Every time I read an article like this, I wonder again: Why is no one competing with PayPal? People talk about sites like Google Checkout or WePay, but they are not viable alternatives, either because of different fee structures, international availability or other issues. Is PayPal doing something so hard that none of the incredibly talented and intelligent people in the startup world feel capable of challenging them? I feel like anyone who can replicate the right subset of their features (to start with) and guarantee good customer service would instantly have tens of thousands of jilted PayPal customers signing up. "PayGuys: We're Not PayPal". From zero to hero. Am I crazy?
In short, yes. A friend of mine was head of corporate strategy at Paypal. As of 2007, they had spent $300M dealing with fraud. We had a lot of talks on this subject when I was working for a startup providing anonymous credit cards for online shopping.
They'd be able to deal with fraud much more effectively (and cheaply) if they weren't so busy asking the same legitimate customers for the same information year after year. Yes, the job may be hard, but they're apparently also disorganized and incompetent.
Remembering that the account owner is not himself a fraudster is not the same thing as verifying that the account hasn't been compromised and is now being used fraudulently.
(Granted that the OP's questions seemed to focus on the former, rather than the latter)
I totally agree with you. It shouldn't be hard for Paypal to get better (and I don't understand why they don't), but to make something new that is better is a far more difficult proposition.
I'm certain (non-sarcastically) that fraud is a Hard Problem. But it's not so Hard that Paypal doesn't make money; why do you claim it isn't possible for somebody to solve the same Hard problem but have non-atrocious customer service?
Paypal lost millions of dollars every month to fraud in the beginning. Not a lot of companies can afford to loose thousands of dollars let alone millions.
Why is no one competing with PayPal? Because these stories are the exception, not the rule. PayPal has posed absolutely no problems to our business since we adopted it early last year. I feel like a total idiot for drinking teh internet kool-aid and boycotting them for so long.
I've depended on them (with Moneybookers backup) for about seven years now, with no problems once the original setup was all taken care of. I had slow but steady growth from just a few payers, though (translation agencies) - things would probably have gone differently had I had explosive growth of small amounts from a wide variety of payers.
Also: have a US bank and stick with it. If you leave the US, don't tell your bank! (I've had the same account since the 80's - it's gone through four banks now - and that might also be one factor in my looking stable.)
One of my agencies is a lady who did a round-the-world trip over two years, getting back a year ago. PayPal locked her payments - every time - while she was in Africa.
I signed up when it was only available in the US now it's avialable in Scotland I tried to register for the UK version. You can't register for the UK cos you have a US account, you can't use the US account with a UK credit card.
I asked them to delete the US account and it's now stuck in some sort of Limbo where I can't open a UK account cos I have the US one, and I can't log into the US one because it's been deleted. Once a year I spend a few days emailing them to try and sort it out.
Ok then. My experience is we process hundreds of successful transactions per month, get about 1 complaint every other month, and 1 chargeback about every 3-4 months. They do impound fees on any dispute or chargeback, but I would hardly call it business crippling. Certainly less severe than our merchant account which has a higher chargeback fee than PayPal, and also PayPal doesn't charge for customer disputes. Also PayPal has ruled against every customer who filed a complaint about delivery once we showed proof of delivery (not a signature). Our merchant bank has screwed us every single time there is a chargeback over non-delivery, even when we fax them a copy of the recipient's signature.
In short, I can't wait to get the "delete merchant bank/switch all processing to PayPal" task to the top of my to do list.
PayPal has never required us to leave a reserve amount in our account. I believe that is due to our low complaint/chargeback rate.
Go raise yourself 20-50 mil in VC money, then get several suites of legal types. PayPal has licenses in (by my count) 42 states. To operate in foreign countries, I'm sure the issues become much more involved. This isn't a matter of writing some cool code and getting server space somewhere.
We're trying (http://www.facecash.com). It's hard to raise funding to do something serious, and the government regulations presently in place require a lot of funding to comply with.
Very interesting idea. Is there any way I can be notified when you get some merchants in the Baltimore/DC area? Or maybe when you get that far, it'll be on HN...
Payment services start with an incredibly trivial base requirement: track an integer for every account, let an account decrease its integer and increase the integer for another specified account, and convert between some other payment mechanism and your integer. Sounds like the kind of thing you could put together with a web framework and an afternoon, and then just spend a pile of time and/or money marketing it so people will use it.
Now add the invasive requirements of various governments to track the movement of money (formerly to "fight organized crime and money laundering", later to "combat the funding of terrorism"). All of a sudden an incredibly trivial problem requires piles of lawyers, legal research, logging, information collection from account holders, information verification, responding to "requests" for information, shipping around physical paperwork, and generally dealing with a pile of stuff that should have nothing to do with a payment system.
On top of that, even if you don't want to deal with issues of fraud (hey, cash doesn't), the various other payment services you'll have to deal with to get money into and out of your account still have piles of ways to screw you with it. If you take credit cards, cardholders will do chargebacks to take money back from you. If you take other Internet payment services, you get to deal with the issues raised in this article just like any other merchant. Most people don't want to trust a new payment service with a bank transfer right away. If you accept mailed or scanned checks you'll probably have to deal with check fraud. And without a physical presence and giant piles of extra money you can't convert to and from cash.
Oh, and if you want to make a service as close to cash-equivalent as possible despite all these requirements, then the first time your service transfers money for some notable illegal or questionable operation, you'll probably get shut down over one of the details you missed, which would probably get overlooked if you operated just like every other "financial institution".
