eBay's got a PayPal problem

Tricky Kid · **Joined:** 23 Sep 2007 **Posts:** 8297

eBay's got a PayPal problem
As long as eBay has been struggling to right itself, Paypal has been surging. Now, it may be in jeopardy too.

February 24, 2012
By Janet Morrissey, contributor
http://tech.fortune.cnn.com/2012/02/24/ ... l-problem/

FORTUNE -- Through all eBay's struggles, PayPal has always been a bright spot. The online payment system, acquired in 2002, provided eBay with growing profits and, at times, a much-needed good story to tell investors. Founded in 2000 by tech stars, including Peter Thiel and Elon Musk, the company offered merchants and consumers an easy way to transfer money. To its credit, eBay generally left PayPal alone as it transformed itself from a company offering simple online money transfers into a digital currency powerhouse forging deals with retailers and pushing into mobile payments.

Now, interference by its parent is threatening to tarnish PayPal's good name. It may even stymie CEO John Donohoe's effort to finally turn around eBay (EBAY). At issue is a mundane-sounding decision to send out notices to sellers informing them that all payments they receive through PayPal for items sold on eBay will now be put on hold for up to 21 days. The company says the policy is aimed at protecting buyers from bogus sellers and to stem potential losses it incurs from its buyer protection program.

First introduced in December 2009, the policy only applied to a small number of sellers, mostly those with a history of complaints. Last Fall, eBay started applying the rule to virtually all of its members. That move has confused and outraged thousands of sellers -- especially ones that have used the site for years, building sterling profiles along the way. "They're treating me like a criminal," says Madeleine Calabro, an Avila Beach, California, resident who has been buying and selling on eBay since 2003, garnering 100% positive feedback. Indeed, the PayPal website forum has more than 600 pages of posts from angry sellers protesting the hold. Also a flurry of surly websites -- letssuepaypal.com, paypalsucks.com, and screw-paypal.com, among others -- have popped up in response.

Critics contend the new hold policy has little to do with scammers and everything with fattening revenues. The delay, they claim, could allow PayPal to collect interest on eBay sellers' payments. Worse yet, eBay could potentially even make short-term, small-scale market investments with little risk. Any loss from one particular account, could be repaid with funds from the next account once the 21 day waiting period is up. PayPal -- seemingly lending credence to such fears -- adjusted the wording on its user policy to specifically state "you will not receive interest or other earnings on the funds that PayPal handles as your agent and places in Pooled Accounts."

That has customers angry. "It is unfair and I considerate it illegal," says Doug Black, a Thomasville, N.C., resident who has been selling on eBay since January 2008 and had 100% positive feedback on more than 600 sales when he got notice of the changes. Shortly after, he was approved for an eBay debit card. "If I'm such a bad risk, how did I get an eBay debit card?" he asks. Black stopped using the site, filing complaints with the Better Business Bureau, the Attorney General of North Carolina, the N.C. Banking Commission, and the California Attorney General.

Vexing sellers even more is the fact that PayPal takes its 3.25% fee and eBay takes its 9% fee right away instead of waiting 21 days. Even shipping fees, which are normally covered by the buyer, are put on hold, and eBay goes into the seller's personal bank account to cover the shipping costs – a move that has caused some surprised sellers to be slapped with bank overdraft fees. "I closed my PayPal account immediately after my last payment was released," says Lisa Holman, a Miamisburg, Ohio resident who had been selling for four years. "I will never sell on ebay again and I have vowed not to buy on eBay," she adds.

Ebay spokesman Amanda Miller says the policy is being applied to sellers who "pose a higher than average risk of future transaction problems," but declined to explain why customers, who had been selling for years without complaint, were suddenly considered risks. Miller confirmed "all PayPal balances are stored in an interest-bearing bank account." She declined to say how much money eBay earned on sellers' money, except to say it was "not material to our business." She also did not respond to questions asking if any of the money was invested in other instruments.

That leaves eBay -- and Paypal — under an avalanche of angry sellers who are threatening to close their accounts. Ignored, the problem could become a bruising "Netflix" (NFLX) moment — a reference to the tone-deaf miscalculation the video streaming company made last year when it introduced a price hike that caused subscribers to abandon the company in droves and the stock to lose more than 60% of its value. "I have hoped that this was eBay's Netflix moment," says Calabro, who has stopped selling until the hold is lifted from her account. She's also opting to use credit cards, rather than PayPal, when buying items from other online sites, and is urging friends to do the same. "They haven't taken into account that eBay's sellers were also eBay's most dedicated buyers. When they crush us as sellers, they crush our desire to buy there too."

Beachy · 18 Sep 2005

One of the sellers I have bought old chapter movie serials from says that she is done with eBay.

Geff R. · 27 Sep 2006

This has not happened to me, in fact this is the first I've heard of this. I would leave ebay if it did. I can say that at least in cd & dvd, price competition is up, not down which would seem to indicate either they haven't lost that many sellers yet, or else the corporate & drop ship sellers they now cater to have completely taken over the market.

JohnG · 03 Aug 2006

I've stayed away from eBay for a few years now. I used to sell alot of items on there but it became a pain in the ass and wasn't worth the time. And I rarely buy from eBay either preferring Amazon.

Steve · 21 Oct 2004

They haven't decided to freeze my PayPal just yet, thankfully.

Brainiac McGee · **Joined:** 10 Jun 2011 **Posts:** 2941

http://www.nytimes.com/2012/03/11/your- ... technology

Quote:

21 Days of Rage for Some EBay Sellers
By DAVID SEGAL

Published: March 10, 2012

WITHOUT eBay, the Haggler would not be wearing pants. Strike that. Without eBay, the Haggler would not be wearing the pants he is currently wearing, which were snagged in the final seconds of a seven-day auction last year.

This is a somewhat clumsy way of saying that the Haggler is a huge fan of eBay, and not just for clothing. Whenever the Haggler needs a marble bust of Sean Connery, a vampire killing kit, a mummified rat or something described as the world’s luckiest sock — genuine offerings all — this is where he turns.

But recently, the company has managed to anger the people who are arguably its most important asset: sellers. Or more than a few sellers, anyway.

Q. After more than a dozen years as an eBay buyer and seller, with a flawless record and 431 transactions, I received an e-mail from PayPal, the online payment company that eBay owns, with some exasperating news:

“Starting Jan. 16, 2012, money from payments you receive will be placed in a pending balance for up to 21 days. By doing this, we’re making sure that there’s enough money in your account to cover potential refunds or claims. Even though you can’t access the money right away, please ship orders quickly and communicate with your customers. After 21 days, you can withdraw money from each payment as long as the customer hasn’t filed a dispute, chargeback, claim, return or reversal.”

I could get the money sooner, the e-mail went on, if eBay could confirm that the item was delivered or if the buyer left positive feedback. In effect, the company is saying that I can no longer be trusted to deliver goods in a timely manner.

Why? “We reviewed your account and determined that there’s a relatively higher than average risk of future transaction issues (such as claims, or chargebacks, or payment reversals),” the e-mail said.

How I suddenly fell under suspicion is a mystery. My hobby — selling pottery and decorative accessories — has hardly changed. What’s clear is that eBay/PayPal now gets to keep my money, at least temporarily, and earn interest on it, I assume.

If it were just my money, the interest earned would not be worth mentioning. But if you look on eBay seller sites, you will find a whole lot of people in this exact situation — treated as though they might try to fleece consumers, despite sterling histories. It’s enough to make you think that eBay is using all this held money to pad its bottom line.

Could the Haggler investigate?

William Ferrall

Nantucket, Mass.

A. Mr. Ferrall isn’t kidding about the volume of rancor on eBay message boards. Rummage around and you’ll find one example after another of sellers shaking a furious fist at the eBay gods, expressing mystification, offering protestations and, of course, threatening litigation.

The Haggler called eBay and learned from Christopher Payne, a company vice president, that the 21-day hold was introduced last fall. The idea is to increase the quality of the auction experience by reducing the number of purchases that end in tears and/or refunds.

To achieve this worthy goal, the company devised a filter that is supposed to flag sellers who appear to be at risk of delivering a bad buying experience. There are many different triggers, including obvious no-nos like sending broken products. But as Mr. Ferrall’s case shows, the filter is kind of like a cop who thinks that even law-abiding citizens are on the verge of a crime spree.

With Mr. Ferrall’s permission, eBay looked into exactly how he landed in the company’s dreaded cash purgatory. There were two reasons, it turned out. First, Mr. Ferrall took some time off from selling last year, and, second, the value of the merchandise he sold when he kicked back into action was lower than what he had been selling before.

In other words, eBay’s filter looked past Mr. Ferrall’s perfect record as a seller and said, in effect: “You’ve taken a few months off and you’re now selling cheaper stuff. That’s fishy.”

Does a seller with an impeccable past deserve to be caught in this dragnet? After looking at the details, the company decided that the answer was no.

“We didn’t do right by you,” an eBay representative said in an e-mail to Mr. Ferrall a few days ago, “and we hope that moving as swiftly as possible once we learned of the error to correct it and get you back up and running was some consolation.”

Mr. Payne told the Haggler that eBay would tinker with its filter so that people like Mr. Ferrall wouldn’t be flagged in the future.

“We’re constantly refining these models,” Mr. Payne said, “and we’re going to learn from this experience.”

He added that sellers who are subject to holds can get their money in as little as three days if eBay concludes that the buyer is satisfied. Also, he continued, less than 1 percent of sellers have been given the 21-day hold treatment. Of course, 1 percent in a community of 25 million is 250,000 sellers.

Mr. Payne said that held money was parked in an interest-bearing account, though he wouldn’t be specific about how much interest this money earned, other than to describe the sum as “minimal.” (In public filings, eBay does not break out how much it earns from held money.) But on Tuesday, the company told the Haggler that from now on, held money would be placed in a bank account that didn’t bear interest.

“This was never intended to be a source of income for us,” Mr. Payne said.

The Haggler has two reactions. First: bully for eBay. Second: wait, there are bank accounts that don’t bear interest? The company is now in the midst of announcing the change and perhaps will offer more details.

eBay's got a PayPal problem

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