PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. PayPal serves as an electronic alternative to traditional paper methods such as checks and money orders (Dell XPS M1210 Battery) .
A PayPal account can be funded with an electronic debit from a bank account or by a credit card. 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. PayPal is an example of a payment intermediary service that facilitates worldwide e-commerce (Dell Studio XPS 1340 Battery) .
PayPal performs payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It sometimes also charges a transaction fee for receiving money (a percentage of the amount sent plus an additional fixed amount). The fees charged 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 (Dell Studio XPS 1640 Battery) .
In addition, eBay purchases made by credit card through PayPal may incur a "foreign transaction fee" if the seller is located in another country, as credit card issuers are automatically informed of the seller's country of origin.
On October 3, 2002, PayPal became a wholly owned subsidiary of eBay (Dell Vostro 1710 Battery) .
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; and Austin, Texas in the U.S., Chennai, Dublin, Berlin and Tel-Aviv. As of July 2007, across Europe, PayPal also operates as a Luxembourg-based bank (ASUS EEE PC900 battery) .
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 (Dell RM791 battery) .
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 (Sony VGP-BPS13 battery) .
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 with email payments as a feature and X.com's website initially featured financial services with email payments as a feature (sony vgp-bpl9 battery) .
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 (Sony VGP-BPL11 battery) .
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 coined 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 (Sony VGP-BPL15 battery) .
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 (Dell Inspiron E1505 battery ) .
By April 2000, more than 1,000,000 auctions promoted the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.
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 (Dell Latitude E6400 battery) .
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 which offer some of PayPal's services, such as Google Checkout, Wirecard, Moneybookers, 2Checkout.com, CCNow and Kagi, remain in business, despite the fact that eBay now requires everyone on its Australian and United Kingdom sites to offer PayPal (HP Pavilion dv6000 Battery) .
Eventually eBay moderated its position, and mandated 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) (Hp Pavilion dv3-1000 battery) .
In January 2008, PayPal agreed to acquire Fraud Sciences, a privately-held Israeli start-up company with expertise in online risk tools, for $169 million, in order to enhance eBay and PayPal's proprietary fraud management systems and accelerate the development of improved fraud detection tools. In November 2008, the company acquired Bill Me Later, an online payments company offering transactional credit at over 1000 online merchants in the US (Dell Precision M70 Battery) .
PayPal's total payment volume, the total value of transactions, was US$ 60 billion in 2008, an increase of 27 percent over the previous year, and US$ 71 billion in 2009, an increase of 19 percent over the previous year. The company continues to focus on international growth and growth of its Merchant Services division, providing e-payments for retailers off eBay (Acer Aspire One battery) .
Currently, PayPal operates in 190 markets, and it manages over 223 million accounts, more than 73 million of them active. PayPal allows customers to send, receive, and hold funds in 19 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, Mexican peso, New Zealand dollar, Norwegian krone, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and U.S. dollar (Hp 520 battery) .
PayPal operates locally in 13 countries.
Residents in 194 markets 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 (Toshiba Satellite L305 Battery) .
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 (Toshiba Satellite Pro M15 Battery) .
RIM announced that PayPal will be the only payment mechanism for its Blackberry App World, which launched on April 1, 2009.
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 outside Omaha, NE (Toshiba Satellite M65 battery)
Although PayPal's corporate headquarters are located in San Jose, PayPal's operations center is located near Omaha, Nebraska, where the company employs more than 2,000 people as of 2007. PayPal's European headquarters are in Luxembourg and international headquarters in Singapore. The company also recently opened a technology center in Scottsdale, Arizona, and Chennai India (Toshiba Satellite T4900 Battery) .
In China PayPal offers two kinds of accounts:
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 (Toshiba PA3399U-2BRS battery) .
In late March 2010, new Japanese regulations forced PayPal to suspend the ability of Japanese individuals to pay money to other individuals (Toshiba Satellite A200 Battery) .
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 (Toshiba Satellite 1200 Battery) .
PayPal's innovation environment, Paypal-Labs.com, hosts several outreach and experimental projects such as the storefront application, the MySpace and Facebook donation widgets, and the PayPal blog (Toshiba NB100 Battery) .
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 (Toshiba Satellite M300 Battery) .
Commencing 2 July 2007, as PayPal (Europe) S.à r.l. & Cie, S.C.A., PayPal moved its European operations from the UK to Luxembourg. As a Luxembourg entity, it is since regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF) and provides PayPal service throughout the European Union (Dell INSPIRON 1525 battery) .
Safety and protection policies
The PayPal Buyer Protection Policy states that the customer may file a buyer complaint within 45 days if he did not receive an item or if the item they purchased was significantly not as described. If the buyer used a credit card, he might get a refund via chargeback from his credit-card company (SONY VAIO VGN-FZ280E Battery) .
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" (SONY VAIO VGN-FZ410 Battery) .
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 (SONY VAIO VGN-FZ160 Battery) .
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 their 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 (SONY VAIO VGN-FZ38M Battery) .
This two-factor authentication is intended to make account compromise by a malicious third party without access to the physical security key difficult, 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 their account. Thus, the PayPal's implementation does not offer the security of true two-factor authentication (SONY VAIO VGN-FZ21m Battery) .
The key currently costs US$5.00 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.
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 (SONY VAIO VGN-FZ18m Battery) .
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, the Commission de Surveillance du Secteur Financier (CSSF)(note that all of the company's European accounts were transferred to the PayPal's bank in Luxembourg on July 2, 2007 (SONY VAIO VGN-FZ11m Battery) .
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 U.S. federal government, because it serves as a payment intermediary (SONY VAIO VGN-FZ11z Battery) .
The law is unclear as to whether PayPal is a bank, narrow bank, money services business or money transmitter. PayPal could also be subject to state regulation, but state laws vary, as do their definitions of banks, narrow banks, money services businesses and money transmitters (SONY VAIO VGN-FZ11l Battery) .
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. pt. 226, (TILA/Z). TILA/Z requires specific procedures for billing errors, dispute resolution and limits cardholder liability for unauthorized charges (SONY VAIO VGN-FZ31z Battery) .
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. pr. 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 (Dell Studio 1555 Battery) .
Basically, unless a PayPal transaction is funded with a credit card, the consumer has no recourse in the event of fraud by the seller.
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 (Dell Vostro 1720 Battery) ."
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".
Money transfers via PayPal create an inherent risk of fraud due to the impersonal nature of internet commerce and the gap in regulatory treatment of PayPal transactions. The existing fraud protection regulations, EFTA/E and TILA/Z, do not apply to P2P account holders as they do debit/credit card transactions outside of a P2P payment service (Dell Vostro 1500 Battery) .
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 make PayPal responsible for the breach. There are, of course, fact 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 (Dell Latitude D830 Battery) .
PayPal account holders' private information is marginally protected under one 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 in to those disclosures (Dell Latitude D620 Battery) .
If an account is subject to fraud or unauthorized use, PayPal puts the "Limited Access" designation on the account. At this point, the account holder must:
Reset their password
Develop a set of security questions (based on the hypothetical 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 (Dell XPS M1210 Battery) .
PayPal presents anti-phishing advice on their website for identifying and reporting phishing. PayPal encourages consumers to report all phishing emails to them (Dell Studio XPS 1340 Battery) .
Criticism and limitations
This article's Criticism or Controversy section(s) may mean the article does not present a neutral point of view of the subject. It may be better to integrate the material in those sections into the article as a whole (Dell Vostro 1015 Battery) . (May 2009)
See also: Criticism of eBay
The current PayPal user agreement is 25 pages long. If one buys an item from a PayPal merchant, one is agreeing to an additional layer of arbitration beyond the merchant himself. Thus even if the merchant has acted improperly, PayPal has not violated their own policy until the user has gone through an extra arbitration process with PayPal. Only when PayPal fails to arbitrate according to their 25-page user agreement can the user go on to the normal dispute resolution with his credit card issuer (Dell Vostro A90 Battery) .
In other words, he is making a contract with PayPal under the 25-page policy, not the simple 1-page policy one would expect from any reputable merchant.
In September 2005, Richard Kyanka, owner of the website Something Awful, set up an account to collect donations for Hurricane Katrina to be given to the Red Cross (Dell Vostro A860 Battery) .
Owing to the high rate at which donations were made, the account was automatically frozen, and Kyanka criticized the time and difficulty involved in getting PayPal's customer service to unfreeze the account. In response to the concerns of Something Awful members over the charity used by PayPal, United Way, Kyanka finally opted to have the money refunded to the donors so that they could donate directly to their charities of choice, though PayPal did not refund exchange and handling fees for international donors (Dell Vostro 2510 Battery) .
In March 2008, Australian current affairs show Today Tonight aired a segment criticising PayPal, with regard to safety, freezing accounts and customer service.
Several PayPal gripe sites have been created complaining of problems such as the freezing of accounts of eCommerce stores if they experience rapid growth, preventing them from being able to pay suppliers and fulfill orders (IBM ThinkPad T60 battery) .
One such site, Paypalsucks.com, ranked third on a Forbes Magazine listing of "Top Corporate Hate Web Sites" in 2005 based on "hostility" and "entertainment value" of web forum postings and other criteria.
In June 2008, the Australian Competition and Consumer Commission found that, "The evidence available does not support the view that PayPal is the most secure method of payment, or offers the best service for all transactions (HP Pavilion dv9000 battery) ."
In February 2010, Paypal stopped or reversed all "personal" transactions in or out of India without prior notice. Funds already transferred and transactions that had previously been "completed" were reversed leaving many vendor accounts over-drafted. Companies, contractors and service providers throughout India were left in debt to Paypal for services they had already provided when Paypal, without warning or consent, returned funds vendors had already received and withdrawn (Dell Vostro 1000 battery) .
In spite of its international reach, Paypal has limited functionalites for multi-country users, most notably the impossibility to have bank accounts in several countries, or to have a shipping address in a different country than one's bank account / credit card.
In March 2010, Paypal froze donations to Cryptome, seizing over $5300 of in-transit donations (Dell XPS M2010 battery) .
PayPal refused to inform Cryptome of the reason for this action, claiming that to disclose why the donations had been confiscated would violate Cryptome's own privacy. A week later, PayPal offered an apology, which was rejected by Cryptome founder John Young as "insulting and unacceptable" (Toshiba Tecra 8000 Battery) .
In September 2010, PayPal froze the account of Markus Persson, developer of the independent video game Minecraft. His account contained around €600,000.
Also in September 2010, PayPal froze the account of the open-source revision control software TortoiseSVN. The lead developer compared the situation to a car shop that "decides not to do business with you anymore. ... But then the shop owner tells you that they keep your car for half a year first because that's their policy (Toshiba Portege 2000 Battery) ."
This article may need to be updated. Please update this article to reflect recent events or newly available information, and remove this template when finished. Please see the talk page for more information. (July 2010)
In 2002, CertCo filed a suit against PayPal claiming patent infringement concerning the use of distributed computing systems that process micropayments, or small cash amounts. In April 2002, CertCo dropped the suit and stated that they had come to a settlement involving, "a non-consequential payment and mutual releases (Toshiba Satellite 3005 Battery) ."
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) (HP Pavilion DV5 Battery) .
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 (Dell XPS M1530 battery) .
In May 2002, Tumbleweed Communications filed a lawsuit against PayPal (and later expanded it to include eBay) claiming that PayPal had violated its patents for sending personalized links through e-mail, which PayPal uses to alert its customers about financial transactions. In January 2004, the two parties came to an agreement, but didn't disclose the financial terms of their licensing agreement (Toshiba Portege R200 Battery) .
In June 2003, Stamps.com filed a lawsuit against PayPal and eBay claiming breach of contract, breach of the implied covenants of good faith and fair dealing, and interference with contract, among other claims. In a 2002 license agreement, Stamps.com and PayPal agreed that Stamps.com technology would be made available to allow PayPal users to buy and print postage online from their PayPal accounts (Toshiba Satellite A85 Battery) .
Stamps.com claimed that PayPal did not live up to its contractual obligations and accused eBay of interfering with PayPal and Stamps.com's agreement, hence Stamp.com's reasoning for including eBay in the suit.
In August 2002, Craig Comb and two others filed a class action against PayPal in, Craig Comb, et al. v. PayPal, Inc.. They sued, alleging illegal misappropriation of customer accounts and detailed ghastly customer service experiences (Sony VAIO VGN-G218N/B Battery) .
Allegations included freezing deposited funds for up to 180 days until disputes are resolved by PayPal, and forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure). The court stated that "the User Agreement and arbitration clause are substantively unconscionable under California law," noting their unjustifiable one-sidedness and explicit prohibition of class actions produces results that "shock the conscience" and indicate PayPal was "attempting to insulate itself contractually from any meaningful challenge to its alleged practices" and ruled against PayPal (Toshiba Tecra R10-S4401 Battery) .
In September 2003, PayPal filed suit against Bank One Corporation for patent infringement. PayPal claimed that Bank One's online bill-payment system was an infringement against PayPal's online bill-payment patent, issued in 1998. PayPal filed the suit after a warning to the bank's lawyers in February went unheeded (Dell Vostro 1400 Battery) .
In November 2003, AT&T filed suit against eBay and PayPal claiming that their payment systems infringed an AT&T patent, filed in 1991 and granted in 1994.
In March 2004, PayPal and New York state's Attorney General, Eliot Spitzer, came to an agreement to require PayPal to disclose clients' rights and liabilities more accurately and to pay $150,000 to the state of New York for penalties and the costs of the investigation (Toshiba Satellite P15 Battery) .
In April 2007, one of two anti-trust lawsuits was filed against eBay/PayPal by Michael Malone of Texas. This suit claims that the monopolistic relationship between eBay and PayPal violates United States anti-trust laws (Toshiba Satellite M60 battery) .
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