Why paypal will never replace merchant accounts!

I have sold a lot on eBay, probably over $300,000 worth of merchandise over the past six years through my company’s sales and through personal auctions. Due to the nature of eBay I have accepted most of this money using paypal.

Recently I started few auctions on eBay and collecting payment through paypal. I haven’t sold much on ebay in several months. Paypal subsequently froze my account, and wont release he funds (We’ve all heard this story about one million times). This isn’t the first time it has happened to me with paypal. I had a lot of money frozen last year, which took a while to clear up, but I got my account un-frozen after a few days of sending documents to paypal. This time was a completely different story. I think that I may have had either a complete imbecile review the information I submitted, or maybe he was just having a bad day or something. But, Paypal wont un-freeze my account until I send them some documents that I don’t have, and cant get, and there isn’t anything else they will do for me. I understand risk, how to determine it, what situations are higher risk, and this is not one of those situations.

The irony behind all of this is that I run a division of a payment processing company. I have experience in risk management and underwriting, probably more than most of the people working in that department at paypal. I am selling tangible products. I haven’t even processed a large sum of transactions, under $5,000 total.
But, they don’t care.
They don’t care that my customers will back me up and let paypal know personally that my products were legitimate. They don’t care that I have a processing history with paypal of over $200,000 in past transactions without more than one or two frivolous disputes. They don’t care that I have processed over 2,000 transactions using paypal. They don’t care that my company is a merchant account provider that has been in business for 10 years. They just don’t care…

I see the question often whether companies like mine are worried about companies like paypal. The answer is NO. Not in the least bit. Not now, and probably not ever.

Paypal, you have a long way to go.

There are several ways that this situation differs from an actual merchant account. First off, this situation can happen with a merchant account, so don’t think that paypal is completely unique. The two main reasons would be, if a business processes a much higher total volume than what they stated on their application, and if they run much larger transactions than what they stated as their average on their transaction. The specific processing bank that a business is with also determines how much buffer they have to go over their predicted volumes.

Now for the differences:
With a merchant account, you can actually get a person on the phone within 5 minutes, or even 10 minutes. Paypal (-5). Secondly, you can usually talk to someone that actually has a clue about what is going on or at the least they will try to figure it out, and they will actually listen to you and not just look at a report that says ‘freeze’. Paypal (-5)
With a merchant accounts, your provider actually wants to keep your business, (Paypal -2) and they work with you to clear up the problem. (Paypal -1) You are given the benefit of doubt that this could possibly be just good sales. (Paypal -5) Paypal immediately assumes that you are a criminal and then works against you trying to prove you wrong. (Paypal -5)

The risk management business for merchant services is as strict and numbers based as any screening system I have seen, but it doesn’t touch upon the bureaucratic chaos that paypal operates.

Basically, paypal fails because the way they handle these situations. They fail to give you the support that you need, when they took the steps to freeze your account. At least make it easy to contact a real person to clear up the situation, or get some additional information. The only communication they accept is by fax. Lets be realistic here, last time I checked, fax was not considered a secure, efficient, or easy way to communicate with someone.

Finally, paypal needs to get some policies in place to help the people that they make their paychecks from when those people do get in situations like these.