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 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. Its corporate headquarters are 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.

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, Sanjay Bhargava and Jeremy Stoppelman.[6]

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. Although, 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.[7]

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.

[edit] 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 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.


[edit] 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, 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.[1]

In China PayPal offers two kinds of accounts:[2]

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.

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.


[edit] 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 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 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.[8]


Accolades
According to PayPal's "About Us" page, "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.[10]


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. 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. 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. PayPal Luxembourg will then provide the PayPal service throughout the European Union (EU).


Safety & Protection Policies
The PayPal Buyer Protection Policy[3] 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 charge back 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 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 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. If seller does not wish to communicate with buyer, the seller also may choose to escalate a dispute to a claim. The escalation from dispute to claim is not automatic; if a dispute is not escalated it will be automatically closed after a certain period of time. By escalating the dispute to a claim, the party is asking a PayPal representative to review the claim and make a settlement decision. In most cases, 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 at buyer's expense — and provide a tracking number for the return shipment — in order to receive their refund for the transaction. This policy is criticized as being in favor of the fraudulent seller. A seller can exaggerate the condition of his items and the worst that can happen is that he has the item returned. The innocent buyer has to pay return shipping and ends up out of pocket for something that was not his fault. This is in line with criticism of eBay's general policy of putting sales and its own profits above buyer protection against fraudulent sellers (for instance shill bidding).

If the seller has not been found to have misrepresented the item in a significant way, then the buyer's claim will be denied and the buyer will have no further opportunity for claims of any type using Paypal's systems. The only recourse the buyer would possibly have at that point would be through their credit card company (if payment was made using a credit card) or by filing a claim against Paypal through the Better Business Bureau or another similar consumer protection organization.

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.


Money Market
In 2000, PayPal began offering its customers the option of investing their funds in a Money Market account managed by Barclays plc. If a user activates it, the balance of their account begins earning monthly dividends. The rate fluctuates daily, but thus far has been around 5%, and this percentage is the same regardless of the account balance.

Funds are not insured by the FDIC. While other online bank accounts like ING Direct, Citi Direct, HSBC Direct, or Emigrant Direct offer comparable or higher percentage yields and are FDIC-insured, one major advantage of the PayPal money market account is the accessibility of it with no long term commitment.


Sandbox
Developers implementing larger PayPal projects will likely want to avoid using real money. PayPal has a "sandbox" 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.