That's especially true for PayPal now. Before merchants didn't have much choice. If PayPal continues to be seen as difficult and risky, the better-qualified merchants will be the first to shift to other services. That will leave PayPal with a much more risky customer base than they have now.
5-year ex-paypal customer (and hated being one the whole time). 6-month stripe customer (and happy every minute of it so far)
Money transfer systems are different. They draw a lot of dark, evil forces that try not just to hack their systems, but to game and abuse it through normal operations.
It's unfortunate that legitimate businesses get caught in the crossfire sometimes, but we rarely hear about how many credit card thieves PayPal's system rightful stops. (Answer: It's a lot.)
How do you know it is a lot if we rarely hear about it?
The specific numbers are privileged, but suffice it to say, I'm very confident that PayPal deals with as much, if not more fraud, than the mind-boggling amounts I saw at that job.
Yes, that's not ideal for you as the merchant. Welcome to being a merchant. Shrinkage exists.
There are people (individuals, and entire enterprises) dedicated to financial shenanigans of the black hat variety. If Paypal didn't have a robust risk prevention system, they'd have been annihilated a long time ago.
In fact, I often spot fraudulent charges very quickly and have to email my third part processor to refund or cancel the payments.
I was pointed to http://maxmind.com by another HN poster, which is an API that'll give you a probability of a charge being fraudulent so you can verify it before passing it to the payment provider. I'm going to test that out in combination with Stripe.
I'd definitely be interested in seeing a write-up about integrating Stripe with third-party fraud detection systems.
Also, fraudsters tend to not brag about how much fraud they weren't able to process.
I wonder if other Elon Musk's creations (SpaceX and Tesla) will become something like this after he will sell them.
Overall I think SpaceX is his baby. Based on interviews and what i've generally read about the man, I think he's gonna stick with it for the long run. I mean hell, he wants to go to Mars as soon as possible in one of his own rockets. That's a dedicated man.
Well, US banks aren't. Dutch banks are doing it just fine:
http://en.wikipedia.org/wiki/IDEAL
Works very well and I trust this method a lot more than a payment processor that's not my bank.
I'm not entirely sure what the rules are from the merchant's side, however.
Point being: The precedent of putting Paypal under the behemoth of banking laws/PCI/Frank-Dodd is more frightening than people still willing to do business with them getting shafted. Dare I say, if it were easier and less regulated to move money through the interwebs, Paypal wouldn't be an issue.
So your suggested way around this is to incur credit charges & pay for the credit risk baked into the interest rate all so that Paypal is covered?
The merchant is, if I understand the post correctly, taking orders, using the money to print a run, then shipping them.
The risk is caused by the merchant's business model. It may not be high, but it certainly exists. Either the merchant, PayPal or consumers themselves must pay for it.
Who would you pick?
For Credit Risk banks and other financial institutions use interest rates.
For Operational Risk they use fees. The freezing of accounts comes only when the activity of the merchant approaches a threshold not covered by the fees not prior.
As a base coverage all banks are required to keep a reserve just in case their losses start to mount and then they kick in the extreme measures. Paypal has no such standard to meet in the US (not sure what being a Bank in EU/UK would do).
Truly the Merchant should cover the risk directly with Paypal and the fee structure if they are legitimate. But that is not your solution... a third party must enter the equation to cover where Paypal is deficient in their risk assessment.
But I actually think holding an issues worth of revenue in reserve is a decent enough compromise. If the company goes bankrupt before an issue ships, for whatever reason, PayPal themselves are going to be on the hook for refunding every single payment, as well as chargeback fees that may apply.
PayPal's fees are around 5% - what's their gross profit on each transaction, 1-2% at most?
So if there's a 2% chance of an issue going awry and angry people starting chargebacks, a magazine 50 issues old could turn into a net loss for PayPal overnight, which is why even merchants with long and clean track records get stung by this.
PayPal's freeze on that money means their end is covered, and you can still bring the sales to a bank and get a line of credit to cover the printing costs.
The way PayPal handles the customer service end rightfully earns their horrible reputation. But too many people act like the risk itself is not there, or that there's a clear, obvious line between fraudulent businesses that con artists start and solid trustworthy businesses that we start. If PayPal wasn't as aggressive with their fraud prevention, they'd be skinned alive.
And, as other people are pointing out in this thread, standard merchant accounts are not immune from the same level of shoot first, ask questions later fraud prevention.