The PayPal Problems Paradox

Reigning In The Beast Of PayPal Problems

Authored by: Danielle Schaeffer- Dani Schaeffer.com On any given day, there can easily be found,at least two posts on a certain forum (very high trafficked forum by Internet Marketers,) about PayPal limiting accounts and freezing people's money for up to 180 days. The camps are split between the PayPal haters, and the PayPal lovers, but one thing both sides can agree on, is that no other credit card payment processor can rival PayPal's stranglehold on the online business industry. PayPal has the 'buyer' trust. PayPal doesn't require any credit checks, background checks or start up fees And only PayPal can offer the most innovative sales force payment solution ever seen - 'instant commissions.' And there but for the paradox go they. Online businesses owners seem to be caught between the Devil and the Deep Blue Sea. First, there is the 'buyer trust,' issue. The belief that buyers only trust PayPal with their credit card information. While there is plenty of conclusive evidence to say otherwise, the practically non-existent barrier of entry to a PayPal account as opposed to a merchant account still leaves PayPal as the only option for many would be entrepreneurs. Finally, even if the entrepreneur could secure a merchant account and not be subjected to PayPal's 'anticustomer' practices, the 'instant commission affiliate program,' that PayPal supports will ensure that no online business owner can operate without PayPal, since so much online business is driven by 'referral programs,' that pay commissions to affiliates who send traffic that converts into sales. Of course you can do business without PayPal, but you can't do business without PayPal... PayPal certainly has secured it's stranglehold on the online business world. PayPal has enjoyed the privileges and rights of a bank, without any of the responsibilities that go with that title. Focused on development, PayPal has made huge leaps forward in in the 'quick transfer of funds', but it's come at a cost, fostered in irresponsible business practices and false pretenses. For all intents and purposes, as far as a credit card payment processor goes, a financial service company, PayPal is a very, very bad company. On the outside, PayPal looks like the 'savior' for those with the glisten of entrepreneurial dreams in their eyes, but lack the start up capital for a traditional merchant account. But at what 'hidden' cost, access to the castle in the air? Merchant Accounts- Credit Card Payment Processors Traditional merchant accounts have account reps for their merchants. Credit card processing is technically, a lending product. The bank issuing the processing privilege is making a loan against a 'charge,' on the good faith that it's not 'fraudulent.' As such, merchants go through a

rigorous vetting process. Personal and business credit checks are common, Profit & Loss statements are a staple in the application package, and reserves are determined by actuaries who predict the risks based on the merchant's individual industry average chargeback and fraud risk. The reps who serve the merchant, advise, assist and are always the same person the merchant deals with when their merchant account needs attention. The vetting process determines reserves, withdrawal limits, and expected revenues based on the merchant's own history, and the merchants industry averages. In this arrangement, each party knows up front what to expect from the other party. A traditional merchant account can still freeze an account if it decides at some point that the it's customer poses too high a risk to their own financial well being, but because merchants are vettted, and banks are regulated by banking law, there are legal procedures they must follow, and limits on the amount of money they can freeze, if they have the right to freeze it at all. Not A Bank PayPal gives it's customers no such respect. PayPal has even taken the arrogant stance that "PayPal is a privilege, not a right." PayPal does nothing to 'vet' it's merchants. The barrier of entry into being able to accept credit card payments via PayPal is so miniscule, from a financial aspect, that it might as well not even exist. Of course, if PayPal did properly 'vet' merchants, they just might not be able to continue to 'skirt' the need to actually present themselves as a 'bank,' and therefore also not enjoy the benefits of not having to comply with 'banking laws.' Through it's lax barrier to entry, it 'skirts' being regulated as a bank, and therefore, enjoys the ability to freeze assets on a whim, without having to bear the same burdens of legal precedents that banks would have to endure to do the same. Or can they? You don't have to do anything 'wrong' at all for PayPal, or any credit card payment processor, to freeze your account. It just happens to be more common with PayPal because PayPal serves the merchants who were never vetted to begin with, and then later discovered by PayPal to be 'high risk,' and because, well... because PayPal can. But to say that PayPal isn't regulated would be, at best, a half truth. They aren't regulated as 'banks,' are regulated, but nonetheless, they sell a financial product, and therefore are regulated under financial regulations of individual states and by federal regulation as well. Of course, best practices include things like, assessing your industry chargeback risk, don't make unrealistic income claims, have the proper disclaimers, and keep happy customers goes without saying. But that's just not enough. Any payment processor can and will freeze an account at any given time. The caveat is that in the United States, these companies are highly regulated, and there are absolute legal grounds and procedures that they must have and follow in order to do so. The problem is that most people have no idea what those legal precedents are. The bigger problem is how slow and cumbersome it is to wait out the time it takes for the legal system to work through the problem. It's longer than the 6 months that PayPal will tie the money up for. Individual state financial services regulatory agencies set limits on what right a money

transmitter has to freeze accounts, how much can be held, and for how long. The time frame is usually much shorter than the six months that PayPal attempts to keep people's money for. Often these agencies can put pressure on PayPal to operate within their laws and release the funds, but because of PayPal's stronghold on the entire insdustry, most merchants elect to try and 'appease' PayPal and hope to talk the company into giving them back their account. Fearing that PayPal will never reinstate their accounts if they complain to regulators, most simply seek partners with PayPal accounts. The Online Marketing Industry Grows Up It's not a 'secret' that there are plenty of PayPal alternatives, and almost every one of them, far better than PayPal in terms of being a solid financial company. While PayPal may seem to be the 'best' due to it's 'innovation,' they are definitely lacking in the fiscal soundness that any serious business owner would expect from a financial institution that is in charge of handling it's revenue. If you look at the 'concentrated' collective group of businesses who have had their account frozen, most of them fit the 'high risk industry' demographics- mainly, the 'biz info publishing' market. Other types of business get shut out by PayPal, as well, but the common thread is almost always a 'spike in sales volume, and if you happen to be in a 'high risk' business like the 'biz op info publishing' business, well...it's not so much a matter of 'if' PayPal is going to freeze you. It's a matter of 'when'. There's quite a bit of 'advice', and 50% of that advice directly contradicts the other 50%, and almost all of it is given by people who Their only 'consumer trust,' stems from the days of old when people were still 'scared' to give their credit card number over the Internet, and PayPal assured them of 'security' that no one would be able to 'steal' that information. No one walks into a retail store and even asks the cashier who their merchant account provider is, let alone makes their buying decision based on that fact. The Internet however, has come a long way, and buyers are just as apt to give their credit card information to any payment gateway displaying the Visa/MC, Amex logos. So what's the real problem? Whenever the subject of PayPal alternatives is raised, the Internet Marketing community cry is that 'all the affiliate programs, (a driving force behind traffic and sales) use PayPal.' But that's not true at all. The affiliate programs that offer 'instant commissions' only use PayPal. Plenty of other affiliate management programs offer various other options for tracking affiliates, including Google Checkout which is also free, and traditional merchant accounts. But, as long as there is any way to process an instant commissions, affiliates won't promote promote products that don't offer 'instant commissions., and vendors can't get affiliates if they don't offer them. And so it seemed that there was nothing but PayPal. No reputable merchant account would back any payment gateway that paid what amounts to a 'straight commission sales rep,' instantly and electronically, at the point of sale, on a credit card transaction, but PayPal is not a merchant account is far from 'reputable' as far as payment processing goes. Nevertheless, you can't do business without them... Or can you? Shoot The Hostage

PayPal is 'the worst offender,' but the fact is that any merchant account/payment processor can decide that a merchant's risks have exceeded the company's 'comfort zone,' and close the account as well as freeze funds for up to 6 months. Simply having a 'back up plan,' is really an exercise in futility, especially with PayPal and the 'damned if you do, damned if you don't,' situation- withdraw, raise red flags, don't withdraw, risk them freezing all your operating capital for 6 months. PayPal's 'buyer trust,' and instant commissions, however, are holding your business, and it's money, hostage. Shoot the hostage. Keeping in mind that any payment processor can freeze an account at any time, the only real protection a merchant has is to spread their risk over multiple payment processors, and not let any 'one' processor ever have access to the revenue of every sale made. When no one company has access to all of a businesses funds, there can be no 'holding hostage' of those funds. Enjoy all the 'benefits' of PayPal- the buyer trust, the instant commissions,- without the risk of a business crippling freeze of all your funds! A new affiliate management solution called PayGear has actually created a program that will let everyone, 'have their cake and eat it too.' PayGear supports 3 payment processor systems, PayPal, Google Checkout and Authorize.net. PayGear only supports 'instant commissions' via PayPal, and can even pay the commission even if a different processor is used to make the sale, and there are several ways to go about the process. One way is to offer instant commissions on only the PayPal sales, and another is to simply keep the PayPal account funded with enough capital to cover the commissions on sales made by other processors. PayGear sees the sale, regardless of which payment processor is used, and if the vendor has approved affiliates for 'instant commissions,' via PayPal, PayGear will then access PayPal's API to pay the affiliate their commission. What's even better about PayGear is that you have to have to set up a 'product' for each payment processor you want to use. Each 'product' can be the same, have the same url, and thank you page, you simply choose individual processors for each product set up. And since PayGear is a 'common affiliate program,' the affiliate can promote either or all 3 of the affiliate links, but if the customer pays with one of the other payment processors, the affiliate is still credited for the referral and their commission. It won't stop a payment processor from freezing an account, but it will mitigate the risk of having that event tie up all of a businesses money and operating capital, crippling it and rendering it impotent. Most businesses cannot survive a 6 month hold on ALL their money, and with PayPal's monopoly on the online payment industry, that's the risk business owners take if they don't learn to mitigate their own exposure to risk. Danielle, Dani Schaeffer is a multi-business entrepreneur. Dani has operated a real estate investment company, a lending company, a marketing company and a publishing company. Dani has vast experience in the financial industry from her lending company, and is an authority on risk mitigation procedures. Dani is also the creator of the WordPress plugin, WP Profit Performance, a hands off solution for automatically directing sales revenues into various payment processor accounts, assuring that no processor can freeze all of any businesses capital.