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PayPal

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PayPal Inc.
File:PayPal website.png
PayPal homepage
Type of businessSubsidiary of eBay
Available inUS English
Spanish
French
Chinese
FoundedPalo Alto, California USA (1998)
HeadquartersUnited States San Jose, California USA
Revenue?
ParenteBay
URLwww.paypal.com
Advertisingnone
Registration?
Current statusactive
eBay's North First Street satellite office campus (home to PayPal's corporate headquarters)

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 cheques and money orders. PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee. On October 3, 2002, PayPal became a wholly owned subsidiary of eBay.[1] Its corporate headquarters are in San Jose, California, United States at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska, Scottsdale, Arizona and Austin, Texas in the U.S.; India, Dublin, Ireland; and Berlin, Germany.[2]

History

Beginnings

PayPal is the result of a March 2000 merger between Confinity and X.com.[3] Confinity was founded in December 1998 by Max Levchin, Peter Thiel, and Luke Nosek, initially as a Palm Pilot payments and cryptography company.[4] Both Confinity and X.com launched their websites in late 1999. X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm Pilots [5] with email payments as a feature and X.com's website initially included financial services with email payments as a feature.

At Confinity, many of the 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 technical and business personnel, including many that were critical to the combined company's success, such as Amy Klement, Sal Giambanco, Roelof Botha [6] of Sequoia Capital, Sanjay Bhargava and Jeremy Stoppelman.[7]

To block potentially fraudulent access by automated systems, PayPal devised a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they coined the Gausebeck-Levchin test. According to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use; however, there is evidence AltaVista used a CAPTCHA as early as 1997, before PayPal existed.[citation needed] The neutrality of The PayPal Wars, which was self-published by Eric Jackson through his company World Ahead Publishing, funded in part by Peter Thiel, is disputed.

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 for $1.5 billion.[8] 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. BidPay announced it will cease all operations on December 31st, 2007. Some competitors which offer some of PayPal’s services, such as Wirecard, Moneybookers, 2Checkout, CCNow and Kagi, remain in business.

PayPal’s total payment volume, the total value of transactions in Q4 2006, was US$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.

Business today

As of the end of Q4 2006, PayPal operates in 103 markets, and it manages over 155 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, Pound sterling, Japanese yen, Chinese renminbi, 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 Peru, Indonesia, the Philippines, Croatia, Fiji, Vietnam and Jordan. A complete list can be viewed at PayPal's website.

In China 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 renminbi.

Although PayPal's corporate headquarters are located in San Jose, PayPal’s operations center is located near Omaha, Nebraska, where the company employs more than 2,000 people as of 2007.[9] PayPal’s international headquarters is located in Dublin, Ireland. The company also recently opened a technology center in Scottsdale, Arizona.

PayPal's headquarters in San Jose were hit by a small bomb on the evening of Halloween 2006 which shattered a window but caused no injuries.[10]

Bank status

In the United States, PayPal is licensed as a money transmitter on a state-by-state basis.[citation needed] Although PayPal is not a bank, the company is still subject to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.[citation needed] However, on May 15, 2007, PayPal announced that it would move its European operations from the UK to Luxembourg, commencing July 2, 2007 as PayPal (Europe) S.à r.l. & Cie, S.C.A.[citation needed] 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 FSA.[citation needed] PayPal Luxembourg will then provide the PayPal service throughout the European Union (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 charge back from their credit card company.

According to PayPal, it protects sellers in a limited fashion via the Seller Protection Policy [11]. 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 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).[12]

Security

Security key

In early 2007, PayPal introduced an optional security key to its users. This adds an additional layer of protection when logging into a PayPal or eBay account. Once a user enters their login ID and password, they are prompted to press a button on the small security key, then enter the six-digit number to complete the login process. There is a one-time US$5 charge for this device, with no ongoing fees; however, business accounts get them free of charge.[13]

Phishing

PayPal has developed substantial anti-Phishing resources[14], for identifying and reporting phishing, and offers its US customers free credit monitoring.

Entrepreneurship by former employees

A number of 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.[15]

Criticism

In September 2005, the owner of the website Something Awful, Richard Kyanka, set up an account to collect donations for Hurricane Katrina, to be given to the Red Cross. Due 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.[16][17]

Litigation

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 US$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 restricting deposited funds for up to 180 days 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 stated that "the User Agreement and arbitration clause are substantively unconscionable under California law" and ruled in favor of Comb.[18]

PayPal has also been involved in a number of other lawsuits.[19] [20] [21] [22] [23] [24]

Disputing PayPal Purchases

If a buyer purchases a defective product or has received a product not as described you must enter a lengthy electronic dispute to ensue a refund. The initial stage is a monitored "blog" between the buyer and seller. If the seller is not cooperating with the buyer, the buyer is forced to open a dispute. After another long period of time the case will be reviewed. Paypal does not research ebay history of the buyer or seller, a refund will be issued if; 1. The seller agrees to refund the money or 2. The buyer must obtain a master certified letter of review that the product received is incorrect, within a five (5) day period. The master certified letter of review must be obtained by a professional organization that specializes in the item you purchased. For example, if you purchased a defective Motorola cable modem, you will have to ship the product or find the nearest Motorola service center to diagnose the item. The service center would have to provide authentic documentation with proof of reliability of the source, the qualifications of the service center, evaluation methods, detailed description of why the product is not authentic, serial number of the product, and complete contact information of the service center. You are limited to 5 days and will not under any circumstance extend the period (even major Holidays), the following is an ACTUAL quote from a Paypal dispute agent:

"We must receive your fax by January 3, 2008 in order to proceed with the investigation of your claim. If we do not receive your fax by January 3, 2008, your claim will be canceled. We are unable to grant extensions to this time period. Please note that PayPal is unable to reimburse you for any costs or fees that may be incurred in obtaining the requested documents. Any documents you provide may also be supplied to the seller in your dispute if necessary.

Thank you for your cooperation and patience. We regret any inconvenience this request may cause."

References

  1. ^ Troy Wolverton (2002-10-03). "It's official: eBay weds PayPal". CNet. Retrieved 2007-05-07. {{cite web}}: Check date values in: |date= (help)
  2. ^ "PayPal Careers". Retrieved 2006-11-17.
  3. ^ "Findlaw Documentation". 2006-12-31.
  4. ^ "Wired Article". 2006-12-31.
  5. ^ "Wired Article". 1999-07-27.
  6. ^ http://www.sequoiacap.com/people/roelof-botha/
  7. ^ PayPal: An alternate history according to Elon Musk
  8. ^ Kane, Margaret (July 8, 2002). "eBay picks up PayPal for $1.5 billion". CNET News.com. CNET Networks. Retrieved 2007-11-13. {{cite news}}: Check date values in: |date= (help)
  9. ^ Virgil Larson, "Local building, global growth: PayPal opens facility, plans to expand staff to keep up with business," Omaha World-Herald, 8 March 2007, 1D.
  10. ^ Demian Bulwa & Marisa Lagos, "Police seek clues in PayPal blast," San Francisco Chronicle, 2 November 2006, B3.
  11. ^ User Agreement for PayPal™ Service (it reads in part: "Credit card chargeback rights, if they apply, are broader than PayPal Buyer Protection")
  12. ^ The in-line paypal URL in this section. Disputes between Buyers and Sellers - Buyer Protection Programs.
  13. ^ http://ebay.com/securitykey
  14. ^ Security Center
  15. ^ Helft, Miguel (2006-10-17). ""It Pays to Have Pals in Silicon Valley"". New York Times. {{cite web}}: Check date values in: |date= (help)
  16. ^ Wired News
  17. ^ http://www.ecommercetimes.com/story/46325.html
  18. ^ "Comb v. PayPal Inc". 2007-01-21. {{cite web}}: Check date values in: |date= (help)
  19. ^ "Internet: Paypal Sues Bank One Over Patent Infringement". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
  20. ^ "Stamps.com Asserts Breach of Contract Claim Against PayPal and eBay". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
  21. ^ "EBay payments 'not rock-solid'". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
  22. ^ "AT&T sues eBay, PayPal over patent". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
  23. ^ "CertCo Drops PayPal Patent Suit". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
  24. ^ "EBay Settles Patent Lawsuit With Tumbleweed Communications". 2007-09-27. {{cite web}}: Check date values in: |date= (help)
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