PayPal is an e-commerce business allowing payments and
moneyMoney is anything that is generally accepted as payment for goods and services and repayment of debts. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value, and occasionally, a standard of deferred payment...
transfers to be made through the
InternetThe Internet is a global system of interconnected computer networks that use the standardized Internet Protocol Suite to serve billions of users worldwide...
. PayPal serves as an electronic alternative to traditional paper methods such as
checksA cheque, also spelled check , is a negotiable instrument[Although cheques are regulated in most countries as negotiable instruments, in many countries they are not actually negotiable, viz., the payee cannot endorse the cheque in favour of a third party...]
and
money orderA money order is a payment order for a pre-specified amount of money. Because it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a personal check...
s.
A PayPal account can be funded with an electronic debit from a
bank accountA bank account is a financial account with a banking institution, recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank....
or by a
credit cardA credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services...
. 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 example of a payment intermediary service that facilitates worldwide e-commerce.
PayPal performs payment processing for online vendors,
auctionAn auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
sites, and other commercial users, for which it charges a fee. It sometimes also charges a transaction fee for receiving money (a percentage of the amount sent plus an additional fixed amount). The fees charged 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. In addition, eBay purchases made by credit card through PayPal may incur a "foreign transaction fee" if the seller is located in another country, as credit card issuers are automatically informed of the seller's country of origin.
On October 3, 2002, PayPal became a wholly owned
subsidiaryA subsidiary, in business matters, is an entity that is controlled by a separate entity. The controlled entity is called a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent...
of
eBayeBay Inc. is an American Internet company that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide. A majority of the sales take place through a set-time auction format, but subsequent methods include...
. Its corporate headquarters are in
San JoseSan Jose or San José is the third-largest city in California and the tenth-largest in the United States. The county seat of Santa Clara County, it is located at the southern end of the San Francisco Bay Area, a region commonly referred to as Silicon Valley...
,
CaliforniaCalifornia is the most populous state in the United States, and the third largest by area. California is the second most populous sub-national entity in the Americas, behind only São Paulo, Brazil...
,
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
at eBay's North First Street satellite office campus. The company also has significant operations in
Omaha, NebraskaOmaha is the largest city in the state of Nebraska, United States, and is the county seat of Douglas County. It is located in the Midwestern United States on the Missouri River, about 20 miles north of the mouth of the Platte River...
;
Scottsdale, ArizonaScottsdale is a city in the eastern part of Maricopa County, Arizona, United States, adjacent to Phoenix. As of 2007 the population of the city was 240,410. Scottsdale is regarded as an upscale tourist and shopping destination and as a representation of western American style...
; and
Austin, TexasAustin is the capital of the U.S. state of Texas and the seat of Travis County. Located in Central Texas on the eastern edge of the American Southwest, it is the fourth-largest city in Texas and the 15th-largest in the United States. It was the third-fastest-growing large city in the nation...
in the U.S., Chennai, Dublin, Berlin and Tel-Aviv. As of July 2007, across Europe, PayPal also operates as a
LuxembourgLuxembourg , officially the Grand Duchy of Luxembourg , is a small, landlocked country in western Europe, bordered by Belgium, France, and Germany...
-based bank.
Beginnings
The current incarnation of PayPal is the result of a March 2000 merger between
ConfinityConfinity Inc. is best known as the creator of PayPal. It was founded in December 1998 by Max Levchin,Peter Thiel, and Luke Nosek, initially as a Palm Pilot payments and cryptographycompany...
and X.com. Confinity was founded in December 1998 by
Max LevchinMax Rafael Levchin is a Ukrainian-born computer scientist and entrepreneur widely known as co-founder and former chief technology officer of PayPal....
,
Peter ThielPeter Andreas Thiel is an American entrepreneur,hedge fund manager, libertarian and venture capitalist. With Max Levchin, Thiel co-founded PayPal and was its CEO...
,
Luke NosekLuke Nosek is an American entrepreneur. In 1998, with Max Levchin, Peter Thiel, and Ken Howery, Nosek co-founded PayPal and is its former Vice President of Marketing.Prior to PayPal, Nosek worked for Netscape Communications Corporation...
, and
Ken HoweryKen Howery is a general partner at The Founders Fund.He was previously a co-founder of PayPal and he got his start, right out of college, working with Peter Thiel at Thiel Capital Management....
, initially as a Palm Pilot payments and cryptography company. X.com was founded by
Elon MuskElon Musk is an American physicist, entrepreneur and philanthropist best known for co-founding PayPal, SpaceX and Tesla Motors. He is currently the CEO and CTO of SpaceX, CEO and Product Architect of Tesla Motors and Chairman of SolarCity....
in March 1999, initially as an Internet financial services company. Both Confinity and X.com launched their websites in late 1999. Both companies were located on University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm Pilots 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 ReviewThe Stanford Review is a conservative student-run newspaper that serves Stanford University in Stanford, California. It was founded in 1987 by Peter Thiel and Norman Book. It is published and distributed without charge to the Stanford community every week during the academic year.-Notable former...
, also founded by Peter Thiel, and most early engineers hailed from the
University of Illinois at Urbana-ChampaignThe University of Illinois at Urbana-Champaign is a public research university in the state of Illinois, United States. It is the oldest and largest campus in the University of Illinois system....
, 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 BothaRoelof Botha is a venture capitalist. He began his career as an actuary.He was the CFO of PayPal. Now he works for Sequoia Capital and sat on the board of directors of YouTube before its acquisition by Google. Botha sits on the board of Meebo and Xoom. In 2008, he ranked 22nd on Forbes' Midas List...
of
Sequoia CapitalSequoia Capital is a venture capital firm founded by Don Valentine in 1972. The firm's partners include Don Valentine, Randy L. Ditzler, Greg McAdoo, Michael Moritz, Doug Leone, Gaurav Garg, Michael Goguen, Mark Stevens, Jim Goetz, Roelof Botha, and Mark Kvamme.The firm has offices in the US,...
, Sanjay Bhargava and Jeremy Stoppelman.
To block potentially fraudulent access by automated systems, PayPal used a system (see
CAPTCHAA CAPTCHA or Captcha is a type of challenge-response test used in computing to ensure that the response is not generated by a computer. The process usually involves one computer asking a user to complete a simple test which the computer is able to generate and grade...
) of making the user enter numbers from a blurry picture, which they coined the Gausebeck-Levchin test.
eBay watched the rise in volume of its online payments and realized the fit of an online payment system with online auctions. eBay purchased
BillpointBillpoint was the name of a person-to-person money transfer service purchased by online auctioneer eBay in 1998. Billpoint's website was taken offline while eBay integrated Billpoint into their auction service, and it did not reappear until the Spring of 2000 when it was relaunched as a...
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. By April 2000, more than 1,000,000 auctions promoted the PayPal service. PayPal was able to turn the corner and become the first
dot-comA dot-com company, or simply a dot-com , is a company that does most of its business on the Internet, usually through a website that uses the popular top-level domain, ".com" .While the term can refer to present-day companies, it is also used specifically to refer to companies with...
to IPO after the September 11 attacks.
Acquisition by eBay
In October 2002, PayPal was acquired by eBay for $1.5 billion. 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
BillpointBillpoint was the name of a person-to-person money transfer service purchased by online auctioneer eBay in 1998. Billpoint's website was taken offline while eBay integrated Billpoint into their auction service, and it did not reappear until the Spring of 2000 when it was relaunched as a...
,
CitibankCitibank is a major international bank, founded in 1812 as the City Bank of New York, later First National City Bank of New York. Citibank is now the consumer banking arm of financial services giant Citigroup, one of the largest companies in the world...
's c2it, whose service was closed in late 2003, and
Yahoo!Yahoo! Inc. is an American public corporation headquartered in Sunnyvale, California, , that provides Internet services worldwide...
's
PayDirectYahoo! PayDirect was the name of a person-to-person money transfer service by Yahoo! via HSBC, competing with Billpoint and PayPal.Yahoo launched PayDirect in March 2000 after purchasing Athas, a provider of electronic billing services. Athas' dotBank.com service allowed customers to make online...
, whose service was closed in late 2004. Western Union announced the December 2005 shut down of their
BidPayBidPay was an online auction payment service web site, established in 1999 by Steve Chin and Marek Bradbury that originally allowed auction buyers to purchase money orders online using their credit card. BidPay was purchased by First Data Corporation/Western Union in 2001 for an undisclosed sum...
service but subsequently sold it in 2006 to
CyberSource CorporationCyberSource is a provider of electronic payment and risk management solutions. CyberSource solutions enable electronic payment processing for Web, call centre, and POS environments. CyberSource also offers industry risk management solutions for merchants accepting card-not-present transactions...
. BidPay subsequently ceased operations on 31 December 2007. Some competitors which offer some of PayPal's services, such as
Google CheckoutGoogle Checkout is an online payment processing service provided by Google aimed at simplifying the process of paying for online purchases. Users store their credit or debit card and shipping information in their Google Account, so that they can purchase at participating stores at the click of a...
,
WirecardWirecard AG is a global financial services and technology company headquartered in Munich, Germany. The company provides payment processing, card issuing and risk management services to more than 9.000 corporate customers worldwide. Its Internet payment service competes with PayPal and Western...
,
MoneybookersMoneybookers is an e-commerce business that allows payments and money transfers to be made through the Internet. It serves as an electronic alternative to traditional paper methods such as checks and money orders...
, 2Checkout, CCNow and Kagi, remain in business, despite the fact that eBay now requires everyone on its Australian and
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
sites to offer PayPal.
Eventually eBay moderated its position, and mandated that sellers on eBay Australia offer PayPal as one of the (but not necessarily the only) payment methods. These accepted payment methods include bank deposit, cheques and money orders, escrow, and credit cards (processed by other than PayPal).
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately-held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal's proprietary fraud management systems and accelerate the development of improved fraud detection tools. In November 2008, the company acquired
Bill Me LaterBill Me Later is a payment method offered on the websites of many well-known merchants, including those of Wal-Mart, Overstock.com, American Airlines,JetBlue Airways and Hotels.com...
, an online payments company offering transactional credit at over 1000 online merchants in the US.
PayPal's total payment volume, the total value of transactions, was US$ 60 billion in 2008, an increase of 27 percent over the previous year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.
Business today
Currently, PayPal operates in 190 markets, and it manages over 184 million accounts, more than 73 million of them active. PayPal allows customers to send, receive, and hold funds in 19 currencies worldwide. These currencies are the
Australian dollarThe Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
,
Canadian dollarThe Canadian dollar is the currency of Canada. It is normally abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies. It is divided into 100 cents...
, Chinese renminbi yuan (only available for some Chinese accounts, see below),
EuroThe euro is the official currency of 16 of the 27 Member States of the European Union . The states, known collectively as the Eurozone, are Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain...
,
pound sterlingThe pound sterling , often simply called the pound, is the currency of the United Kingdom, its Crown dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands and British Antarctic Territory...
,
Japanese yenThe is the currency of Japan. It is the third most-traded currency in the foreign exchange market after United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
,
Czech korunaThe Czech koruna or Czech crown has been the currency of the Czech Republic since 8 February 1993 when, together with its Slovak counterpart, it replaced the Czechoslovak koruna at par....
,
Danish kroneThe krone is the currency of Denmark, including the autonomous provinces of Greenland and the Faroe Islands. The krone is pegged to the euro via the European Union's exchange rate mechanism. The plural form is "kroner" and one krone is divided into 100 øre, the singular form being the same as the...
,
Hong Kong dollarThe Hong Kong dollar is the currency of Hong Kong. It is the 9th most traded currency in the world. In English, it is normally abbreviated with the dollar sign $, or alternatively HK$ to distinguish it from other dollar-denominated currencies. The dollar is subdivided into 100 cents.-Etymology:In...
,
Hungarian forintThe forint is the currency of Hungary. It is divided into 100 fillér, although fillér coins are no longer in circulation. The introduction of the forint in 1 August 1946 was a crucial step of the post-WWII stabilization of the Hungarian economy, and the currency remained relatively stable until...
,
Israeli new sheqelThe Israeli New shekel is the currency of Israel. The shekel is divided into 100 agorot...
,
Mexican pesoThe peso is the currency of Mexico. The peso was the first currency in the world to use the "$" sign, which the United States dollar later adopted for its own use. The peso is the 12th most traded currency in the world and by far the most traded currency in Latin America and third most traded in...
,
New Zealand dollarThe New Zealand dollar is the currency of New Zealand. It also circulates in the Cook Islands , Niue, Tokelau, and the Pitcairn Islands. It is divided into 100 cents....
,
Norwegian kroneThe krone is the currency of Norway. The plural form is kroner. It is subdivided into 100 øre . The ISO 4217 code is NOK, although the common local abbreviation is kr...
,
Polish zlotyThe złoty literally meaning "golden", is the currency of Poland. The modern złoty is subdivided into 100 groszy ....
,
Singapore dollarThe dollar is the currency of Singapore. It is normally abbreviated with the dollar sign $, or alternatively S$ to distinguish it from other dollar-denominated currencies...
,
Swedish kronaThe krona has been the currency of Sweden since 1873. It is locally abbreviated kr. The plural form is kronor and one krona is subdivided into 100 öre . The currency is sometimes informally referred to as the "Swedish crown" in English...
,
Swiss francThe franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is widely used on a day-to-day basis...
and U.S. dollar. PayPal operates locally in 13 countries.
Residents in 194 markets can use PayPal in their local markets to send money online. These new markets include
PeruPeru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean.Peruvian territory was home to the Norte Chico...
,
IndonesiaThe Republic of Indonesia is a country in Southeast Asia and Oceania. Indonesia comprises 17,508 islands. With an estimated population of around 237 million people, it is the world's fourth most populous country, with the world's largest population of Muslims.Indonesia is a republic, with an...
, the
PhilippinesThe Philippines officially known as the Republic of the Philippines, is a country in Southeast Asia with Manila as its capital city. It comprises 7,107 islands in the western Pacific Ocean....
,
CroatiaCroatia , officially the Republic of Croatia , is a country in southeast Europe, at the crossroads of the Pannonian Plain, the Balkans, and the Mediterranean Sea. Its capital is Zagreb...
,
FijiFiji , officially the Republic of the Fiji Islands , is an island nation in the South Pacific Ocean east of Vanuatu, west of Tonga and south of Tuvalu. The country comprises an archipelago of about 322 islands, of which 106 are permanently inhabited, and 522 islets...
,
VietnamVietnam , officially the Socialist Republic of Vietnam , is the easternmost country on the Indochina Peninsula in Southeast Asia. It is bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea to the east...
and
JordanJordan , officially the Hashemite Kingdom of Jordan, is a country in Western Asia spanning the southern part of the Syrian Desert down to the Gulf of Aqaba. Jordan shares borders with Syria to the north, Iraq to the northeast, Saudi Arabia to the east and south, the Gulf of Aqaba to the southwest,...
. A complete list can be viewed at PayPal's website.
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.
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
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. RIM announced that PayPal will be the only payment mechanism for its Blackberry App World, which launched on April 1, 2009.
In
ChinaThe People's Republic of China , commonly known as China, is the largest country in East Asia and the most populous in the world with over 1.3 billion people, approximately one-fifth of the world's population...
PayPal offers two kinds of accounts:
- PayPal.com accounts, for sending and receiving money to/from other PayPal.com accounts. All non-Chinese accounts are PayPal.com accounts, so these accounts may be used to send money internationally.
- PayPal.cn accounts, for sending and receiving money to and from other PayPal.cn 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
renminbiThe renminbi is the currency of the People's Republic of China , whose principal unit is the yuan , subdivided into 10 jiao , each of 10 fen . The renminbi is issued by the People's Bank of China, the monetary authority of the PRC. The ISO 4217 abbreviation is CNY, although it is also commonly...
.
Although PayPal's corporate headquarters are located in San Jose, PayPal's operations center is located near
Omaha, NebraskaOmaha is the largest city in the state of Nebraska, United States, and is the county seat of Douglas County. It is located in the Midwestern United States on the Missouri River, about 20 miles north of the mouth of the Platte River...
, where the company employs more than 2,000 people as of 2007.. PayPal's European headquarters are in Luxembourg and international headquarters in Singapore. The company also recently opened a technology center in
Scottsdale, ArizonaScottsdale is a city in the eastern part of Maricopa County, Arizona, United States, adjacent to Phoenix. As of 2007 the population of the city was 240,410. Scottsdale is regarded as an upscale tourist and shopping destination and as a representation of western American style...
, and
ChennaiChennai , formerly known as , is the capital city of the Indian state of Tamil Nadu. Chennai is the fourth most populous metropolitan area and the fifth most populous city in India. Located on the Coromandel Coast of the Bay of Bengal, Chennai city had a population of 4.34 million in the 2001...
India.
Online
The domain
paypal.com attracted at least 260 million visitors annually by 2008 according to a
Compete.comCompete.com is a web traffic analysis service operating in the United States that publishes the approximate number of global visitors to the top 1,000,000 web sites in the world...
study.
PayPalLabs
PayPal's innovation environment,
PayPalLabs, hosts several outreach and experimental projects such as the
storefront application, the Myspace and Facebook donation widgets, and the PayPal
blog.
Bank status
In the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
, PayPal is licensed as a money transmitter on a state-by-state basis. PayPal is not classified as a
bankA bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds...
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 ActThe USA PATRIOT Act, commonly known as the "Patriot Act", is a statute enacted by the United States Government that President George W. Bush signed into law on October 26, 2001...
. On May 15, 2007, PayPal announced that it would move its European operations from the UK to
LuxembourgLuxembourg , officially the Grand Duchy of Luxembourg , is a small, landlocked country in western Europe, bordered by Belgium, France, and Germany...
, commencing July 2, 2007 as PayPal (Europe) S.à r.l. & Cie, S.C.A. This would be as a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the
FSAThe Financial Services Authority is an independent non-governmental body, quasi-judicial body and a company limited by guarantee that regulates the financial services industry in the United Kingdom. Its board is appointed by the Treasury. Its main office is based in Canary Wharf, London, with...
. PayPal Luxembourg will then provide the PayPal service throughout the
European UnionThe European Union is an economic and political union of 27 Member States, located primarily in Europe. Committed to regional integration, the EU was established by the Treaty of Maastricht on 1 November 1993 upon the foundations of the pre-existing European Economic Community...
(EU).
Safety and protection policies
The PayPal Buyer Protection Policy states that customers 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
chargebackA chargeback is the return of funds to a consumer, forcibly initiated by the consumer's issuing bank. Specifically, it is the reversal of a prior outbound transfer of funds from a consumer's bank account or line of credit.-Overview:...
from their credit card company.
According to PayPal, it protects sellers in a limited fashion via the Seller Protection Policy. 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". Note that this contrasts with the consumer protection they offer. This policy should be read carefully before assuming protection. In particular the Seller Protection 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). A class-action lawsuit was filed against PayPal, days after the company's successful initial public offering.
Security
Security key
In early 2006, PayPal introduced an optional
security keyA security token may be a physical device that an authorized user of computer services is given to ease authentication...
as an additional precaution against fraud. A user account tied to a security key has a modified login process: the account holder enters their 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. This
two-factor authenticationAn authentication factor is a piece of information and process used to authenticate or verify the identity of a person or other entity requesting access under security constraints. Two-factor authentication or is a system wherein two different factors are used in conjunction to authenticate...
is intended to prevent an account from being compromised by a malicious third party without access to the physical security key. However, the user (or malicious third party) can alternatively authenticate by providing the credit card or bank account number listed on their account. Thus, the PayPal's implementation does not offer the security of true two-factor authentication.
The key currently costs US$5.00 for all users with no ongoing fees. The option of using a security key with one's account is currently available only to users registered in
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the continental mainland , the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans...
,
GermanyGermany , officially the Federal Republic of Germany , is a country in Central Europe. It is bordered to the north by the North Sea, Denmark, and the Baltic Sea; to the east by Poland and the Czech Republic; to the south by Austria and Switzerland; and to the west by France, Luxembourg, Belgium,...
,
CanadaCanada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean...
, the
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
and the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
MTAN
It is also possible to use a
mobile phoneA mobile phone or mobile is a long-range, electronic device used for mobile telecommunications...
to receive an MTAN (Mobile Transaction Authentication Number) via
SMS- Companies and organizations :* Sabooj Maroon Swapna , a fan club of Mohun Bagan AC in Kolkata, India* Southdown Motor Services, a former UK bus company* Youth Party of Slovenia, a Slovenian political party...
, however this security scheme has known vulnerabilities.
Regulation
In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sarl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, the Commission de Surveillance du Secteur Financier (CSSF) (note that all of the company's European accounts were transferred to the PayPal's bank in Luxembourg on 2 July 2007). 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 AuthorityThe Financial Services Authority is an independent non-governmental body, quasi-judicial body and a company limited by guarantee that regulates the financial services industry in the United Kingdom. Its board is appointed by the Treasury. Its main office is based in Canary Wharf, London, with...
(FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg, however the Luxembourg entity is still regulated by the FSA, as it is an entity from the
European Economic AreaThe European Economic Area was established on 1 January 1994 following an agreement between member states of the European Free Trade Association ,the European Community , and all member states of the European Union...
which conducts regulated activities in the UK.
In the US, although PayPal has an extensive User Agreement, PayPal is not directly regulated by the U.S. federal government, because it serves as a payment intermediary . The law is unclear as to whether PayPal is a bank, narrow bank, money services business or money transmitter. PayPal could also be 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 cardA credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services...
transaction, specifically the relationship between the issuing bank and the cardholder, is governed by the
Truth in Lending ActThe Truth in Lending Act of 1968 is a United States federal law designed to protect consumers in credit transactions, by requiring clear disclosure of key terms of the lending arrangement and all costs. The statute is contained in Title I of the Consumer Credit Protection Act, as amended...
(TILA) 15 U.S.C. §§ 1601-1667f as implemented by Regulation Z, 12 C.F.R. pt. 226, (TILA/Z). TILA/Z requires specific procedures for billing errors, dispute resolution and limits cardholder liability for unauthorized charges. Similarly, the legal relationship between a debit cardholder and the issuing bank is regulated by the
Electronic Funds Transfer ActThe Electronic Funds Transfer Act, also known as Regulation E, was implemented in the US in 1978 to establish the rights and liabilities of consumers as well as the responsibilities of all participants in EFT activities.-EFT Errors:...
(EFTA) 15 U.S.C. §§ 1693-1693r, as implemented by Regulation E, 12 C.F.R. pr. 205, (EFTA/E). EFTA/E is directed at consumer protection and provides strict error resolution procedures. 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.
Fraud
Money transfers via
PayPal create an inherent risk of fraud due to the impersonal nature of internet commerce and the gap in regulatory treatment of PayPal transactions. The existing fraud protection regulations, EFTA/E and TILA/Z, do not apply to P2P account holders as they do debit/credit card transactions outside of a P2P payment service.
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.
PayPal account holders' private information is marginally protected under one federal law. Since PayPal is a
financial institution under the
Gramm-Leach-Bliley ActThe Gramm-Leach-Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies...
(GLB), it cannot disclose its account holders' non-public personal information to third parties unless account holders opt in to those disclosures.
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:
- Log in
- Reset their password
- Develop a set of security questions (based on the hypothetical and not fact — e.g. "What is your favorite ice cream?" not "What is your mother's maiden name?")
- Verify location by landline phone or by mail
Phishing
PayPal has developed substantial anti-
PhishingIn the field of computer security, phishing is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication...
resources, for identifying and reporting phishing. PayPal encourages consumers to report all phishing emails to them, to better equip them in fighting this phenomenon.
Entrepreneurship by former employees
A number of companies have been started and funded by former PayPal employees. This trend prompted
The New York TimesThe New York Times is an American daily newspaper founded in 1851 and published in New York City. The largest metropolitan newspaper in the United States, "The Gray Lady"—named for its staid appearance and style—is regarded as a national newspaper of record...
to publish a story entitled, "It Pays to Have Pals in Silicon Valley," that analyzes the connections between several PayPal employees who went on to become influential.
- The Founders Fund
The Founders Fund is a San Francisco, California venture capital firm that has led several early stage funding rounds for well known Web 2.0 start-up companies.-History:...
, a venture capital firm, was founded by Peter ThielPeter Andreas Thiel is an American entrepreneur,hedge fund manager, libertarian and venture capitalist. With Max Levchin, Thiel co-founded PayPal and was its CEO...
, Ken HoweryKen Howery is a general partner at The Founders Fund.He was previously a co-founder of PayPal and he got his start, right out of college, working with Peter Thiel at Thiel Capital Management....
, and Luke NosekLuke Nosek is an American entrepreneur. In 1998, with Max Levchin, Peter Thiel, and Ken Howery, Nosek co-founded PayPal and is its former Vice President of Marketing.Prior to PayPal, Nosek worked for Netscape Communications Corporation...
. The Founders Fund has invested in companies founded by fellow PayPal alumni, including Slide, Geni, and Yammer.
- LinkedIn
LinkedIn is a business-oriented social networking site founded in December 2002 and launched in May 2003 mainly used for professional networking. , it had more than 50 million registered users, spanning more than 200 countries and territories worldwide....
was founded by Reid HoffmanReid Hoffman is an American entrepreneur and angel investor.Hoffman is best known as the founder of LinkedIn, a social network used primarily for business connections and job searching.-Biography:...
, a former VP at PayPal.
- Facebook
Facebook is a global social networking website that is operated and privately owned by Facebook, Inc. Users can add friends and send them messages, and update their personal profiles to notify friends about themselves. Additionally, users can join networks organized by city, workplace, school, and...
received its first angel investment from Peter ThielPeter Andreas Thiel is an American entrepreneur,hedge fund manager, libertarian and venture capitalist. With Max Levchin, Thiel co-founded PayPal and was its CEO...
.
- Clarium Capital Management is a hedge fund run by Peter Thiel
Peter Andreas Thiel is an American entrepreneur,hedge fund manager, libertarian and venture capitalist. With Max Levchin, Thiel co-founded PayPal and was its CEO...
. Principal partners at Clarium include Ken Howery and Luke NosekLuke Nosek is an American entrepreneur. In 1998, with Max Levchin, Peter Thiel, and Ken Howery, Nosek co-founded PayPal and is its former Vice President of Marketing.Prior to PayPal, Nosek worked for Netscape Communications Corporation...
, both of whom were among the earliest employees at PayPal.
- Slide was founded by Max Levchin
Max Rafael Levchin is a Ukrainian-born computer scientist and entrepreneur widely known as co-founder and former chief technology officer of PayPal....
, Jared Kopf, and former PayPal board member Scott BanisterScott Banister is an American entrepreneur and angel investor. He is best known as a co-founder of IronPort and an early advisor and board member at PayPal.- Biography :...
.
- Yelp was founded by Jeremy Stoppelmann, former VP of Engineering at PayPal, and Russ Simmons, one of the first employees at PayPal. Yelp is funded by Max Levchin.
- YouTube
YouTube is a video sharing website on which users can upload and share videos. Three former PayPal employees created YouTube in February 2005. In November 2006, YouTube, LLC was bought by Google Inc. for $1.65 billion, and is now operated as a subsidiary of Google...
(now owned by Google) was founded by Chad HurleyChad Meredith Hurley is the co-founder and Chief Executive Officer of the popular San Bruno, California-based video sharing website YouTube. In June 2006, he was voted 28th on Business 2.0's "50 People Who Matter Now" list...
, Steve ChenSteven Shih Chen is the co-founder and Chief Technology Officer of the popular video sharing website YouTube.Chen was born in Taipei, Taiwan. When he was eight years old, he and his family emigrated to the United States. Before that, he passed his two-year-childhood in Ching Shin Elementary...
, and Jawed KarimJawed Karim is the co-founder of the popular video sharing website YouTube. Many of the core components of PayPal, including its real-time anti-fraud system, were also designed and implemented by Karim....
, all of whom were early employees at PayPal. YouTube is funded by Sequoia CapitalSequoia Capital is a venture capital firm founded by Don Valentine in 1972. The firm's partners include Don Valentine, Randy L. Ditzler, Greg McAdoo, Michael Moritz, Doug Leone, Gaurav Garg, Michael Goguen, Mark Stevens, Jim Goetz, Roelof Botha, and Mark Kvamme.The firm has offices in the US,...
. Roelof BothaRoelof Botha is a venture capitalist. He began his career as an actuary.He was the CFO of PayPal. Now he works for Sequoia Capital and sat on the board of directors of YouTube before its acquisition by Google. Botha sits on the board of Meebo and Xoom. In 2008, he ranked 22nd on Forbes' Midas List...
, the former CFO of PayPal, is a partner of Sequoia Capital who sits on YouTube's board of directors.
- Room 9 Entertainment, which produced the movie Thank You for Smoking
Thank You for Smoking is a 2006 comedy-drama film satire directed by Jason Reitman and produced by David O. Sacks. It is based on the 1994 novel of the same name by Christopher Buckley....
, was founded by David O. SacksDavid O. Sacks is a leader in the Web 2.0 space. He is the founder and CEO of Web 2.0 companies Geni, Inc. and Yammer.-Biography:Sacks attended Memphis University School in Memphis, Tennessee....
, who founded PayPal's Product Group and later served as Chief Operating Officer (COO).
- Geni.com
Geni.com is a genealogy-related social networking website launched in beta mode on January 16 2007 by Web 2.0 company Geni, Inc. Over thirty million profiles were created on Geni by over two million users as of September 30, 2008...
and Yammer.com were also founded by David O. SacksDavid O. Sacks is a leader in the Web 2.0 space. He is the founder and CEO of Web 2.0 companies Geni, Inc. and Yammer.-Biography:Sacks attended Memphis University School in Memphis, Tennessee....
.
- SpaceX
Space Exploration Technologies Corporation is an American space transport company founded by PayPal co-founder Elon Musk. It has developed the Falcon 1 and is developing the Falcon 9, both of which are partially reusable launch vehicles. SpaceX is also developing the Dragon series of spacecraft to...
was founded by Elon MuskElon Musk is an American physicist, entrepreneur and philanthropist best known for co-founding PayPal, SpaceX and Tesla Motors. He is currently the CEO and CTO of SpaceX, CEO and Product Architect of Tesla Motors and Chairman of SolarCity....
, who founded X.com and served as the CEO following its merger with PayPal.
- Anchor Intelligence is run by Ken Miller, who was VP of Risk Management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events...
at PayPal and the architect of PayPal's anti-fraud system.
- Tesla Motors
Tesla Motors Inc. is a Silicon Valley-based company that engineers and manufactures electric cars . It is currently the only automaker building and selling highway-capable EVs in serial production in North America or Europe...
' principal owner and newly minted CEO / Chairman of the Board is Elon Musk.
- HourTown was founded by Ryan Donahue, an early product designer at PayPal.
- TradeVibes was founded by several early PayPal employees
Criticism
- See also: Criticism of eBay
eBay has its share of controversy, including cases of fraud , its policy of requiring sellers to use PayPal, concerns over forgeries and intellectual property violations in auction items, and suspending the accounts of other family members for being associated with one suspended family...
In September 2005, Richard Kyanka, owner of the website
Something AwfulSomething Awful, often abbreviated to SA, is a comedy website housing a variety of content, including blog entries, forums, feature articles, digitally edited pictures, and humorous media reviews. It was created by Richard "Lowtax" Kyanka in 1999 as a largely personal website, but as it grew, so...
, set up an account to collect donations for
Hurricane KatrinaHurricane Katrina of the 2005 Atlantic hurricane season was the costliest hurricane, as well as one of the five deadliest, in the history of the United States...
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.
In March 2008, Australian current affairs show
Today TonightToday Tonight is an Australian current affairs program, produced by the Seven Network and shown weeknightly at in direct competition with rival Nine Network program A Current Affair....
aired a segment criticising PayPal, with regard to safety, freezing accounts and customer service.
Several PayPal
gripe siteA gripe site is a type of website devoted to the critique and or mockery of a person, place, politician, corporation, or institution. They are also known as "complaint" or "sucks" sites. The Internet provides a low cost public platform for anyone, even of modest means, to reach a global audience...
s have been created complaining of frozen accounts and various other problems.. Some of these include web forums where disgruntled customers share PayPal experiences. Typical experiences include freezing accounts of eCommerce stores if they experience rapid growth, preventing them from paying suppliers.
In June 2008, the
Australian Competition and Consumer CommissionThe Australian Competition and Consumer Commission is an independent authority of the government of Australia. It was established in 1995 with the amalgamation of the Australian Trade Practices Commission and the Prices Surveillance Authority to administer the Trade Practices Act 1974...
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."
Litigation
In 2002,
CertCoCertCo was a financial cryptography startup spun out of Bankers Trust in the 1990s. It had offices in New York City and Cambridge, Massachusetts...
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."
In March 2002, two PayPal account holders separately sued the company for alleged violations of the
Electronic Funds Transfer ActThe Electronic Funds Transfer Act, also known as Regulation E, was implemented in the US in 1978 to establish the rights and liabilities of consumers as well as the responsibilities of all participants in EFT activities.-EFT Errors:...
(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.
In May 2002,
Tumbleweed CommunicationsTumbleweed Communications Corp. provided secure messaging and secure file transfer solutions for enterprise and government customers. . Tumbleweed Communications merged with Axway in 2008....
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.
In June 2003,
Stamps.comStamps.com is a Los Angeles, California-based company that provides Internet-based mailing and shipping services. Stamps.com is a public company and trades on the Nasdaq exchange under the symbol STMP.- History :In April 13, 1998, the U.S...
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.
In August 2002, Craig Comb and others filed a class action against PayPal in,
Craig Comb, et al. v. PayPal, Inc.. They sued for alleged mishandling of customer accounts and customer services, with regard to PayPal's user agreement. Allegations included restricting deposited funds for up to 180 days until disputes are resolved; and forcing customers to arbitrate their disputes under the
American Arbitration AssociationThe American Arbitration Association is a private enterprise in the business of arbitration, and one of several arbitration organizations that administers arbitration proceedings. The AAA also administers mediation and other forms of alternative dispute resolution...
's guidelines (a costly procedure), and requiring users to file claims individually rather than collectively, which undoubtedly quashes the use of class action suits. The court stated that "the User Agreement and arbitration clause are substantively unconscionable under California law" and ruled in favor of Comb.
In September 2003, PayPal filed suit against
Bank One CorporationBank One Corporation, based in Chicago, Illinois, was the sixth-largest bank in the United States. It traded on the New York Stock Exchange under the stock symbol ONE. The company merged with JPMorgan Chase & Co...
for patent infringement. PayPal claimed that Bank One's online bill-payment system was an infringement against PayPal's online bill-payment patent, issued in 1998. PayPal filed the suit after a warning to the bank's lawyers in February went unheeded.
In November 2003,
AT&TAT&T Inc. is the largest provider of local, long distance telephone services in the United States, and also serves digital subscriber line Internet access. AT&T is the second largest provider of wireless service in the United States, with over 77 million wireless customers, and more than 150...
filed suit against eBay and PayPal claiming that their payment systems infringed an AT&T patent, filed in 1991 and granted in 1994.
In March 2004, PayPal and New York state's Attorney General,
Eliot SpitzerEliot Laurence Spitzer is an American lawyer and former politician of the Democratic Party. He served as Governor of New York from January 2007 until his resignation on March 17, 2008 in the wake of the exposure of his involvement in a high-priced prostitution ring...
, 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.
In April 2007, one of two anti-trust lawsuits was filled against Ebay/PayPal by Micheal Malone of Texas. This suits claim that the monopolistic relationship between Ebay and Paypal violates United States anti-trust laws. The case is still pending.
See also
- eCache
eCache is an anonymous bank operating through interfaces in the Tor network. The bank issues cryptographic certificates, "Digital Bearer Certificates", that can be exchanged among the bank's users. The certificates can be bought and sold for real money through the bank...
- Electronic money
Electronic money refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored value systems...
- Itex Corporation
Itex Corporation is an American company that provides a marketplace for cashless business transactions. The firm specializes in information technology and electronic funds transfer lifecycle management in an emerging niche market of cashless payment between firms...
- Ripplepay
Ripple is an open-source software project for developing and implementing a protocol for an open decentralized payment network. In its developed form , the Ripple network would be a peer-to-peer distributed social network service with a monetary honour system based on trust that already exists...
- PayMate
PayMate is a mobile commerce company that has built the largest mobile payments network in India, one of the fastest growing mobile payments markets in the world, in a short period of time PayMate is a mobile commerce company that has built the largest mobile payments network in India, one of the...
- Google Checkout
Google Checkout is an online payment processing service provided by Google aimed at simplifying the process of paying for online purchases. Users store their credit or debit card and shipping information in their Google Account, so that they can purchase at participating stores at the click of a...
- Swreg
Swreg, Inc., is an American customer-focused payment processing company whose clientele consists of software and service publishers.The company is a global e-commerce solution designed to provide software and shareware authors a convenient method of selling products online, with special features...
External links