The eBay PayPal 10% Hold Solution
25 June 2009
- The eBay PayPal 5% Hold Solution
- The eBay PayPal 20% Hold Solution
- eBay Seller Forum: New PayPal 60-Day Payment Holding
- TameBay: PayPal reserves: here's what's really happening
- Red Ink Diary: PayPal Rolling Reserves - Straight Talk
The eBay/PayPal legal/financial team was busy at work implementing the new and improved 10% hold policy. Where PayPal holds 10% of PayPal payments made to sellers.
The dunning template (we edited in the Fill In The Category) letter sent out on June 23rd reads:
Your business is important to us, and we are working hard to provide an easy, fast and secure payment service to you and your customers while keeping our prices competitive. We're also committed to clearly communicating changes to our policies and procedures. To that end, we are writing to inform you of a change to your PayPal account, which will take effect 30 days from the date of this email.
Beginning 07/23/2009, a small percentage of the total payments you receive will be held temporarily as a reserve in your account. This small reserve amount helps to ensure that funds are available to cover payment reversals or buyer chargebacks, if you do not have a sufficient PayPal account balance and do not provide the funds to do so.
A reserve is like a security deposit for your PayPal account and is standard practice in the payments industry, especially for retail segments like Fill In The Category where there is a higher-than-average risk of reversals or chargebacks. This does not mean that you have done anything wrong. We are requiring a small reserve in your account because you sell in a category that has a higher risk of reversals and chargebacks and because you are relatively new to PayPal as a seller.
Your reserve amount will be 10% of the total payments you receive, which will be held on a rolling 60-day schedule. That means 10% of the money you take in each day will be held in your account, and then made available for withdrawal 60 days later.
For example, if you receive $2,000 every 60 days into your PayPal account, then a reserve amount of about $400 would be required on a rolling 60-day period. In other words, about $6.67 would be held in reserve each day, then released 60 days later.
If you are a PayPal Money Market Fund customer, you will still earn interest on your total balance while your money is in reserve. Click here for more information or to enroll in the PayPal Money Market Fund.
We recognize this is a change in the way we do business with you. By requiring some merchants to reserve money in their accounts, we're able to lower our own costs. Keeping our costs low helps us to continue providing competitive pricing for all sellers who use PayPal.
If you have any questions about this change, please call us at 1-877-729-7252. We appreciate your business and look forward to a continued partnership.
According to orange_cape_hides_me the Fill In The Category covers:
- "purses, clothing & fashion accessories
- motor parts
- games, toys (aver. price $25.00 or less)
- pool supplies
- and pet supplies"
According to PayPal:
- "We're requiring reserves for a very small percentage of our sellers - currently less than 1%"
- Bill Clark, PayPal Risk Team Analyst
The end of second quarter (June 30) looming for eBay and PayPal, explains the timing of the 10% hold policy. Essentially new financial quarter, new revenue. The why hold at all can be found in knowing what the "1%" represents.
Using numbers from eBay's SEC (U.S. Securities and Exchange Commission) filing, 23 October 2008 10-Q Quarterly Report Form 10-Q, the following is the worse case (for sellers or best case for eBay/PayPay) calculation of "1%" per quarter.
- Active eBay users affected: 830,000
- Active registered PayPal accounts affected: 548,000
- Net total payment volume, HELD: $115,690,000
PayPal's revenue in this case would be the interest on the $115 million per quarter, or $450 million per year. Plus incidental fees.
As we've noted on previous occasions, this is what eBay/PayPal considers to be "small."
"Keep On With The Force Don't Stop
Don't Stop 'Til You Get Enough"
Released 1979, Michael Jackson (1958-2009)