PayPal shuts down the accounts of perfectly legitimate websites every day. Sometimes they just hold the funds (for six months!) of vendors they suspect of fraud, even many with perfect records and zero customer complaints. Why? Because what else are they going to do? But also, because it’s hard to be PayPal.
Full disclosure: I own a 13-year-old company that has used PayPal since 2001 and use them thousands of times per month. My company has never had a beef with PayPal, but I feel acutely for those who have been wronged. PayPal is not technically a monopoly but they’re the most trusted name in online payment. Lose your account with them and you may well lose your online business. Me personally? I love PayPal and have literally never had a problem with them in something close to a million transactions.
But back to the slap. What should PayPal do when their fraud heuristics give the ol’ Spidey sense a tingle? Remember, thousands of PayPal accounts get opened every day, many of them bad guys working under new names.
Let’s try a thought experiment and imagine how you’d handle certain situations if you were PayPal. What if someone opened up a new account, published a PDF file (or “digital information product”) that cost $39.95, sold a ton of them, then withdrew all the money as it came in and refused to honor refund requests. Not nearly as strange as it seems. This sort of thing happens all the time with people like Seth Godin who have big lists of followers. So imagine a Seth Godin type who publishes his first book and sells a jillion.
Change the circumstances a little. What if the product turned out to be plagiarized or just atrocious and didn’t follow through on any of the promises made in its sales copy?
What if you were PayPal and that happened again? And again and again and again? What if you consistently ended up on the hook to the credit card companies because you allowed this kind of fraud to continue?
You’d probably start at least making users wait a while before they withdrew money. Now what if that didn’t stop the fraud? What if you found that the only way to stop a good chunk of fraud was to lose business deliberately by employing the brute force technique of freezing or closing out the accounts of anyone who had the same profile as a ripoff artist?
Yes, you’d be throwing away business. But you’re PayPal, and you answer to Wall Street. At some point it becomes more prudent to be aggressive about “precrime” so you don’t lose your existing customers.
If I were publicly held like PayPal (more precisely, like its parent company eBay) , I’d probably slap those businesses too. It is the only way I could think of to manage fraud on a large scale without plunging an otherwise healthy PayPal into vats of red ink.
This is not to say PayPal doesn’t just do idiotic things, like deep-sixing a clearly legitimate charity drive by the good people at Regretsy, who had a longstanding relationship.
I had the exact idea of PayPal before there was a PayPal. I didn’t follow through because I could never figure out a satisfactory way to deal with fraud in a way that would be fair to the good guys. It looks like they never did either. I hate to say it, new guys, but if I were PayPal I’d slap you too.
Or is there another way to handle this seemingly impossible situation? Give me a shout if you think you have the answer.