature and X.com's website initially featured financial services with email payments as a feature.
At Confinity, many of the initial recruits were alumni of the Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of technical and business personnel, including many that were critical to the combined company's success, such as Amy Klement, Sal Giambanco, Roelof Botha[16] of Sequoia Capital, Sanjay Bhargava and Jeremy Stoppelman.[17]
To block potentially fraudulent access by automated systems, PayPal used a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they coined the Gausebeck-Levchin test.[18]
eBay watched the rise in volume of its online payments and realized the fit of an online payment system with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of PayPal. eBay made Billpoint its official payment system, dubbing it "eBay Payments", but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions. For this reason, PayPal was listed in many more auctions than Billpoint. In February 2000, the PayPal service had an average of approximately 200,000 daily auctions while Billpoint (in beta) had only 4,000 auctions.[19][20][21] By April 2000, more than 1,000,000 auctions promoted the PayPal service.[22] PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.[23]
In 2011, PayPal announced that it would begin moving its business offline so that customers can make payments via PayPal in stores.[24]
In October 2002, PayPal was acquired by eBay for $1.5 billion.[25] PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay's subsidiary Billpoint, Citibank's c2it, whose service was closed in late 2003, and Yahoo!'s PayDirect, whose service was closed in late 2004. Western Union announced the December 2005 shut down of their BidPay service but subsequently sold it in 2006 to CyberSource Corporation. BidPay subsequently ceased operations on December 31, 2007. Some competitors that offer some of PayPal's services, such as Google Checkout, Wirecard, and Moneybookers remain in business, despite the fact that eBay now requires everyone on its Australian and United Kingdom sites to offer PayPal.[26][27] eBay Australia was subsequently forced to moderate its position by the Australian Competition & Consumer Commission, mandating that sellers on eBay Australia offer PayPal as one of the (but not necessarily the only) payment methods.[28] These accepted payment methods include bank deposit, cheques and money orders, escrow, and credit cards (processed by other than PayPal).[29]
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal's proprietary fraud management systems and accelerate the development of improved fraud detection tools.[30] In November 2008, the company acquired Bill Me Later, an online payments company offering transactional credit at over 1000 online merchants in the US.[31]
PayPal's total payment volume, the total value of transactions, was US$ 60 billion in 2008, an increase of 27 percent over the previous year,[32] and US$ 71 billion in 2009, an increase of 19 percent over the previous year.[33] The company continues to focus on international growth and growth of its Merchant Services division, providing e-payments for retailers on eBay.
As of 2011[update] PayPal operates in 190 markets and manages more than 232 million accounts, more than 100 million of them active. PayPal allows customers to send, receive, and hold funds in 24 currencies worldwide.[32] These currencies are the Australian dollar, Brazilian real, Canadian dollar, Chinese renminbi yuan (only available for some Chinese accounts, see below), euro, pound sterling, Japanese yen, Czech koruna, Danish krone, Hong Kong dollar, Hungarian forint, Israeli new sheqel, Malaysian ringgit, Mexican peso, New Zealand dollar, Norwegian krone, Philippine peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc, New Taiwan dollar, Thai baht and U.S. dollar. PayPal operates locally in 21 countries.
Residents in 194 markets can use PayPal in their local markets to send money online.
PayPal revenues for Q1 2009 were $643 million, up 11 percent year over year. 42 percent of revenues in Q1 2009 were from international markets. PayPal's Total Payment Volume (TPV), the total value of transactions in Q1 2009 was nearly $16 billion, up 10 percent year over year.[34]
In 2008, PayPal's TPV off eBay exceeded volume on eBay for the first time. PayPal's Total Payment Volume in 2008 was $60 billion representing nearly 9 percent of global e-commerce and 15 percent of US e-commerce.[35]
At an analyst day on March 11, 2009, eBay CEO John Donahoe announced that PayPal could be a larger driver of revenue than the eBay marketplaces business.[36] RIM announced that PayPal will be the only payment mechanism for its Blackberry App World, which launched on April 1, 2009.[37]
PayPal launched Student Accounts for teens in August 2009 allowing parents to set up a student account, transfer money into it, and obtain a debit card for student use. The program provides tools to teach teens how to spend money wisely and take responsibility for their actions.[38][39]
In November 2009 PayPal opened its platform, allowing other services to get access to its code and to use its infrastructure in order to enable peer-to-peer online transactions.[40]
Although PayPal's corporate headquarters are located in San Jose, PayPal's operations center is located near Omaha, Nebraska, where the company employs more than 2,000 people as of 2007.[41] PayPal's European headquarters are in Luxembourg and international headquarters in Singapore. In October 2007, PayPal opened a data service office on the north side of Austin. The company also recently opened a technology center in Scottsdale, Arizona, and Chennai, India.
On November 28, 2011 PayPal reported Black Friday brought record mobile engagement including a 538 percent increase in global mobile payment volume when compared to Black Friday 2010.[42]
PayPal’s success in terms of users and volumes was the product of a three-phase strategy described by eBay CEO Meg Whitman: “First, PayPal focused on expanding its service among eBay users in the U.S. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay”.[43]
In the first phase, payments volumes were coming mostly from eBay auction web-site. The system was very attractive to auction sellers, most of which were individuals or small businesses that were unable to accept credit card, and for consumers as well. In fact, many sellers could not qualify for a credit card “merchant account” because they lacked a commercial credit history. The service also appealed to auction buyers because they could fund PayPal accounts using credit cards or bank account balances, without divulging credit card numbers to unknown sellers. PayPal employed an aggressive marketing campaign to accelerate its growth, depositing $10 in new users’ PayPal accounts (+$10 for each new user they referred).
The biggest challenge in 2000 remained PayPal’s unsustainable business model. Initially, PayPal offered its service with lower cost, planning to earn interest on funds in users’ PayPal accounts (i.e., the “float”). However, most recipients withdrew their funds immediately. Furthermore, a large majority of senders funded their payments using credit cards, which cost PayPal roughly 2% of payment value, rather than relying on much less costly electronic transfers from bank accounts.
In order to boost its user base over eBay, both in US and internationally, PayPal decided to lever some of the ever existing concerns of sellers and buyers dealing with the virtual world, simplifying and easing the procedures regarding litigations, frauds and liabilities (transaction losses borne by PayPal also included the cost of buyer and seller protection programs. In fact, when merchants went bankrupt—not rare events in online retailing—PayPal was liable for any outstanding chargebacks related to credit card-funded PayPal payments. As with credit cards, buyers were protected against unauthorized use of their PayPal accounts. In addition, eBay buyers using PayPal received up to $1,000 in fraud protection (with a limit of three refunds per year) for items never delivered or materially misrepresented, but only if the seller had high eBay feedback ratings. Finally, subject to a $5,000 annual cap, merchants with business accounts qualified for seller protection against losses due to chargebacks, provided that they complied with reimbursement policies (e.g., retaining traceable proof of shipping to a confirmed address or requiring a signature receipt for items valued over $250).
After fine-tuning PayPal’s business model and increasing its domestic and international penetration on eBay, PayPal started its off-eBay strategy. Strong growth in active users growth by adding users across multiple platforms, despite the slowdown in on-eBay growth and low-single-digit user growth on the eBay site. A late 2003 reorganization created a new business unit within PayPal—Merchant Services—to provide payment solutions to small and large e-commerce merchants outside the eBay auction community. Starting in the second half of 2004, PayPal Merchant Services unveiled several initiatives to enroll online merchants outside the eBay auction community, including:
Paypal, as of yet, have not provided their services to many countries that are known to have a high percentage of internet shoppers such as Bangladesh and Egypt.
In China PayPal offers two kinds of accounts:
It is impossible to send money between PayPal.cn accounts and PayPal.com accounts, so PayPal.cn accounts are effectively unable to make international payments. For PayPal.cn, the only supported currency is the renminbi.
In late March 2010, new Japanese banking regulations forced PayPal Japan to suspend the ability of personal account holders registered in Japan from sending or receiving money between individuals and as a result are now subject to PayPal's business fees on all transactions.[44][45]
As of mid July 2010, users in Taiwan have noticed that the "Personal" tab for sending money has been omitted without notice. There is no longer an option to send personal payments, thus forcing all recipients to pay a fee.
As of mid-November 2010, users in Brazil also have noticed that the "Personal" tab for sending money has been omitted without notice. There is no longer an option to send personal payments, thus forcing all recipients to pay a fee. Balance transfers between PayPal accounts of the same account holder incur an additional 6.4% fee.
As of beginning January 2011, Brazilian users are no longer allowed to withdraw money using credit/debit cards.
As of March 2011(Date needs to be changed), PayPal made changes to the User Agreement for Indian users to comply with Reserve Bank of India regulations [1]. Notable changes to the agreement were:
The per transaction limit just been changed to USD 3000, since 14 October 2011 <http://paypal-apac.com/email/20111013-india/index.html>
PayPal's innovation environment, PayPal-Labs.com,[46] hosts several outreach and experimental projects such as the storefront application,[47] the Myspace and Facebook donation widgets, and the PayPal blog.[48]
Peter Thiel, the founder of PayPal, has stated that PayPal is not a bank because it does not engage in fractional-reserve banking.[49] Rather, PayPal's funds that have not been disbursed are kept in commercial interest-bearing checking accounts.[50]
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.[51] PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.[52]
Commencing July 2, 2007, as PayPal (Europe) S.à r.l. & Cie, S.C.A., PayPal moved its European operations from the UK to Luxembourg. As a Luxembourg entity, it is since regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF) and provides PayPal service throughout the European Union.
The PayPal Buyer Protection Policy states that the customer may file a buyer complaint within 45 days if they did not receive an item or if the item they purchased was significantly not as described. If the buyer used a credit card, they might get a refund via chargeback from their credit-card company. However, in the UK, where such a purchaser is entitled to specific statutory protections (that the credit card company is a second party to the purchase and is therefore equally liable in law if the other party defaults or goes into liquidation) under Section 75 Consumer Credit Act 1979, the purchaser loses this legal protection if the card payment is processed via PayPal.[53]
According to PayPal, it protects sellers in a limited fashion via the Seller Protection Policy.[54] In general the Seller Protection Policy is intended to protect the seller from certain kinds of chargebacks or complaints if seller meets certain conditions including proof of delivery to the buyer. PayPal states the Seller Protection Policy is "designed to protect sellers against claims by buyers of unauthorized payments and against claims of non-receipt of any merchandise". The policy includes a list of "Exclusions" which itself includes "Intangible goods", "Claims for receipt of goods 'not as described'" and "Total reversals over the annual limit". There are also other restrictions in terms of the sale itself, the payment method and the destination country the item is shipped to (simply having a tracking mechanism is not sufficient to guarantee the Seller Protection Policy is in effect).[55] The PayPal Seller Protection Policy does not provide the additional consumer protection afforded by UK consumer legislation (e.g. Sale of Goods Act) and in addition it cannot be enforced in the Courts because PayPal operates from Luxembourg, outside all three of the UK legal jurisdictions.
In early 2006, PayPal introduced an optional security key as an additional precaution against fraud. A user account tied to a security key has a modified login process: the account holder enters his or her login ID and password, as normal, but is then prompted to press the button on the security key and enter the six-digit number generated by it. For convenience, the user may append the six-digit to his or her password in the login screen. This way he or she is not prompted for it on another page. Using this method is required for some services, such as when using PayPal through the eBay application on iPhone.
This two-factor authentication is intended to make account compromise by a malicious third party without access to the physical security key difficult, although it does not prevent so-called Man in the Browser (MITB) attacks. However, the user (or malicious third party) can alternatively authenticate by providing the credit card or bank account number listed on his or her account. Thus, the PayPal's implementation does not offer the security of true two-factor authentication.
The key currently costs US$29.95 for all users with no ongoing fees.[56] The option of using a security key with one's account is currently available only to users registered in Australia, Germany, Canada, the United Kingdom, and the United States.[57]
It is also possible to use a mobile phone to receive an MTAN (Mobile Transaction Authentication Number) via SMS.[58] Like all security measures, there have been reports of vulnerabilities to older mobile handsets.[59]
In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sàrl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, the Commission de Surveillance du Secteur Financier (CSSF)[60] (note that all of the company's European accounts were transferred to PayPal's bank in Luxembourg on July 2, 2007.[61]) Prior to this move, PayPal had been registered in the UK as PayPal (Europe) Ltd, an entity which was licensed as an Electronic Money Issuer with the UK's Financial Services Authority (FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg.[62][63] It is therefore not possible for UK customers to obtain legal redress from the company in the English, Scottish, or Northern Irish Courts.
In the US, although PayPal has an extensive User Agreement,[64] PayPal is not directly regulated by the U.S. federal government, because it serves as a payment intermediary.[65] PayPal is regulated as a money transmitter, 31 C.F.R. 1010.100(ff)(5). PayPal is also subject to state regulation, but state laws vary, as do their definitions of banks, narrow banks, money services businesses and money transmitters. The most analogous regulatory source of law for PayPal transactions comes from P2P payments using credit and debit cards. Ordinarily, a credit card transaction, specifically the relationship between the issuing bank and the cardholder, is governed by the Truth in Lending Act (TILA) 15 U.S.C. §§ 1601-1667f as implemented by Regulation Z, 12 C.F.R. 226, (TILA/Z). TILA/Z requires specific procedures for billing errors, dispute resolution and limits cardholder liability for unauthorized charges.[66] Similarly, the legal relationship between a debit cardholder and the issuing bank is regulated by the Electronic Funds Transfer Act (EFTA) 15 U.S.C. §§ 1693-1693r, as implemented by Regulation E, 12 C.F.R. 205, (EFTA/E). EFTA/E is directed at consumer protection and provides strict error resolution procedures.[67] However, because PayPal is a payment intermediary and not otherwise regulated directly, TILA/Z and EFTA/E do not operate exactly as written once the credit/debit card transaction occurs via PayPal. Basically, unless a PayPal transaction is funded with a credit card, the consumer has no recourse in the event of fraud by the seller.
In India, as of January 27, 2010, PayPal has no cross-border money transfer authorization. In The New York Times article "India’s Central Bank Stops Some PayPal Services", Reserve Bank of India spokesman Alpana Killawalla stated: "Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act, PayPal does not have our authorization."[68] PayPal is not listed in the "Certificates of Authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India".[69]
If an unauthorized third party obtains and uses someone's PayPal login information and completes a transaction using the accountholder's debit or credit card, EFTA/E and TILA/Z make PayPal responsible for the breach. There are, of course, fact specific exceptions to this rule. One is if funds are illicitly withdrawn from a PayPal deposit account. In that situation, neither PayPal nor the bank is required to return the funds, because the agreement between a consumer and PayPal makes those types of transactions authorized.[70]
PayPal account holders' private information is marginally protected under one federal law. Since PayPal is a financial institution under the Gramm-Leach-Bliley Act (GLB), it cannot disclose its account holders' non-public personal information to third parties unless account holders opt in to those disclosures.[71]
If an account is subject to fraud or unauthorized use, PayPal puts the "Limited Access" designation on the account. At this point, the account holder must:
PayPal presents anti-phishing advice on their website[72] for identifying and reporting phishing. PayPal encourages consumers to report all phishing emails to them.
In its x.commerce innovate developer conference 2011, PayPal presented to merchant developers five types of security flaws which allow malicious shoppers to shop for free in vulnerable web stores using PayPal.[73] The details of these flaws are documented in.[74]
The current (2011/07/29) PayPal user agreement is a 26-page pdf document.[75] If one buys an item from a PayPal merchant, one is agreeing to an additional layer of arbitration beyond the merchant himself. Thus even if the merchant has acted improperly, PayPal has not violated its own policy until the user has gone through an extra arbitration process with PayPal. According to their 34-page (single-spaced) user agreement, "If a sender of a payment files a Chargeback, the credit card issuer, not PayPal, will determine who wins the Chargeback," which confirms that a user can employ the normal (legally mandated) dispute resolution process with his credit card issuer, instead of following PayPal's procedures. A user who reads section 13.7 (on page 27) finds notice that the user may have chargeback rights independent of the dispute resolution procedure privileges granted by the PayPal UA. Section 14.1 is entitled "Contact PayPal First" indicates that in case of a dispute, the user must contact PayPal first.
In 2003, PayPal voluntarily ceased serving as a payment intermediary between gambling websites and their online customers. At the time of this cessation they were the largest payment processor for online gambling transactions. In 2010, PayPal resumed accepting such transactions, but only in those countries where online gambling is legal, and only for sites which are properly licensed to operate in said jurisdictions.[76]
In September 2005, Richard Kyanka, owner of the website Something Awful, set up an account to collect donations for Hurricane Katrina to be given to the Red Cross. Owing to the high rate at which donations were made, the account was automatically frozen, and Kyanka criticized the time and difficulty involved in getting PayPal's customer service to unfreeze the account. In response to the concerns of Something Awful members over the charity used by PayPal, United Way, Kyanka finally opted to have the money refunded to the donors so that they could donate directly to their charities of choice, though PayPal did not refund exchange and handling fees for international donors.[77][78]
In March 2008, Australian current affairs show Today Tonight aired a segment criticizing PayPal, with regard to safety, freezing accounts and customer service.[79]
Several PayPal gripe sites and blog posts[80] have been created complaining of problems such as the freezing of accounts of eCommerce stores if they experience rapid growth, preventing them from being able to pay suppliers and fulfill orders.[81] One such site, Paypalsucks.com,[82] ranked third on a Forbes Magazine listing of "Top Corporate Hate Web Sites" in 2005 based on "hostility" and "entertainment value" of web forum postings and other criteria.[83]
In June 2008, the Australian Competition and Consumer Commission found that, "The evidence available does not support the view that PayPal is the most secure method of payment, or offers the best service for all transactions."[84]
In February 2010, PayPal stopped or reversed all "personal" transactions in or out of India without prior notice. Funds already transferred and transactions that had previously been "completed" were reversed leaving many vendor accounts over-drafted. Companies, contractors and service providers throughout India were left in debt to PayPal for services they had already provided when PayPal, without warning or consent, returned funds vendors had already received and withdrawn.[85]
In spite of its international reach, PayPal has limited functionalites for multi-country users, most notably the impossibility to have bank accounts in several countries, or to have a shipping address in a different country than one's bank account / credit card.
In March 2010, PayPal froze donations to Cryptome, seizing over $5300 of in-transit donations.[86] PayPal refused to inform Cryptome of the reason for this action, claiming that to disclose why the donations had been confiscated would violate Cryptome's own privacy.[87] A week later, PayPal offered an apology, which was rejected by Cryptome founder John Young as "insulting and unacceptable".[88]
In September 2010, PayPal froze the account of Markus Persson, developer of independent video game Minecraft. His account contained around €600,000.[89][90]
In December 2010, PayPal permanently restricted an account used to raise funds for WikiLeaks citing it was in violation of the PayPal Acceptable Use Policy. At a conference in Paris, a PayPal VP, in response to an attendee's question, stated the account was restricted after PayPal was allegedly pressured by the U.S. State Department.[91] Afterwards, PayPal reiterated the decision was based on violation of PayPal's Acceptable Use Policy. This was followed by cyber attack on the paypal.com website and a boycott of PayPal, in which some users closed their PayPal account in protest.
In November 2011, PayPal moved all shipping to eBay. This move also forced businesses with multiple users to use only their administrative passwords for all employees, which opens the door to potential account fraud by merchant employees. As a results of this shipping change, many PayPal merchants already frustrated with PayPal fraud protection moved their shipping from PayPal/eBay to other online shippers such as Stamps.com[92]
In December 2011, PayPal froze funds in an account held by April Winchell, the owner of Regretsy, used for charitable giving, requiring the account holder to refund the donations collected but keeping the fees charged. Following some public outcry the account was reinstated, PayPal apologized and donated to her cause.[93][94]
As of December 2011, PayPal is embroiled in a controversy over their policy of holding 30% of vendor transactions for 90 days, which PayPal argues is intended to make funds available to customers in the event that a transaction is found to be fraudulent; to provide PayPal the funds to refund the seller. But PayPal has refused to provide information regarding the reasons particular sellers have been identified to have funds reserved. There is also criticism about the perceived arbitrariness of the 90-day waiting period, when customers have only 45 days to file a claim against a seller, and complaints about the fact that PayPal has not paid interest on the funds held back. Many sellers have surmised that the policy is due to a desire on the part of PayPal to use their funds for investing. There is a class action suit pending regarding the practice.[95]
In 2002, CertCo filed a suit against PayPal claiming patent infringement concerning the use of distributed computing systems that process micropayments, or small cash amounts. In April 2002, CertCo dropped the suit and stated that they had come to a settlement involving, "a non-consequential payment and mutual releases."[96]
In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California law. Most of the allegations concerned PayPal's dispute resolution procedures. The two lawsuits were merged into one class action lawsuit (In re: PayPal litigation). An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices (including changing its dispute resolution procedures to make them EFTA-compliant), as well as making a US$9.25 million payment to members of the class. PayPal denied any wrongdoing.[97]
In May 2002, Tumbleweed Communications filed a lawsuit against PayPal (and later expanded it to include eBay) claiming that PayPal had violated its patents for sending personalized links through e-mail, which PayPal uses to alert its customers about financial transactions. In January 2004, the two parties came to an agreement, but didn't disclose the financial terms of their licensing agreement.[98]
In June 2003, Stamps.com filed a lawsuit against PayPal and eBay claiming breach of contract, breach of the implied covenants of good faith and fair dealing, and interference with contract, among other claims. In a 2002 license agreement, Stamps.com and PayPal agreed that Stamps.com technology would be made available to allow PayPal users to buy and print postage online from their PayPal accounts. Stamps.com claimed that PayPal did not live up to its contractual obligations and accused eBay of interfering with PayPal and Stamps.com's agreement, hence Stamp.com's reasoning for including eBay in the suit.[99]
In August 2002, Craig Comb and two others filed a class action against PayPal in, Craig Comb, et al. v. PayPal, Inc.. They sued, alleging illegal misappropriation of customer accounts and detailed ghastly customer service experiences. Allegations included freezing deposited funds for up to 180 days until disputes were resolved by PayPal, and forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure). The court ruled against PayPal, stating that "the User Agreement and arbitration clause are substantively unconscionable under California law," noting their unjustifiable one-sidedness and explicit prohibition of class actions produces results that "shock the conscience" and indicate PayPal was "attempting to insulate itself contractually from any meaningful challenge to its alleged practices".[100]
In September 2002, Bank One Corporation sued Paypal for allegedly infringing its cardless payment system patents;[101] the following year Paypal countersued, claiming that Bank One's online bill-payment system was an infringement against PayPal's online bill-payment patent, issued in 1998.[102] The two companies agreed on a settlement in October 2003.[103]
In November 2003, AT&T filed suit against eBay and PayPal claiming that their payment systems infringed an AT&T patent, filed in 1991 and granted in 1994.[104] The case was settled out of court the following month, with the terms of the settlement undisclosed.[105]
In March 2004, PayPal and New York state's Attorney General, Eliot Spitzer, came to an agreement to require PayPal to disclose clients' rights and liabilities more accurately and to pay $150,000 to the state of New York for penalties and the costs of the investigation.[106]
In April 2007, one of two anti-trust lawsuits was filed against eBay/PayPal by Michael Malone of Texas.[107] This suit claimed that the monopolistic relationship between eBay and PayPal violates United States anti-trust laws. In March 2010, Judge Jeremy Fogel entered summary judgement in favor of Paypal.[108]
In June 2011, PayPal and Israel Credit Cards–Cal Ltd. were sued for NIS16 million. The claimants accused PayPal of deliberately failing to notify its customers that ICC-Cal was illegally charging them for currency conversion fees.[109]
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