Thursday, October 16, 2014

Why PayPal sucks

Introduction

Every so often I run into someone who uses PayPal on a regular basis, and has never had a problem working with it. While I believe they are entitled to their opinions, and have no problems with them choosing to use PayPal, I think they ought to have all the facts. So I've written up my experience and what I've discovered about the company. But one person's experiences may not be indicative, so you can read other people's problems with PayPal.

Understanding PayPal

What PayPal is - and isn't

PayPal's early attraction to the consumer is that they don't give your credit card info to merchants, which provides an extra level of security. That used to be unique, and them being first has made them very popular. These days Google, Apple and Amazon all have similar services, or have at least announced them. There are also a slew of others, possibly even Microsoft, but none of them have made an impression on me. All of these services are free to you for making purchases. Which means that, as with any free web service, you are not the customer, you are the product. In this case, it's easy to tell who the customer is - it's the merchant you're buying from, who is paying for an easy way to get customer payments.
One difference between PayPal and the other three is that the other three all have store fronts of their own. PayPal doesn't. That means that you are, at least when buying from their store front, a customer of those other three. So they will treat you like a customer. You can also see how the vendors are customers there, because the vendors pay a premium in order to have products show up in those three stores. It's worth pointing out that, unlike those four, when you make a purchase using a credit card, you are a customer of the bank. The merchant is a customer of the credit card company, not the bank.
Another difference between PayPal and the other three is that PayPal wants to hang on to money for you, which lets you spend it from your account instead of your credit card, sort of like a checking account at a bank.
It's important to know that, even though PayPal acts like a bank issuing a debit card from your perspective, it is not a bank. It isn't bound by the laws covering banks or debit cards, and you get none of the legal protection you'd have with a real debit card.

How PayPal makes money

Looking at how all these entities make money helps explain their behavior. Apple, Google and Amazon make money primarily by selling you things from their storefront, and have moved into the payment processing market to get a slice of the money from other sales as well. Banks make money by charging you interest on money you borrow, or by making interest on the money they hold for you for a debit card, and also by charging a variety of fees. PayPal makes money on payment processing fees, and by making interest any money they convince you to let them hold.

PayPal's behavior

So let's look at how PayPal has treated its users.

General behavior

Another difference between PayPal and the other three payment processing companies: PayPal has lost a series of class action lawsuits brought by its users for figuratively stealing their money. PayPal has a habit of doing everything they legally can to keep earning interest on money that people have trusted them with. Making it hard to contact them, freezing account withdrawals (but not deposits!) for suspicious behavior, then having hard to find and even harder to meet requirements to unfreeze them, and so on. That's what's caused those lawsuits.
While PayPal has improved things a bit (you can now call their mis-named customer service department), this is mostly because they have been forced to as part of various settlements, not because of a change of attitude. The lawsuits didn't stop until they changed their terms of service to say you could not sue them about these things.

My experiences

I opened a PayPal account over a decade ago, with an email address I still use. They doubled billed me for a purchase. I eventually found an email address (there was no phone number to be found on their web site at the time, one of the things the lawsuits forced them to change), and asked about this, and was told "Just have your bank reverse the charge." I did. PayPal ran the extra charge again. I reversed the charged again, and PayPal did a bank transfer to get the money. This happened another time or two - I forget the details, because it's been over a decade. Eventually, I got my money back, but they froze the account for "suspicious activity" - which state it's still in. They also took the money back from the eBay vendor, claiming I said the merchandise was never delivered, making it look like I ripped off the merchant, when it was in fact PayPal that had done so.
That old account still exists, and is permanently locked. This means that, should I make a purchase with PayPal and forget - or not have the option because my account with the vendor uses it - to use an alternate email address, I risk refunds winding up in that locked account. It's happened, but not reliably.
So having recently started buying from (only when there is no reasonable alternative) merchants that only accept PayPal, I've had the dubious pleasure of using PayPal's "customer service". While I can now reliably get someone on the phone to talk to, they are just as reliably useless. Fortunately, there is usually a supervisor available, who is only mostly useless. If you've got a representative from your bank on the line to talk to them, you can actually get them to give you your money back. But nothing short of that has ever gotten PayPal to release money they owed me once it's held.
Maybe things would be better if I had a PayPal account, and let them make interest from my money. But this seems silly when I can get a free credit card with no fees, no interest charges for 30 days - much longer than PayPal will extend me any credit, I get a small percentage of my purchases back as a reward, gives me the legal protection of using a bank issued credit card, and comes from a company that treats me like a customer instead of a product.

Summary

Yes, merchants that use PayPal - or sell on eBay, which is another rant - are usually cheaper than Amazon or those that take real credit cards. But understand that there is a reason for that: customers that make payments from a PayPal account have given up the legal protections they would have from using a bank credit card, which is how PayPal can charge less than the credit card companies.
This doesn't matter so long as things go fine, but the real measure of a company is in how they behave when customers are unhappy. By my experience, and that of many others, PayPal is doesn't measure up.