PayPal Holds "It's All Just Heresay"
14 January 2010
Updates Added January 17th and 25th
Those actions of PayPal were talked about on the eBay PayPal Discussion Board and other forums. And the apparent increasing reach of PayPal did reach the notice of two large audience blogs.
- "We’ve heard from a number of sellers recently that PayPal seem to be stepping up the number of rolling reserves and 21 day holds they’re putting on accounts at the moment."
- "eBay confirmed that PayPal has rolled out transaction holds more widely in the last month or so, but said the criteria are the same."
Moving deftly to 2010, the news of PayPal's increasing reach did not died down. And perhaps came notice that PayPal has added a new wrinkle to holding seller funds.
A PayPal email posted elsewhere reads:
Thank you for contacting PayPal.
My name is Jamie. I was speaking to you earlier regarding the review of your account.
According to my Supervisor the review is already in process however there is no guarantee that this hold will be totally removed from your account.
The reason behind this is because you have not received more than $20,000.00 USD for the past three months. Aside from the requirements given by eBay we also have this requirement for our account specialist to create a manual review in order for the account to be excluded on that specific eBay payment holds.
Even though you were not able to meet that particular criterion on PayPal we are still conducting the review. Also there was no timeframe given. In any event that you experience payment holds in your account just send us an email or call us so we can do a manual release.
I'll be glad to hear from you if you need clarification and we will do our best to give you immediate answers. Thank you for choosing PayPal for your online payment needs. We appreciate your business.
PayPal Consumer Support
PayPal, an eBay Company
Although the PayPal spin being spread now, is mirrored by a major eBay seller unaffected by PayPal's hold policy. Incidentally the inspiration for the article title.
cobbie10 (14938) View Listings
Jan 4, 2010 3:27 PM
Will all of these PayPal hold and reserve policies affect sellers using PayPal? Maybe, maybe not.
According to "Monroe Labouisse, director of PayPal's business on eBay in the US and Canada" on 16 January 2009 in the official eBay Blog eBayINK.com:
- "In a very small percentage of cases, eBay asks PayPal to hold a payment in a seller’s PayPal account for up to 21 days. eBay asks PayPal to do this"
- "We’re talking about single-digit percentages. Usually less than 5% of transactions."
As we calculated in a previous article, 5% per quarter represents in 2008 terms per quarter:
- Active eBay users affected: 4,150,000
- Number of new listings affected: 27,780,000
- Active registered PayPal accounts affected: 2,740,000
- Net total payment volume, HELD: $578,450,000
Not that this was the last word on how many are affected. A PayPal analyst Bill Clark wrote on 9 June 2009 in the official PayPal blog www.thePayPalblog.com:
- "We’re requiring reserves for a very small percentage of our sellers – currently less than 1%."
Given a choice between the "5%" statement of a PayPal Director or the "1%" of a "risk team" analyst, we'll chose what a PayPal Director says over a minion.
Is this out of the ordinary? No.
What PayPal and eBay do to compensate for fraud, and make money in the process is basic business. Holding funds to cover the cost of fraud, interest on funds held, and the ability to use those funds is smart use of money.
Of course this doesn't mean there is no affect on the consumer, i.e. seller.
Is there a reason for all the hold and reserve?
Let's go over the credit card fraud aspect.
PayPal is very tight-fisted with it's fraud statistics, but you can find them if you look long enough.
A 2001 golden oldie article Digital cash payoff, which resides on the PayPal site, contains quite a few interesting statements. You might want to grab the article before PayPal 'archives' it.
- "PayPal claims it has found a way to bring the online fraud rate down to less than .5 percent"
- "Visa reports an overall fraud rate of .07 percent"
- "Gartner study of Web merchants indicates the figure soars to 1.13 percent for online transactions"
Paypal CISO (Chief Information Security Officer) Michael Barrett stated in a 2007 article PayPal security measures help stamp out fraud, "our fraud rating is 41 basis points, or less than a half of 1%."
The short 2008 article Just how secure is eBay's pay system? reports:
- "eBay’s head of public affairs, Daniel Feiler, who admitted to a newsletter recently that PayPal's fraud rate was 0.3% of all transactions while APCA’s was 0.0167%."
If you're a numbers person the fraud rate PayPal provides is a rather consistent less than 0.5% over an eight year span. While that sounds good, do remember that PayPal doesn't highlight the fraud rate of the competition, which we did.
Being a savy consumer means comparison shopping.
For instance which is the safer processor? PayPal, where fraud occurs ".5 percent" of the time or Visa where fraud occurs ".07 percent" of the time? PayPal, with a fraud rate of "0.3%" or the competition at "0.0167%"?
To be fair VISA is equally tight with disclosing it's fraud rate. A slightly more recent 2005 statistic, reports "Visa said the technology might reduce its fraud rate to $3 per $10,000 of transactions from the current $5 per $10,000".
That's 0.03% and 0.05% respectively. Versus PayPal's fraud rate of "0.3%".
Consider that PayPal applies holds on accounts PayPal or eBay deems risky. What do you think the regulated banks and credit card companies do to a company that year after year shows a fraud rate 10 times the norm? I.E. Risky.
Two words; hold, reserve.
In order for PayPal and eBay to remain profitable, what do they do? Pass on their costs to the consumer.
How? Two words; hold, reserve.
Given the very tight current credit market, until and unless PayPal and eBay reduce their fraud rate, don't expect the trend of holds and reserves being applied to more and more sellers to cease.
If you have PayPal processing only, maybe it's time to consider shopping around?
Disclosure: A few contributors to this article have PayPal accounts. Most have Google Checkout accounts. All have Merchant accounts.
- The eBay PayPal 10% Hold Solution
- 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
- TheBrewsNews: The Keys To Surviving The PayPal 21-Day Hold Policy
Article update 17 January 2010.
Apparently PayPal is sending out new variations of their hold email.
Thank you for contacting PayPal, my name is Michelle and I am glad to receive your email today.
First of all I apologize. With regards to your concern, the email message that you have received from PayPal is a heads-up/education informing you about the hold that might occur on your account.
This happens because PayPal is losing a lot money from the chargebacks that we need to attend too. If this concern/issue arises on your account, please do contact us at 1-888-221-1161 or 1-888-204-4481 and we will have our account specialist assist you immediately.
PayPal, an eBay Company
Thanks for contacting PayPal's Customer Support, my name is Remz. I realize that this situation can be frustrating, and appreciate the opportunity to clarify the Account Level Hold (21-day hold policy).
For security reasons, PayPal may delay the release of a payment to the seller. We are focused in making the marketplace safer for buyers and sellers by helping to ensure successful transactions which, in turn, can mean more sales for you.
As indicated in the email notice, if we determine that a seller's overall account has a high level of risk, we may decide to hold all of the seller's incoming payments. Each payment will be held until we can be sure that the transaction was completed successfully and to the satisfaction of customers.
Individual holds will be released 3 days after we confirm delivery, or after 21 days. Account-level holds are typically evaluated each 30-90 days. So within this time frame if we determine that your account is in good standing there is a possibility that the payments received in the future may not be held.
When an account-level hold is placed, the seller receives an email notifying them of the hold. Rest-assured that our email system is designed to send 10,000 email notifications everyday to customers, in a per batch basis. Eventually, the account-level hold will be rolled out to all PayPal sellers.
Please understand that we aim to protect both sellers and buyers. Account-level hold gives the sellers the protection from chargebacks and other similar complaints. The requirements that we ask from sellers before the hold gets lifted are basic things that we can report back to card companies in case buyers claim the transaction is fraud or unauthorized. Moreover, the delivery confirmation is an added protection for sellers as it is a way to determine if the buyer indeed received the item or not. On the other hand, holds placed on the seller's account will have the seller send the item to buyers immediately, producing very satisfied buyers in return
In case you missed the pertinent part in the second email, we've extracted it below. Emphasis ours.
"Eventually, the account-level hold will be rolled out to all PayPal sellers"
We noted in a 17 February 2009 article, "With PayPal required to report U.S. seller sales to the IRS in 2011, this is a golden opportunity for PayPal to withhold 10% of a U.S. seller's funds for tax purposes."
If you have a PayPal selling account, welcome to the testing phase.
Article update 25 January 2010.
Looks like the 'testing phase' is 'over'. PayPal held funds inadvertently boosting 2009 Quarter 4 numbers, and users noticed and complained.
On 22 January 2010, two days after eBay's Earnings Call, PayPal said 'sorry'.
Jan 22, 2010 3:54 PM
PayPal uses payment holds to ensure that sellers have sufficient funds in their accounts if, for example, a buyer files a dispute. In deciding whether to apply payment holds, PayPal reviews many factors including transaction activity, business type, and customer disputes.
PayPal did experience a recent system issue where some sellers' funds were incorrectly held as part of this policy. PayPal has corrected the problem, so any sellers who should not have been affected by the policy have already been notified had their funds released.
The issue has been corrected and we apologize for any confusion.
Learn more about our funds availability policy
If you were "some sellers'" who's "funds were incorrectly held", you may have gotten a letter like the one below.
Subject: error fixed - no payments on hold
As part of our customer protection policies, we hold the funds for a small number of sellers’ payments for up to 21 days in case there’s a problem with the transaction. Once released, the full payment amount can be accessed in the seller’s PayPal account.
Unfortunately, due to a technical issue, we mistakenly held some of the funds for your payments, which showed up as a “Pending” balance in your account. Rest assured, you're not currently subject to this policy and the issue has been corrected. We know this may have been frustrating and apologize for any inconvenience.
We're committed to helping your business grow. Please don’t hesitate to contact us with any questions at (888) 221-1161.
You might even have gotten your funds back.
Essentially PayPal took a month to 'fix' what they claim was a "recent system issue."
With the surge in PayPal holds being reported toward the end of December 2009, the only thing that was "recent" was the spotlight put on PayPal by the 13 January 2010 AuctionBytes letter to the editor. With AuctionBytes pulling in a half a million visitors a month, it's amazing what a little noise can do to reverse a policy.
Although not necessarily permanently.
To Be Continued.