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PayPal is a global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders.
PayPal is an acquirer, performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient's account type. In addition, eBay purchases made by credit card through PayPal may incur extra fees if the buyer and seller use different currencies.
On October 3, 2002, PayPal became a wholly owned subsidiary of eBay. 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, Charlotte, North Carolina and Austin, Texas in the United States; Chennai in India; Dublin inIreland; Kleinmachnow in Germany; and Tel Aviv in Israel. From July 2007, PayPal has operated across the European Union as a Luxembourg-based bank.
On March 17, 2010, PayPal entered into an agreement with China UnionPay (CUP), China's bankcard association, to allow Chinese consumers to use PayPal to shop online. PayPal is planning to expand its workforce in Asia to 2,000 by the end of the year 2010.
Between December 4–9, 2010, PayPal services were attacked in a series of denial-of-service attacks organized by Anonymous in retaliation for PayPal's decision to freeze the account of WikiLeaks citing terms of use violations over the publication of leaked US diplomatic cables.
Beginnings
The current incarnation of PayPal is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December 1998 by Max Levchin, Peter Thiel, Luke Nosek, and Ken Howery, initially as a Palm Pilot payments and cryptography company. X.com was founded by Elon Musk in March 1999, initially as an Internet financial services company. Both Confinity and X.com launched their websites in late 1999. Both companies were located on University Avenue in Palo Alto. Confinity's website was initially focused on reconciling beamed payments from Palm Pilots and X.com's website initially featured financial services. Both services offered 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 of Sequoia Capital, Sanjay Bhargava and Jeremy Stoppelman.
To block potentially fraudulent access by automated systems, PayPal used a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they dubbed the Gausebeck-Levchin test.
eBay watched the rise in volume of its online payments and realized the fit of an online payment system with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of PayPal. eBay made Billpoint its official payment system, 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 many more auctions than Billpoint. In February 2000, the PayPal service had an average of approximately 200,000 daily auctions while Billpoint (in beta) had only 4,000 auctions. By April 2000, more than 1,000,000 auctions promoted the PayPal service. 70% of all eBay auctions accepted PayPal payments, and roughly 1 in 4 closed auction listings were transacted via PayPal. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.
As of 2008, PayPal's total payment volume, the total value of transactions, was US$60 billion, an increase of 27 percent over the previous year, and US$ 71 billion in 2009, an increase of 19 percent over the previous year. As of 2012, PayPal's total payment volume processed was US$145 billion. The company continues to focus on international growth and growth of its Merchant Services division, providing e-payments for retailers on eBay.
In 2011, PayPal announced that it would begin moving its business offline so that customers can make payments via PayPal in stores.
Acquisition by eBay
In October 2002, PayPal was acquired by eBay for $1.5 billion. 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,Citibank's c2it, whose service was closed in late 2003, and Yahoo!'s PayDirect, whose service was 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 subsequently ceased operations on December 31, 2007. Some competitors that offer some of PayPal's services, such as Google Checkout, Wirecard, and Moneybookers remain in business, despite the fact that eBay now requires everyone on its Australian and United Kingdom sites to offer PayPal. eBay Australia was subsequently forced to moderate its position by the Australian Competition & Consumer Commission, mandating that sellers on eBay Australia offer PayPal as one of the (but not necessarily the only) payment methods. These accepted payment methods include bank deposit, cheques and money orders, escrow, and credit cards (processed by other than PayPal).
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal's proprietary fraud management systems and accelerate the development of improved fraud detection tools. In November 2008, the company acquired Bill Me Later, an online payments company offering transactional credit at over 9000 online merchants in the US.
As of 2012, PayPal accounted for 40% of eBay's revenue, amounting to US$1.37 billion in the 3rd quarter of 2012.
In October 2002, PayPal was acquired by eBay for $1.5 billion. 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,Citibank's c2it, whose service was closed in late 2003, and Yahoo!'s PayDirect, whose service was 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 subsequently ceased operations on December 31, 2007. Some competitors that offer some of PayPal's services, such as Google Checkout, Wirecard, and Moneybookers remain in business, despite the fact that eBay now requires everyone on its Australian and United Kingdom sites to offer PayPal. eBay Australia was subsequently forced to moderate its position by the Australian Competition & Consumer Commission, mandating that sellers on eBay Australia offer PayPal as one of the (but not necessarily the only) payment methods. These accepted payment methods include bank deposit, cheques and money orders, escrow, and credit cards (processed by other than PayPal).
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal's proprietary fraud management systems and accelerate the development of improved fraud detection tools. In November 2008, the company acquired Bill Me Later, an online payments company offering transactional credit at over 9000 online merchants in the US.
As of 2012, PayPal accounted for 40% of eBay's revenue, amounting to US$1.37 billion in the 3rd quarter of 2012.
Corporate governance
As of April 2012, PayPal's president is David Marcus; Marcus joined PayPal in August 2011 after its acquisition of Zong, of which he was the founder and CEO. David Marcus succeeded Scott Thompson as president, who left the role suddenly to join Yahoo.
As of April 2012, PayPal's president is David Marcus; Marcus joined PayPal in August 2011 after its acquisition of Zong, of which he was the founder and CEO. David Marcus succeeded Scott Thompson as president, who left the role suddenly to join Yahoo.
Services
As of 2011, PayPal operates in 190 markets and manages more than 232 million accounts, more than 100 million of them active. PayPal allows customers to send, receive, and hold funds in 26 currencies worldwide. These currencies are the Australian dollar, Brazilian real, Canadian dollar, Chinese renminbi yuan (only available for some Chinese accounts, see below), euro, pound sterling, Japanese yen, Czech koruna, Danish krone, Hong Kong dollar,Hungarian forint, Israeli new sheqel, Malaysian ringgit, Mexican peso, New Zealand dollar, Norwegian krone, Philippine peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc, New Taiwan dollar, Thai baht, Turkish lira and US dollar. PayPal operates locally in 21 countries.
Residents in 194 markets [clarification needed] can use PayPal in their local markets to send money online.
PayPal revenues for Q1 2009 were $643 million, up 11 percent year over year. 42 percent of revenues in Q1 2009 were from international markets. PayPal's Total Payment Volume (TPV), the total value of transactions in Q1 2009 was nearly $16 billion, up 10 percent year over year.
In 2008, PayPal's TPV off eBay exceeded volume on eBay for the first time. PayPal's Total Payment Volume in 2008 was $60 billion, representing nearly 9 percent of global e-commerce and 15 percent of US e-commerce.
At an analyst day on March 11, 2009, eBay CEO John Donahoe announced that PayPal could be a larger driver of revenue than the eBay marketplaces business. RIM (now BlackBerry) announced that PayPal will be the only payment mechanism for its BlackBerry App World (now BlackBerry World), which launched on April 1, 2009. However, by April 2011 RIM started offering two other options: credit card payment and mobile carrier billing (using theBango Payment system).
PayPal launched Student Accounts for teens in August 2009, allowing parents to set up a student account, transfer money into it, and obtain a debit card for student use. The program provides tools to teach teens how to spend money wisely and take responsibility for their actions.
In November 2009, PayPal opened its platform, allowing other services to get access to its code and to use its infrastructure in order to enable peer-to-peer online transactions.
PayPal Operations Center and main office located in Omaha, NE
Although PayPal's corporate headquarters are located in San Jose, PayPal's operations center is located in Omaha, Nebraska, where the company employed more than 2,000 people as of 2007. PayPal's European headquarters are in Luxembourg and international headquarters are in Singapore. In October 2007, PayPal opened a data service office on the north side of Austin, Texas. Previously, the company opened a technology center in Scottsdale, Arizona, and Chennai, India.
On November 28, 2011, PayPal reported Black Friday brought record mobile engagement including a 538 percent increase in global mobile payment volume when compared to Black Friday 2010.
PayPal business model evolution
PayPal’s success in terms of users and volumes was the product of a three-phase strategy described by former eBay CEO Meg Whitman: “First, PayPal focused on expanding its service among eBay users in the US. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay”.
PayPal’s success in terms of users and volumes was the product of a three-phase strategy described by former eBay CEO Meg Whitman: “First, PayPal focused on expanding its service among eBay users in the US. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay”.
Phase-1
In the first phase, payment volumes were coming mostly from the eBay auction web-site. The system was very attractive to auction sellers, most of which were individuals or small businesses that were unable to accept credit cards, and for consumers as well. In fact, many sellers could not qualify for a credit card “merchant account” because they lacked a commercial credit history. The service also appealed to auction buyers because they could fund PayPal accounts using credit cards or bank account balances, without divulging credit card numbers to unknown sellers. PayPal employed an aggressive marketing campaign to accelerate its growth, depositing $10 in new users’ PayPal accounts (+$10 for each new user they referred).[citation needed]
In the first phase, payment volumes were coming mostly from the eBay auction web-site. The system was very attractive to auction sellers, most of which were individuals or small businesses that were unable to accept credit cards, and for consumers as well. In fact, many sellers could not qualify for a credit card “merchant account” because they lacked a commercial credit history. The service also appealed to auction buyers because they could fund PayPal accounts using credit cards or bank account balances, without divulging credit card numbers to unknown sellers. PayPal employed an aggressive marketing campaign to accelerate its growth, depositing $10 in new users’ PayPal accounts (+$10 for each new user they referred).[citation needed]
Phase-2
The biggest challenge in 2000 remained PayPal’s unsustainable business model. Initially, PayPal offered its service with lower cost, planning to earn interest on funds in users’ PayPal accounts (i.e., the “float”). However, most recipients withdrew their funds immediately. Furthermore, a large majority of senders funded their payments using credit cards, which cost PayPal roughly 2% of payment value, rather than relying on much less with business accounts qualified for seller protection against losses due to chargebacks, provided that they complied with reimbursement policies (e.g., retaining traceable proof of shipping to a confirmed address or requiring a signature receipt for items valued over $250).
The biggest challenge in 2000 remained PayPal’s unsustainable business model. Initially, PayPal offered its service with lower cost, planning to earn interest on funds in users’ PayPal accounts (i.e., the “float”). However, most recipients withdrew their funds immediately. Furthermore, a large majority of senders funded their payments using credit cards, which cost PayPal roughly 2% of payment value, rather than relying on much less with business accounts qualified for seller protection against losses due to chargebacks, provided that they complied with reimbursement policies (e.g., retaining traceable proof of shipping to a confirmed address or requiring a signature receipt for items valued over $250).
Phase-3
After fine-tuning PayPal’s business model and increasing its domestic and international penetration on eBay, PayPal started its off-eBay strategy. This was based on developing stronger growth in active users by adding users across multiple platforms, despite the slowdown in on-eBay growth and low-single-digit user growth on the eBay site. A late 2003 reorganization created a new business unit within PayPal—Merchant Services—to provide payment solutions to small and large e-commerce merchants outside the eBay auction community. Starting in the second half of 2004, PayPal Merchant Services unveiled several initiatives to enroll online merchants outside the eBay auction community, including:
Lowering its transaction fee for high-volume merchants from 2.2% to 1.9% (while increasing the monthly transaction volume required to qualify for the lowest fee to $100,000)
Encouraging its users to recruit non-eBay merchants by increasing its referral bonus to a maximum of $1,000 (versus the previous $100 cap)
Persuading credit card gateway providers, including CyberSource and Retail Decisions USA, to include PayPal among their offerings to online merchants.
Hiring a new sales force to acquire large merchants such as Dell, Apple's iTunes, and Yahoo! Stores, which hosted thousands of online merchants
Reducing fees for online music purchases and other “micropayments”
Launching PayPal Mobile, which allowed users to make payments using text messaging on their cell phones
After fine-tuning PayPal’s business model and increasing its domestic and international penetration on eBay, PayPal started its off-eBay strategy. This was based on developing stronger growth in active users by adding users across multiple platforms, despite the slowdown in on-eBay growth and low-single-digit user growth on the eBay site. A late 2003 reorganization created a new business unit within PayPal—Merchant Services—to provide payment solutions to small and large e-commerce merchants outside the eBay auction community. Starting in the second half of 2004, PayPal Merchant Services unveiled several initiatives to enroll online merchants outside the eBay auction community, including:
Lowering its transaction fee for high-volume merchants from 2.2% to 1.9% (while increasing the monthly transaction volume required to qualify for the lowest fee to $100,000)
Encouraging its users to recruit non-eBay merchants by increasing its referral bonus to a maximum of $1,000 (versus the previous $100 cap)
Persuading credit card gateway providers, including CyberSource and Retail Decisions USA, to include PayPal among their offerings to online merchants.
Hiring a new sales force to acquire large merchants such as Dell, Apple's iTunes, and Yahoo! Stores, which hosted thousands of online merchants
Reducing fees for online music purchases and other “micropayments”
Launching PayPal Mobile, which allowed users to make payments using text messaging on their cell phones
Local restrictions
Countries not supported by PayPal include Afghanistan, Bangladesh, Pakistan, and Montenegro, in addition to the countries on the US economic sanction list.
Countries not supported by PayPal include Afghanistan, Bangladesh, Pakistan, and Montenegro, in addition to the countries on the US economic sanction list.
Japan
In late March 2010, new Japanese banking regulations forced PayPal Japan to suspend the ability of personal account holders registered in Japan from sending or receiving money between individuals and as a result are now subject to PayPal's business fees on all transactions.
In late March 2010, new Japanese banking regulations forced PayPal Japan to suspend the ability of personal account holders registered in Japan from sending or receiving money between individuals and as a result are now subject to PayPal's business fees on all transactions.
Taiwan
As of mid July 2010, users in Taiwan have noticed that the "Personal" tab for sending money has been omitted without notice. There is no longer an option to send personal payments, thus forcing all recipients to pay a fee.[citation needed]
As of mid July 2010, users in Taiwan have noticed that the "Personal" tab for sending money has been omitted without notice. There is no longer an option to send personal payments, thus forcing all recipients to pay a fee.[citation needed]
Brazil
As of mid-November 2010, users in Brazil also have noticed that the "Personal" tab for sending money has been omitted without notice. There is no longer an option to send personal payments, thus forcing all recipients to pay a fee. Balance transfers between PayPal accounts of the same account holder incur an additional 6.4% fee.
As of beginning January 2011, Brazilian users are no longer allowed to withdraw money using credit/debit cards.[citation needed]
India
As of March 2011,[citation needed] PayPal made changes to the User Agreement for Indian users to comply with Reserve Bank of India regulations. Notable changes to the agreement were:
Any balance or future payments must not be used to buy goods or services but transferred to a bank account within 15 days of the receipt of payment.
Credit/Debit cards must be used to pay through PayPal.[citation needed]
The per transaction limit just been changed to USD 3000, since October 14, 2011.
PayPal wants to make India an incubation center for the company's employee engagement policies. In 2012, PayPal hired 120 people for its offices in Chennai and Bangalore. PayPal plans to recruit 1000 candidates for its Bangalore Development center.
PayPal Labs
PayPal's innovation environment, PayPal-Labs.com, hosts several outreach and experimental projects such as the storefront application, the Myspace and Facebook donations widgets, and the PayPal blog.
PayPal's innovation environment, PayPal-Labs.com, hosts several outreach and experimental projects such as the storefront application, the Myspace and Facebook donations widgets, and the PayPal blog.
Payment sources and destinations
Originally, a PayPal account could be funded with an electronic debit from a bank account or by a credit card at the payer's choice. But some time in 2010 or early 2011, PayPal began to require a verified bank account after the account holder exceeded a predetermined spending limit. After that point, PayPal will attempt to take funds for a purchase from funding sources according to a specified funding hierarchy. If you set one of the funding sources as Primary, it will default to that, within that level of the hierarchy (for example, if your credit card ending in 4567 is set as the Primary over 1234, it will still attempt to pay money out of your PayPal balance, before it attempts to charge your credit card). The funding hierarchy is (1) a balance in the PayPal account; (2) a PayPal credit account, PayPal Extras, PayPal SmartConnect, PayPal Extras MasterCard or Bill Me Later (if selected as primary funding source) (It can bypass the Balance); (3) a verified bank account; (4) other funding sources, such as non-PayPal credit cards.
The recipient of a PayPal transfer can either request a check from PayPal, establish their own PayPal deposit account or request a transfer to their bank account.
Regulatory status
Peter Thiel, the founder of PayPal, has stated that PayPal is not a bank because it does not engage in fractional-reserve banking. Rather, PayPal's funds that have not been disbursed are kept in commercial interest-bearing checking accounts.
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.
In 2007, PayPal Europe was granted a Luxembourg banking license, which, under European Union law, allows it to conduct banking business throughout the EU. It is therefore regulated as a bank by Luxembourg's banking supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF).
In Australia, PayPal is licensed as an Authorised Deposit-taking Institution (ADI) and is thus subject to Australian banking laws and regulations.
Peter Thiel, the founder of PayPal, has stated that PayPal is not a bank because it does not engage in fractional-reserve banking. Rather, PayPal's funds that have not been disbursed are kept in commercial interest-bearing checking accounts.
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. PayPal is not classified as a bank in the United States, though the company is subject to some of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.
In 2007, PayPal Europe was granted a Luxembourg banking license, which, under European Union law, allows it to conduct banking business throughout the EU. It is therefore regulated as a bank by Luxembourg's banking supervisory authority, the Commission de Surveillance du Secteur Financier (CSSF).
In Australia, PayPal is licensed as an Authorised Deposit-taking Institution (ADI) and is thus subject to Australian banking laws and regulations.
Safety and protection policies
The PayPal Buyer Protection Policy states that the customer 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 chargeback from their credit-card company. However, in the UK, where such a purchaser is entitled to specific statutory protections (that the credit card company is a second party to the purchase and is therefore equally liable in law if the other party defaults or goes into liquidation) under Section 75 Consumer Credit Act 1979, the purchaser loses this legal protection if the card payment is processed via PayPal.
According to PayPal, it protects sellers in a limited fashion via the Seller Protection Policy. 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". The 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 PayPal Seller Protection Policy does not provide the additional consumer protection afforded by UK consumer legislation (e.g., Sale of Goods Act) and in addition it cannot be enforced in the Courts because PayPal operates from Luxembourg, outside all three of the UK legal jurisdictions.
Security
Main article: Security token
In early 2006, PayPal introduced an optional security key as an additional precaution against fraud. A user account tied to a security key has a modified login process. The account holder enters his or her login ID and password as normal, but is then prompted to press the button on the security key and enter the six-digit number generated by it. For convenience, the user may append the six-digit number to his or her password in the login screen. This way he or she is not prompted for it on another page. This method is required for some services, such as when using PayPal through the eBay application on iPhone.
This two-factor authentication is intended to make it difficult for an account to be compromised by a malicious third party without access to the physical security key, although it does not prevent so-called Man in the Browser (MITB) attacks. However, the user (or malicious third party) can alternatively authenticate by providing the credit card or bank account number listed on his or her account. Thus the PayPal implementation does not offer the security of true two-factor authentication.
The key currently costs US$29.95 for all users with no ongoing fees.The option of using a security key with one's account is currently available only to users registered in Australia, Germany, Canada, the United
Main article: Security token
In early 2006, PayPal introduced an optional security key as an additional precaution against fraud. A user account tied to a security key has a modified login process. The account holder enters his or her login ID and password as normal, but is then prompted to press the button on the security key and enter the six-digit number generated by it. For convenience, the user may append the six-digit number to his or her password in the login screen. This way he or she is not prompted for it on another page. This method is required for some services, such as when using PayPal through the eBay application on iPhone.
This two-factor authentication is intended to make it difficult for an account to be compromised by a malicious third party without access to the physical security key, although it does not prevent so-called Man in the Browser (MITB) attacks. However, the user (or malicious third party) can alternatively authenticate by providing the credit card or bank account number listed on his or her account. Thus the PayPal implementation does not offer the security of true two-factor authentication.
The key currently costs US$29.95 for all users with no ongoing fees.The option of using a security key with one's account is currently available only to users registered in Australia, Germany, Canada, the United
Kingdom, and the United States.
MTAN
It is also possible to use a mobile phone to receive an MTAN (Mobile Transaction Authentication Number) via SMS. Like all security measures, there have been reports of vulnerabilities to older mobile handsets.
It is also possible to use a mobile phone to receive an MTAN (Mobile Transaction Authentication Number) via SMS. Like all security measures, there have been reports of vulnerabilities to older mobile handsets.
Regulation
In Europe, PayPal is registered as a bank in Luxembourg under the legal name PayPal (Europe) Sàrl et Cie SCA, a company regulated centrally by the Luxembourg bank authority, theCommission de Surveillance du Secteur Financier (CSSF) (note that all of the company's European accounts were transferred to PayPal's bank in Luxembourg on July 2, 2007.) Prior to this move, PayPal had been registered in the UK as PayPal (Europe) Ltd, an entity which was licensed as an Electronic Money Issuer with the UK's Financial Services Authority (FSA) from 2004. This ceased in 2007, when the company moved to Luxembourg.
In the US, although PayPal has an extensive User Agreement, PayPal is not directly regulated by the US federal government, because it serves as a payment intermediary. PayPal is regulated as a money transmitter, 31 C.F.R. 1010.100(ff)(5). PayPal is also subject to state regulation, but state laws vary, as do their definitions of banks, narrow banks, money services businesses and money transmitters. The most analogous regulatory source of law for PayPal transactions comes from P2P payments using credit and debit cards. Ordinarily, a credit card transaction, specifically the relationship between the issuing bank and the cardholder, is governed by the Truth in Lending Act (TILA) 15 U.S.C. §§ 1601-1667f as implemented by Regulation Z, 12 C.F.R. 226, (TILA/Z). TILA/Z requires specific procedures for billing errors, dispute resolution and limits cardholder liability for unauthorized charges. Similarly, the legal relationship between a debit cardholder and the issuing bank is regulated by the Electronic Funds Transfer Act (EFTA) 15 U.S.C. §§ 1693-1693r, as implemented by Regulation E, 12 C.F.R. 205, (EFTA/E). EFTA/E is directed at consumer protection and provides strict error resolution procedures. However, because PayPal is a payment intermediary and not otherwise regulated directly, TILA/Z and EFTA/E do not operate exactly as written once the credit/debit card transaction occurs via PayPal. Basically, unless a PayPal transaction is funded with a credit card, the consumer has no recourse in the event of fraud by the seller.[citation needed]
In India, as of January 27, 2010, PayPal has no cross-border money transfer authorization. In The New York Times article "India’s Central Bank Stops Some PayPal Services", Reserve Bank of India spokesman Alpana Killawalla stated: "Providers of cross-border money transfer service need prior authorization from the Reserve Bank under the Payment and Settlement Systems Act, PayPal does not have our authorization." PayPal is not listed in the "Certificates of Authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 for Setting up and Operating Payment System in India".
Fraud
The examples and perspective in this section may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.(January 2011)
As early as 2001, PayPal had substantial problems with online fraud, especially international hackers who were hacking into PayPal accounts and transferring small amounts of money out of multiple accounts. Standard solutions for merchant and banking fraud might use government criminal sanctions to pursue the fraudsters. But with PayPal losing millions of dollars each month to fraud, while experiencing difficulties with using the FBI to pursue cases of international fraud, PayPal developed a private solution: a "fraud monitoring system that used artificial intelligence to detect potentially fraudulent transactions. ... Rather than treating the problem of fraud as a legal problem, the company treated it as a risk management one."
If an unauthorized third party obtains and uses someone's PayPal login information and completes a transaction using the accountholder's debit or credit card, EFTA/E and TILA/Z[clarification needed] make PayPal responsible for the breach. There are some specific exceptions to this rule. One is if funds are illicitly withdrawn from a PayPal deposit account. In that situation, neither PayPal nor the bank is required to return the funds, because the agreement between a consumer and PayPal makes those types of transactions authorized.
In the United States, PayPal account holders' private information is marginally protected under one US federal law. Since PayPal is a financial institution under the Gramm-Leach-Bliley Act (GLB), it cannot disclose its account holders' non-public personal information to third parties unless account holders opt into those disclosures.
If an account is subject to fraud or unauthorized use,[when?] PayPal puts the "Limited Access" designation on the account. At this point, the account holder must:[citation needed]
Log in
Reset their password
Develop a set of security questions (based on the subjective and not fact — e.g., "What is your favorite ice cream?" not "What is your mother's maiden name?")
Verify location by phone or by mail
Provide a set of documents, including but not limited to, a copy of the user's social security card and state ID, home utility bills, business licenses, and proof of original purchase of recently sold good
The examples and perspective in this section may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.(January 2011)
As early as 2001, PayPal had substantial problems with online fraud, especially international hackers who were hacking into PayPal accounts and transferring small amounts of money out of multiple accounts. Standard solutions for merchant and banking fraud might use government criminal sanctions to pursue the fraudsters. But with PayPal losing millions of dollars each month to fraud, while experiencing difficulties with using the FBI to pursue cases of international fraud, PayPal developed a private solution: a "fraud monitoring system that used artificial intelligence to detect potentially fraudulent transactions. ... Rather than treating the problem of fraud as a legal problem, the company treated it as a risk management one."
If an unauthorized third party obtains and uses someone's PayPal login information and completes a transaction using the accountholder's debit or credit card, EFTA/E and TILA/Z[clarification needed] make PayPal responsible for the breach. There are some specific exceptions to this rule. One is if funds are illicitly withdrawn from a PayPal deposit account. In that situation, neither PayPal nor the bank is required to return the funds, because the agreement between a consumer and PayPal makes those types of transactions authorized.
In the United States, PayPal account holders' private information is marginally protected under one US federal law. Since PayPal is a financial institution under the Gramm-Leach-Bliley Act (GLB), it cannot disclose its account holders' non-public personal information to third parties unless account holders opt into those disclosures.
If an account is subject to fraud or unauthorized use,[when?] PayPal puts the "Limited Access" designation on the account. At this point, the account holder must:[citation needed]
Log in
Reset their password
Develop a set of security questions (based on the subjective and not fact — e.g., "What is your favorite ice cream?" not "What is your mother's maiden name?")
Verify location by phone or by mail
Provide a set of documents, including but not limited to, a copy of the user's social security card and state ID, home utility bills, business licenses, and proof of original purchase of recently sold good
Phishing
PayPal presents anti-phishing advice on their website for identifying and reporting phishing. PayPal encourages consumers to report all phishing emails to them.
Shop-for-free bugs
PayPal presents anti-phishing advice on their website for identifying and reporting phishing. PayPal encourages consumers to report all phishing emails to them.
Shop-for-free bugs
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