Payment Platforms: A Flawed Digital Solution?

Online payment platforms such as PayPal are taking the world by storm, but is your money as safe as you think?

It’s been nearly two years since PayPal split from its former owner eBay, and since then it’s been going from strength to strength. But what does its expansion mean for businesses and can its customers trust their money will be safe?

PayPal’s Spending Spree

Since the eBay split, PayPal Inc. has been busy. It quickly acquired Modest, which helps merchants create an online app for their store, the digital transfer company Xoom and the payment gateway Braintree, among others. It is also launching new services such as PayPal Working Capital, which advances money that is then repaid when the company sells services through PayPal.

PayPal’s spin out and subsequent purchases show the platform is working hard to become the dominant force in a fast growing online payment marketplace. In particular, it is focusing its efforts on businesses – and helping them process more payments online. This may well turn out to be beneficial, giving people and businesses more options and making it easier to sell online, but there can be problems, especially when it comes to the security of the consumer’s money.

One customer found out just how difficult it could be.

“I was working on a major assignment involving several different professionals, for an overseas client,” he says. “Payment was made monthly and they insisted on moving everything through PayPal. That was irritating enough. Not only did we have to wait a little longer, but we had to put up with PayPal’s fee being deducted from each pay packet.” Then one day the payments didn’t appear.

The client had made the transaction, but PayPal decided it was suspicious and had frozen the account. Everyone’s payments were stuck in limbo – hovering somewhere between accounts. A couple of weeks went by before the issue was finally resolved.

Suspicious activity

It’s tempting to put this down to a one-off problem, but even a cursory dig suggests this is happening time and time again. There’s even a dedicated website called – set up to bring together as many bad stories about PayPal as possible.

One user found that a seller was actively using PayPal’s own policies as an opportunity for fraud.

“I purchased some tailored shirts and the seller sent a few ill-fitting shirts then stopped communicating after PayPal’s 45 day refund had lapsed,” he says. “Good scam as it takes longer than 45 days for shirts. PayPal is offering me no support and even suggested that I use my credit card as a funding source as they have longer dispute and refund timelines than 90 days.”

Fraud is a major problem for PayPal’s users. In 2012 sellers on eBay found they were unexpectedly exposed to a new type of con and that PayPal offered little in the way of protection. A buyer would pay through PayPal, but insist on picking up the item in person. However, it would later transpire that the payment had been made by someone hacking into a legitimate account.

Sellers would not insist on buyers signing any paper because they assumed the transaction had already been completed. However, they then received a note informing them that the payment was on hold because the buyer had disputed the payment, complaining they had never received payment. Because they had not sent the item recorded delivery, they had no proof that the products had been delivered. Buyers found to their cost that PayPal offers no protection when this happens and that they are no more secure than if a buyer pays with a cheque which then bounces.

Payment errors

Customers using their new service, PayPal Working Capital, have also encountered problems. In the US, customers complained that repayments had been taken out of their accounts without authorisation. PayPal looked into the issue and said the payments had been taken in error and would be repaid.

So, PayPal is not immune to making mistakes, and costumers who use it are at risk of fraud. When that happens, customers have less protection than they assume and seldom receive a clear explanation about why a problem has occurred.

PayPal is right to point out that it conducts thousands of transactions successfully every day. However, both buyers and sellers need to enter the exchange with their eyes open and to be aware of when they will, and will not, be protected by PayPal.

It’s a problem the entire Fintech sector must address. This area is full of exciting start-ups offering a host of innovative services. These can, and do, make it easier to move money – especially overseas – but they can also offer a rich hunting ground for fraudsters and may not offer the level of protection users expect.

Photos: Ken Wolter/gilc/bloomaua/123rf

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