PayPal may be in trouble......


MasterCard to stop third-party transactions
Fri Apr 19, 6:29 AM ET
Andrew Backover USA TODAY
A new rule by MasterCard could crimp online commerce by stopping merchants from taking credit card payments via third parties, such as popular PayPal, USA TODAY has learned. On May 1, unless new terms are reached, Internet merchants that rely on third-party billing, most often small merchants, could miss out on sales via the USA's No. 2 online credit card. And MasterCard holders could have a harder time using their cards at many sites, including auction sites, that use PayPal and similar services, says Gartner analyst Avivah Litan. ''The promise of the Internet was that anyone could set up shop and get paid,'' she says.
''It's not a level playing field anymore if this rule goes through.'' According to MasterCard, its 15,000 card issuers won't be allowed to process credit card transactions using third-party services. Such services are most often used by small merchants because they can't afford to take credit cards. PayPal is the biggest third-party service, with about 13 million registered users. It does 240,000 transactions a day worth about $13 million -- about half of which is done via credit cards. Sellers on auction sites such as eBay and Yahoo may use PayPal to process transactions. Earlier this year, PayPal was used for about 28% of eBay transactions, Litan said. The change would not, MasterCard says, affect people who occasionally use third-party services to sell goods online -- only entities who sell goods or services ''on an ongoing basis,'' according to a MasterCard memo. The change would require those merchants to set up deals with banks so they could take MasterCard directly.
Even if the change is made, consumers could still use their MasterCards to buy goods from Web sites that deal directly with MasterCard. The reason for the change, says MasterCard spokesman Alex Lau, is to protect financial institutions and cardholders from fraud and identity theft. The change is likely aimed at porn and gaming sites that have higher occurrences of theft, Litan says. PayPal is working hard to get exempted from the change. It became the first company to
offer a viable alternative to credit cards on the Net by approaching eBay merchants who previously had to wait for checks to clear before sending out merchandise. PayPal signed the merchants up with fewer hassles and charged lower fees than banks. It uses its agreements with banks to process credit card payments for them. PayPal has been one of few Internet initial public offerings of late. Its shares closed Thursday at $24.46.
PayPal spokesman Vince Sollitto says PayPal is ''hopeful and confident'' it will come to new terms with MasterCard. Visa still accepts PayPal, as does American Express.

More from > Business - USA TODAY

Mastercard is shooting itself in the foot!Dumb suits again.If you are buying and selling frequently on E Bay or here on the gon and not with Paypal or accepting Credit cards you aren't in the game and missing out on sales.Cards offer some protection for buyers.
Mastercard is the company that will be in trouble (unless competitors follow suit quickly). How many Visa and AmEx credit card offers do you get every day? How long will it take them to set up shop right on PayPal with instant credit offers? What is Mastercard thinking??? I'll live without Mastercard long before I can live without PayPal.
PayPal is in so much trouble that eBay is thinking about buying them.
Paypal is in so much trouble it went public two months ago at $13.00; today the stock closed at a new high of $26.80; a market cap of $1.6 Billion. And you thought internet stocks were dead.

The stock symbol is PYPL

Tough situation, but I appreciate the desire to curb credit card fraud. The web has become a new frontier for it, and if it's not dealt with somehow, and by all of us, we, the consumers pay in the end.
PayPal is a joke! Your tranaaction is NOT secure when you use there service. I purchased a pair of interconnects on Audiogon five months ago. I paid with paypal and gave the seller my name, address and FedEx number to ship them. Cables never showed up. After contacting PayPal and emailing them all the information they told me it would take about a month to conduct there investagation. I then received an email from them telling me that the party in question received my funds, but since he removed those funds from his PayPal account, there is nothing they can do---we are sorry. WHAT IS THE POINT OF THERE SERVICE? I HAVE NO CABLES, I AM OUT THE MONEY AND THE 3%. PayPal is NOT what you think. Please be very careful. You are not secure when you use there service.
Of course, if you use your credit card for payment through PayPal, you have recourse with them. Everything I buy with my card is insured.
I am entering this discussion from a merchant account
owner's persepective. My company has accepted most of the
major credit cards going all the way back to 1990 or so.
First and foremost, I think it should be mentioned that
most merchant credit card accounts have language which
prohibits a company from accepting charges for another
company (or third party). This is done to protect both the
merchant and the credit card issuer from possible fraudulent
transactions by a third party. This also prevents some
less than credit worthy operations - such as Escort Services
and Internet Porn Sites - from using someone's merchant
account for possibly illegal transactions.
I might also add that most merchant agreements DO NOT
allow a company to offer goods or services at a higher
price just because it is being charged to a credit card.
In fact, I have told more than one merchant that I would
report them to Visa International or Mastercard unless they
charged me the "cash" price for a purchase. One outfit -
a brokerage firm that sells broadcast equipment - thought
they could get away with it. WRONG!!!
They not only wound up almost losing their account with
Mastercard, but sent me back my 3% "fee" with a letter
of appology. Maybe you might think about that last item
when some turkey tells you they are going to charge you an
extra 3 or 4% to use your credit card.
Quite frankly, it would not bother me a bit to see
PayPal go under as a result of Mastercard's decision. There
is WAY TOO MUCH fraud on the internet right now - and you
as a credit card holder are payaing for it with higher
interest rates and fees.
I used Paypal for my first e-bay transaction. I then used it a couple more times until they told me I'd have to let them process a "test" transaction against my bank account (some gibberish about proving my worth). I spent my life in the investment business and saw considerable risk in giving them enough info to post to my bank account. I wouldn't do it, and told them so twice. I've used up my $1,000 limit (unless you let them process against your bank account they shut you off at that level) and will never uise them again. Incidentally, the fact that they've doubled since the IPO means nothing unless you sell.
Like others, I am not comfortable sharing all of my banking data with PayPal or anyone else. However, I use PayPal so I only have to give my credit card info to one company (PayPal) vs. numerous companies or individuals. If PayPal keeps credit card info confidential, and I believe they do, that should reduce fraud risk. I can't speak for other companies who execute similar business models: The porn business is a very different environment which may not have the same level of integrity -- the psychological similarities betweeen audio and porn can be handled in another thread ;-) The remedies to reduce fraud risk in some areas do not also need to remove customer convenience and increase fraud risk in others. For example, why not allow the practice for companies with a strong balance sheet that have owners with excellent credit scores? My two cents.
...time to short-sell paypal!
I believe that part of the agreement with PayPal (the terms that you agree to when you sign up with them) absolves them of any responsibility for your transactions. I'm sure they do what they can to help someone solve their problems because it's in their best business interest, but in the end they have no real power or control...especially if the criminal party wasn't registered and verified with them...and I highly doubt PayPal has the right to remove funds from their bank account to make up for an allegedly fraudulaent credit card transaction. You do have consumer protection when you purchase goods with your credit card, but I don't think many credit card companies can offer that same protection when you go through a third party like PayPal (although it's worth filing a claim with them...just in case). You have protection when you use your card with a merchant because that merchant has legal agreements with the card companies...those companies can always charge the merchant back if they don't act responsibly...they have a lot of power over the merchants. PayPal can prove that you agreed to waive their liability for your transactions. Whether or not that would actually hold up in court...I don't know.

I do think this is going to become a huge issue in the future. THe amount of internet-based sales keeps growing and growing and PayPal has become a huge business. They're currently trying to have the best of both worlds. They want to make money by accepting credit cards for individuals and small businesses, but they don't want to deal with the costly fraud and liability that comes along with the accepting of credit cards. Any credit card accepting merchant has those responsibilites and PayPal should too. The amount of fraud and merchandise complaints for their type of business must be unbelievably high. I'm sure they can always survive as a conduit to transfer funds from people's bank accounts, but their profits will disappear the day they're held responsible for their credit card transactions. I'd sell that IPO stock as soon as you're able. :-)
Paypal is very useful for online purchases,almost a necessity if you are buying and selling very much.It's a pain to send a MO for small purchases and very slow[snail mail].I prefer Paypal or Billpoint.Faster!Paypal takes funds from your Paypal balance 1st,Then your Bank account and then your credit card last.Best to keep your Paypal balance and bank account small so they use your credit card for purchases[I assume you are protected through your credit card co.ASK!]The BEST idea is have a bank account for Paypal /Billpoint transactions ONLY.Easier to track payments, balance and limits funds that can be accessed.Always use credit cards/Paypal or COD for large purchases and get phone numbers at home and work from the seller!If you pay with a money order ALWAYS use a USPS MO and send Certified then they get involved if fraud occurs.Cashiers checks from banks they don't.I always wonder who's buying $200 plus items when the seller is new and has no feedback here or on E Bay and expects buyer to send them MO's or checks only.I see newbe's selling here for the 1st time $1000+ items in this manner.I don't send $ into the Blue.Use common sense!Hope this helps!JD
I found browsing this site interesting.
It is worth a look. And, JD, I am one of the "newbies" trying to sell an expensive item without using Paypal. All my feedback is on eBay!
It makes no sense why all these small dealers (including a few here on AudioGon) who process credit-card transactions day in and day out resort to a seedy operation like PayPal It makes no sense why all these small dealers (including a few here on AudioGon), who process credit-card transactions day in and day out, resort to a seedy operation like PayPal. None of the reasons that I can think of are very confidence inspiring. It removes too many checks and balances from a system that has otherwise worked well for many, many years. PayPal, with it's gross incompetence, is inadvertantly screwing over consumers, businesses and the CC companies alike. MasterCard is probably just plain sick of getting stuck with all the complaints.

Watch the other cards follow suit. Then PayPal and the like are history.
I love paypal and I think it really increases the number of sales in general. It allows everyone to accept credit cards.

JMC, I think the reason small dealers use paypal is because I think you can transfer money out of your checking account as if it was a credit card through paypal.
And Perfectimage...I'm sure the main reason that small dealers use PayPal is the huge difference in fees. There is a huge difference, isn't there?? What percentage of sales do the credit card companies charge small volume dealers? Isn't it much more than the 2%-3% that PayPal charges?? Isn't it closer to 5%-10%, depending on volume?? Any small dealer could accept credit cards directly, couldn't they...if they're willing to pay the high fees and deal with chargebacks, etc??
Corelating the inputs above with my own sad experiences and thoughts I would venture to a few conclusions:
- PayPal was created and developed based on the illusion
that one could make an instantenious safe/ secured money transfer, with a click of a button. This is definitely not so, since at the click of a buton is only the withdrawal of your money from your CC or the existing funds in your PayPal account (which lay there, bringing them a hefty profit); when it comes to transfer money from a Bank account (Note: US account only, quite a hustle for the International users, most of which don't have an US account)a sluggish and (I suspect) deliberately delayed process occurs, till funds get into your PayPal account. Then, a "5 working day process" gets in effect, till the money (minus PayPal fees) get into your own Bank account. One could tranfer money from Bank to Bank on a one maximum two day basis, versus waiting sometime 10 days for the PayPal transaction to be "completed".
The Buyer got the illusion that he completed the payment when in reality he has to wait those 10 days, or so, till the Seller comence the shipment. Saves a trip to the Bank
though, which our (too) busy escuses for life cannot absorb.
But one can transfer Bank to Bank, on the Net from his own
PC. Not safe! Who guarantees that PayPal is!?
- for the above masquerade of a so called "service" PayPal
(asside from using the residual funds in their Customer
accounts to make a profit) charges 2.9% + etc. to all those
whom upgrade to the "preffered status". And we know what
constant pressure one has to comply with this status (which
give you "the right" to pay the fee..., or else
- PayPal "service" and "customer care" are a joke (basicaly inexistent and all my mail with them would support that fact. To any question/ problem that I raised I've got inept
answers, of the retarded like type, always parallel to the
question. And never, solving the problem addressed by me.
- their psyhological black mail to accept their new agreement (presented almost as a perk for PayPal customers,
so much is it said to be in their favour...)is a scandal.
Not even have bothered to read that piece of crap (knowing
that a change from such people, should logically be only the
effect of the eforts of numerous experts on "how to screw
the customer in an exemplary/ total fashion")I postponed the
acceptance with their 120 days grace period, hoping that the
reluctance of many older membersh to accept their bulshit will oblige them to give up. When less that 60 days remained
they start sending me daily reminders, on a count down basis. Paradox: spam, from a company that you provide patronage to. Past funny, it should be addressed in court.
- don't worry about their stock: enough suckers, with no
time to make Bank transfers, will continue to feed their stock;
- as for the Mastercard problem, don't worry: those good guys from MC didn't want to protect the us the Consumers, but simply to impose PayPal and the such, to comply to the normal step to issue their own MC (and others will most than probably follow) and pay the price. Ultimately we are
all aware out of whom pockets those fees are covered.
And things will be brought "back in line" or "back to normal".
BTW, if one has alternative solutions or suggestions, "speak up" please!
yeah right paypal in trouble. Think about this EBAY will now make money on the auction and the payment. This is a brilliant move on their part and I am surprised they did not do this sooner. Look for higher rates in the future.
Hey Bianchi27...ebay did think of it a few years ago. They offered their own service, but PayPal was more convenient and won out. If you can't beat em, buy em.