PayPal Problems and Solutions
There has recently been a lot of attention given to PayPal’s freezing of funds belonging to WikiLeaks. PayPal has a long history of freezing it’s user’s finances. I’ve personally had to deal with PayPal freezing my cash because they wanted a tracking number for shipping, which made no sense for a rent payment sent from my room-mate. I was able to resolve this with some patience and a silver tongue, but I’ve known others who haven’t been so lucky.
I’ve seen frustrated PayPal users and I’ve seen a business that relied too heavily on PayPal have to shut down due to their tendency to freeze funds at every opportunity. I would never rely on them for business transactions and won’t even use them for personal transactions at this point.
So, what exactly are the problems with PayPal?
One major problem is that PayPal is not a bank and, therefore, is not bound to the same regulations that prevent most banks from freezing a customer’s funds so easily. PayPal users must agree to terms that say PayPal can freeze their funds before using the service.
Any funds PayPal holds for dispersal are automatically deposited in a corporate bank account, which earns interest, according to PayPal representative Amanda Pires. The money is kept there until it’s ready for distribution.
Another problem is that PayPal earns interest on your money by transferring is into their own bank account. This seems like nothing more than an incentive to freeze funds for as long as possible to extend the period of time they can earn interest on your money. Whether this is their intention or not, I can’t say, but the fact remains that they earn interest on your money and they have no problem holding it hostage for a minimum amount of time (21 days is it?) while to fret to convince them to give it back.
Finally, PayPal has no real competition. Yes, I am aware that there are alternatives to using PayPal, but the problem lies in the fact that a majority of people who need to transfer finances online are using PayPal. Alternative services can only be used if both parties involved in the transaction are using them. Most product and service providers feel they must use PayPal to avoid shutting out a large online customer base.
What needs to be done so that people’s finances are not left to the whims of a single financial service?
Regulations must be put in place to prevent such services from freezing funds so easily. Financial services should not be allowed to earn interest on funds that are frozen, as this only serves as an incentive for them to freeze your funds.
No single financial service should be so heavily relied upon for transactions made via internet. Alternative services must be allowed to compete.
How can this be ensured? For one thing, they should have to accept payments from other financial services. Businesses that rely on one gateway should be able to accept payments from customers using alternative services.
For example, a business that uses PayPal should be able to accept payments from customers user Money Booker (and vice versa). A business should not have to add multiple gateways, nor should customer have to use multiple financial services to make a simple transaction. An industry wide standard should be put in place to make this possible.
The online financial service industry is still young and developing. It is currently more complicated than it reasonably should be. As it stands, the public is suffering from these complications. It is time to fix these problems so that these “services” do just what that word entails- serve the public.