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PayPal

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PayPal is an Internet business which allows the transfer of money between email users and merchants, avoiding traditional paper methods such as checks/cheques and money orders. PayPal also performs payment processing for e-commerce vendors, auction sites, and other corporate users, for which they charge a fee. Corporate headquarters are in San Jose, California; it is now an eBay company.

History

Beginnings

PayPal was founded in December 1998 by Peter Thiel and Max Levchin. One of its first premises was the 165 University Avenue office in Palo Alto, California, home of a number of other noted Silicon Valley startups. On the business side, many of its initial recruits were alumni of The Stanford Review, which was also founded by Peter Thiel. Most of the early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. In its initial incarnation, PayPal was a service for users to send money via PDAs, with actor James Doohan, Star Trek's "Scotty," as its spokesman. The PDA software was later discarded in favor of a web-based system that became popular with eBay's millions of buyers and sellers. Coupled with aggressive marketing campaigns offering $10 (and later $5) for new users to sign up, the firm grew at a meteoric rate of 7–10 percent per day between January and March 2000.

Though growing rapidly, PayPal was losing $10 million a month and was fraught with internal turmoil that led to three CEO changes in its first year of operations. Foreign Mafia rings found ways to steal millions from the young company. And worst of all, eBay launched a payments service named Billpoint to compete with PayPal. Yet the company was able to turn the corner and become the first dot-com to IPO after the September 11 attacks — an accomplishment that ironically backfired when PayPal's new high profile status helped prompt a slew of class action lawsuits and regulatory probes, including one by NY Attorney General Eliot Spitzer. This paved the way for the company to eventually reconcile with its former rival, eBay. [1] [2]

Acquired by eBay

In October 2002 PayPal was acquired by eBay. PayPal had previously been the payment method of choice by over fifty percent of eBay users, and the service competed with eBay's subsidiary BillPoint. eBay has phased out its BillPoint service in favor of retaining the PayPal brand. PayPal's only substantially similar competitor is now BidPay, after Citibank's c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004.

In 2004, the total value of transactions through the PayPal system was $18.9 billion, up 55% year over year. In January of 2005 PayPal announced plans to pursue the Merchant Services opportunity, the online payments business 'off of eBay'.

Today

As of the end of Q2 2005, PayPal operates in 57 countries (including China) and it manages over 78.9 million accounts. Every second PayPal processes an average of $823 in total payment volume. PayPal supports payments in U.S. Dollars, Canadian Dollars, Australian Dollars, Euros, Pounds Sterling and Japanese Yen.

PayPal operates locally in 13 markets, including: UK, Canada, Australia, Austria, Belgium, France, Germany, Italy, Spain, Ireland, the Netherlands, Switzerland and China.

PayPal also operates a large customer-service center in La Vista, Nebraska, just outside Omaha.

Bank status

Due to the manner in which it operates, PayPal is not considered a bank. Therefore it is not required to abide by the legislation that governs banks. Like Western Union, PayPal is considered a money transmitter in many states and is licensed as such where required.

Its European subsidiary PayPal (Europe) is licensed as an electronic money institution and regulated by the UK Financial Services Authority.

Criticism

PayPal is the most widely used service of its kind. However, a number of users have had frustrating situations with PayPal authorities. A controversial aspect of PayPal is that they have a policy and history of freezing accounts and withholding funds for reasons that they will not disclose or maybe even have. Most of these cases cannot be appealed, and users are usually unable to do anything to solve them and rarely given the chance to explain the situation. According to the PayPal user agreement users accept to give PayPal the power to freeze account funds for 180 days (still allowing incoming payments).

Another controversial aspect is that PayPal is not subject to normal banking regulations, which means that users do not have many of the legal safeguards they would with conventional banks.

In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California state law. Most of the allegations concerned PayPal's dispute resolution procedures. PayPal denies any wrongdoing. 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 changes to its dispute resolution procedures to make it compliant with the EFTA, as well as a U.S. $9.25 million payment to members of the class.

Hurricane Katrina

In September 2005, the Florida Attorney General shut down a website that was fraudulently soliciting relief donations intended for Hurricane Katrina victims via PayPal.

Also in September 2005, PayPal suspended an account opened by Something Awful's owner Richard Kyanka that was being used for the purpose of collecting donations for the Red Cross to help the victims of Hurricane Katrina. After receiving over $30,000 in donations in 9 hours PayPal locked the account; the process of restoring the account required "proof of delivery" despite the fact that no products were being sold. Kyanka contacted PayPal asking that the funds be given to the Red Cross, PayPal said they couldn't do this but could give the money to United Way, a charity collecting for the same cause that had an agreement with PayPal. Kyanka originally agreed to this, but after learning of previous legal troubles with this charity asked PayPal to refund all the donations. It's unclear whether simply waiting for PayPal to reach a decision in regards to the account would have resulted in PayPal allowing the money to eventually reach the Red Cross. [3] [4] [5]

In the news

See also

Books

  • . ISBN 0-596-00751-5. {{cite book}}: Missing or empty |title= (help); Unknown parameter |Author= ignored (|author= suggested) (help); Unknown parameter |Publisher= ignored (|publisher= suggested) (help); Unknown parameter |Title= ignored (|title= suggested) (help); Unknown parameter |Year= ignored (|year= suggested) (help) (Paperback, 368 pages) PayPal Hacks
  • . ISBN 0-974-67010-3. {{cite book}}: Missing or empty |title= (help); Unknown parameter |Author= ignored (|author= suggested) (help); Unknown parameter |Publisher= ignored (|publisher= suggested) (help); Unknown parameter |Title= ignored (|title= suggested) (help); Unknown parameter |Year= ignored (|year= suggested) (help) (Hardcover, 360 pages) The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth
  • . ISBN 0-7645-8392-1. {{cite book}}: Missing or empty |title= (help); Unknown parameter |Author= ignored (|author= suggested) (help); Unknown parameter |Publisher= ignored (|publisher= suggested) (help); Unknown parameter |Title= ignored (|title= suggested) (help); Unknown parameter |Year= ignored (|year= suggested) (help) (Paperback, 410 pages) PayPal for Dummies
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