PayPal

PayPal Inc.

Company type	Subsidiary of eBay
Founded	Palo Alto, California USA (1998)
Founder	Max Levchin Peter Thiel
Headquarters	San Jose, California USA
Revenue	27,518,000,000 United States dollar (2022)
Operating income	3,837,000,000 United States dollar (2022)
Net income	2,419,000,000 United States dollar (2022)
Total assets	70,379,000,000 United States dollar (2020)
Parent	eBay
Website	www.paypal.com

eBay North First Street satellite office campus (home to PayPal)

PayPal is an e-commerce business allowing 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. PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee. In October 2002, PayPal became a wholly owned subsidiary of eBay. Their corporate headquarters is in San Jose, California, at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska; Dublin, Ireland; and Berlin, Germany.

PayPal account holders must be 18 or over with a debit/credit card or bank account and an e-mail address.

History

Beginnings

PayPal Corp., as it is known today, is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December of 1998 by Peter Thiel and Max Levchin, initially as a Palm Pilot payments and cryptography company. X.com was founded by Elon Musk in March of 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. On the Confinity business side, many of its initial recruits were alumni of The Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of personnel, many of whom remain at PayPal today, such as Amy Klement and several other members of the senior team.

To block automated systems from using fraud, PayPal devised a system (see CAPTCHA) of making the user enter numbers from a blurry picture; according to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use; though, there is evidence AltaVista used a captcha as early as 1997, before PayPal existed.

eBay watched the rise in volume of online payments, and realized its fit with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of Paypal. eBay made Billpoint the official payment system of eBay, 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 several times as many auctions as Billpoint. In February of 2000 there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint (in beta) had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.

Acquisition by eBay

In October 2002 PayPal was acquired by eBay. 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 Billpoint. eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. Most of PayPal’s major competitors have shut down or have been sold, Citibank’s c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004. Western Union announced the December 2005 shut down of their BidPay service, but subsequently sold it in 2006 to CyberSource Corporation. Some competitors which offer some of PayPal’s services, such as Moneybookers, 2Checkout and Kagi, remain in business.

PayPal’s total payment volume, the total value of transactions in Q4 2006, was $11 billion, up 36% year over year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.

In 2005, the total payment value on PayPal was $27.5 billion, according to the corporate presentations on eBay's website.

Business today

As of the end of Q4 2006, PayPal operates in 103 markets (including China) and it manages over 133 million accounts. PayPal allows customers to send, receive and hold funds in 17 currencies worldwide. These currencies are the U.S. Dollar, Canadian Dollar, Australian Dollar, Euro, Pounds Sterling, Japanese Yen, Chinese RMB, Czech Koruna, Danish Krone, Hong Kong Dollar, Hungarian Forint, New Zealand Dollar, Norwegian Krone, Polish Zloty, Singapore Dollar, Swedish Krona, and Swiss Franc. PayPal operates locally in 13 countries.

Residents in 48 new markets can now use PayPal in their local markets to send money online. These new markets include Indonesia, the Philippines, Croatia, Fiji, Vietnam and Jordan. A complete list can be viewed at https://www.paypal.com/worldwide.

In China PayPal offers two kinds of accounts[1]:

• 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.com.cn accounts, for sending and receiving money to/from other PayPal.com.cn accounts.

It is impossible to send money between PayPal.com.cn accounts and PayPal.com accounts, so PayPal.com.cn accounts are effectively unable to make international payments. For PayPal.com.cn, the only supported currency is the Renminbi (RMB, ISO: CNY), whereas PayPal.com supports USD, CAD, AUD, EUR, GBP and JPY (but not CNY).

PayPal’s operation center is located near Omaha, Nebraska and PayPal’s international headquarters is located in Dublin, Ireland. The company also recently opened a technology center in Scottsdale, Arizona.

Legal issues

In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (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 $9.25 million payment to members of the class. PayPal denied any wrongdoing.

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 regards to Paypal's user agreement. Allegations included the up-to 180 day restriction on deposited funds until disputes are resolved, forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure), and requiring users to file claims individually, restricting class action suits. The court deemed these actions unconscionable and ruled in favor of Comb.

Accolades

According to PayPal's little-updated "About Us" webpage [2], "PayPal has received close to 20 awards for technical excellence from the internet industry and the business community at large - most recently the 2003 Webby Award for Best Finance Site and the 2003 Webby People's Voice Award for Best Finance Site."

They have won awards since, notably the "Best Finance Services Site" and "People’s Voice Award" at the 2006 Webby Awards [3].

Criticism

• PayPal's Seller Protection policies do not cover intangible goods or goods that are "not as described".

• In various countries, PayPal only offers a "send only" service, which allows users to send money from, and not receive money to the account. PayPal has recently announced an "amendment to the user agreement" that enables various countries to receive money as well, beginning from September 14 2006.

• PayPal's Acceptable Use Policy dictates that a person may not use PayPal to send or receive money for any form of multi-level marketing, whether they be illegal or not. PayPal has occasionally closed accounts belonging to webmasters of Get Paid to websites, claiming that they fall under MLM.

• In January 2007, PayPal froze funds collected by the sports blog Deadspin in honor of Adam Knox, the brother of a regular reader who was killed while serving in Iraq. PayPal set up the account set up for this purpose as a "charitable organization" account, which was not requested by Deadspin and which, according to some responses by PayPal customer service agents to inquiries by Deadspin readers, is not a valid class of accounts. When Deadspin did not provide evidence of their non-profit status when requested, PayPal froze the collected funds for 180 days. Readers responded with a flurry of emails and phone calls to PayPal, various members of the media, and Dave Hobson, the US Representative from the district where Knox's unit is headquartered. The story has since been picked up by Deadspin's sister site The Consumerist and Digg.

Bank status

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. Although PayPal is not a bank, the company is still subject to and adheres to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.

Safety & Protection Policies

The PayPal Buyer Protection Policy claims 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 chargeback from their credit card company.

PayPal protects sellers in a limited fashion via the Seller Protection Policy[4]. In general the Seller Protection Policy is intended to protect the seller from chargebacks or complaints but it is subject to various terms. PayPal states the Seller Protection Policy is "designed to protect sellers against claims by buyers of unauthorised payments and against claims of non-receipt of any merchandise". Note that this contrasts with the consumer protection they claim to 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).

The company--by its own admission--uses automated systems to verify tracking numbers. If a seller has an "item not received" claim filed against them, they are required to enter a tracking number for the item. If they fail to enter a valid tracking number that shows a successful delivery, or even mistype the number by one digit, they will lose the claim automatically without a real person ever adjudicating the claim. In general, if a valid tracking number is entered which can be accessed online and shows a successful delivery, the seller will automatically win the claim.

The "item significantly not as described" claim is a more complicated matter. In this situation, the buyer has acknowledged the receipt of the item but has found the item to be "significantly not as described." The multi-level process provides an initial period of time for the seller and buyer to attempt to reach an agreement on their own. If the seller does not respond to the initial dispute from the buyer, or if the seller is unable to offer a settlement which is agreeable to the buyer, the buyer then has the option of escalating the dispute to a claim. The escalation from dispute to claim is not automatic, even if the seller does not initially respond; the buyer has to make the decision to escalate the dispute to a claim or it will be automatically closed after a certain period of time. By escalating the dispute to a claim, the buyer is asking a Paypal representative to personally review the claim and make a settlement decision. The decision results range from no financial penalty to the seller to a penalty equal to the full cost of the claim. In general, if the seller has been found to have misrepresented the item in a significant way, the buyer will be required to return the item to the seller--and provide a tracking number for the return shipment--in order to receive their refund for the transaction.

Sandbox

Developers implementing larger PayPal projects will likely want to avoid using real money. PayPal has a "sandbox"[5] version of its website geared towards such developers. PayPal has detailed developer information for all aspects of its API online in PDF form, as well as a developer community and a third party developer market.

Entrepreneurship by former employees

A high number of high-profile companies have been started and funded by former PayPal employees. This trend prompted the New York Times 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.

• LinkedIn was founded by Reid Hoffman, a former VP at PayPal.
• Facebook received its first angel investment from Peter Thiel.
• Clarium Capital Management is a hedge fund run by Peter Thiel. Principal partners at Clarium include Ken Howery and Luke Nosek, both of whom were among the earliest employees at PayPal.
• Palantir Technologies was founded by Nathan Gettings, who developed PayPal's anti-fraud models. Palantir received funding from Peter Thiel.
• Slide was founded by Max Levchin and Jared Kopf.
• 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 (now owned by Google) was founded by Chad Hurley, Steve Chen, and Jawed Karim, all of whom were early employees at PayPal. YouTube is funded by Sequoia Capital. Roelof Botha, 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, was founded by David O. Sacks, who founded PayPal's Product Group and later served as Chief Operating Officer (COO).
• SpaceX was founded by Elon Musk, who founded X.com and served as the CEO following its merger with PayPal.

In the news

• PayPal Offers Consumers $100 Million In Rebates And Free Shipping Incentives Just In Time For The Holidays
• PayPal to Open Technology Center in Scottsdale
• PayPal Wins Webby Awards For Financial Services
• PayPal Launches Mobile Payments
• PayPal Releases Direct Payment API
• PayPal Acquires VeriSign's Payment Gateway

Trivia

PayPal is one of the few Internet companies with a single letter domain name in use (http://www.x.com/) since early 2000.

External links

• PayPal Home Page
• How PayPal works
• PayPal Security Center

Other resources

• PayPal merchant information
• Listen to William Quigley, the VC who backed PayPal
• PayPal User Reviews at "Epinions.com"