PayPal Screwed My Business Partner

[JustinPopovic]

One of the many "joys" of business is dealing with the problems that arise as you build your company.

My business partner has just learned first hand how you simply cannot prepare for everything and you have to be savvy enough to come up with new solutions.

He is an information marketer. He sells high value/high quality information products (teaching SEO, marketing skills, ebooks on various business topics, etc..).

He does a lot of volume with Paypal.

Well this past week, PayPal suddenly froze his account without any explanation. Keep in mind he had been a client for over 10 years after THEY solicited him to use their service.

The explanation was that there was "suspicious" activity on the account. They did not define what "suspicious" meant. He got their support team on the phone and they eventually re-opened his account.

Like any sane business person, he decided to cash out some of his larger reserves fearing that his account could once again be closed at any time. Last night, he logs in to find out that his account has been completely suspended for 180 days...FINAL. No appeal, no questions, nothing!

They raised a red flag because he withdrew some of his reserves this week. To them...this was suspicious again. Instead of looking at him as a loyal 10 year client and asking him to provide proof of where each dollar was allocated (because he can prove that EVERY transaction was legit, legal business), they simply closed his account and told him he can have his money in 180 days.

Now I know Paypal has to have certain checkpoints and policies in place to ensure criminals are not using their system for illegal purposes. But the way they treated him, a legit business owner, is brutal.

I write this because I see a lot of hard working, determined entrepreneurs on this forum and I want you to be aware of what happens when you use some these systems. I personally still use Paypal but I am going to be much more careful about how I conduct my business with them.

I hope this saves some of you readers from potential headaches that could arise.

[spirit4711]

Will he post his own experiences here, or on a blog somewhere, or his web site? Might help to teach Paypal a different way of doing business.

[dsc]

The many bad experiences with Paypal has led to sites like this:

PayPal Alternative - Pay Pal Lawsuits, PayPal Complaints & Fraud

[JustinPopovic]

He is in the process of writing the post now. I will add the link as soon as its done!

[JustinPopovic]

@dsc - Thanks for the link. I had never heard of this before

[saif]

We need to make a massive public switch from paypal to really get their attention and to also teach them a lesson. Something like 100,000 users switching to an alternative network on the same day and time..lol

[BitterFlower]

I am wary of paypal and I keep less than 500 in there at any given time. (ETA: It's linked to an account that rarely has any money in it). Paypal is convenient when you're small time and can't/won't get a payment processor, but when I get a higher volume of sales, I will switch to a credit card processor and/or wire transfers (which are common in the type of business I'm in).

[JustinPopovic]

Here is Brad's blogpost about his PayPal horror story...

Paypal closes my account and holds thousands. | Brad Gosse | Marketer



Justin

[HAGITLOVE]

Thanks for your thread and the link. I was about to open an account with Pay-Pal.

[Tara680]

So what payment processors do you guys use then and what are the advantages of them?

[JustinPopovic]

Right now, he had to switch all of his products to his Clickbank account but we are working on a shopping cart solution that connects directly with the merchant account for his company.

Unfortunately this Paypal issue was not anticipiated so everything is being figured out as it happens.

[aelle]

You guys do know that brick and mortar banks have the exact same power, right? I know of a few people whose accounts have been closed in a unilateral, non negociable decision because of suspicious activity.

[JustinPopovic]

Originally Posted by aelle

You guys do know that brick and mortar banks have the exact same power, right? I know of a few people whose accounts have been closed in a unilateral, non negociable decision because of suspicious activity.

Are you saying this is an international rule? I can't see a bank in Canada (where I'm from) doing this without any interaction with the client. Especially if the client can prove where every dollar was earned. Unless the money is coming from totally unknown sources I can't see how any bank would have the right to do what Paypal has done here.

[aelle]

It's difficult disproving an accusation when the other party reserves the right not to tell you what they accuse you of (what they consider suspicious activity).

In the most recent example, a friend of mine, who had been a client of an international bank for decades, was given a 24-hour notice to move his life savings before his account would be closed. They never accepted to answer his questions. He suspects the fact that he sent money to his daughter studying in an Arab country was considered suspicious, but was not given the chance to explain. Unilateral decisions.

[JustinPopovic]

Wow. That is a crazy story. Thanks for sharing!

[Manomanman]

Originally Posted by JustinPopovic

Wow. That is a crazy story. Thanks for sharing!

It's not crazy...it's extremely common. Paypal horror stories abound.

Paypal has a monopoly because of Ebay. But alternative solutions are springing up. At some point in the future, Paypal and Ebay will lose monopoly on the auction/payment market. But for now, because everybody uses it, you're forced to use it too.

[Rebecca800]

Thanks for sharing....

I have heard of this kind of thing before, and as a precaution always withdraw all funds every time my balance reaches $1000. I remember reading (possibly on the PayPal website itself) that funds aren't insured above $1000. Meaning, if PayPal went bust you would only get $1k of your money back.

(Banks in the UK hiked their "insured amount" from ~$60k to ~$200k at the start of the credit crisis. I don't know what this figure is in America, but if PayPal is to be compared to a financial institution, $1k seems a pathetic amount to guarantee its customers.)

Anyway it seems like a good rule of thumb to have should PayPal decided to suspend your account for whatever reason.

[SomeRandomGuy]

Sounds to me like the moral of this story is that it isn't a good idea to keep very much money in a Paypal account, especially if you need the ability to access that money quickly.

[iDreamCatcher]

Second alternative to Paypal is 2Checkout.com
I develop wordpress membership site plugin software and 2Checkout is the second most asked payment processor for people 2 support.
In Europe it seems to be moneybookers.com.

Gleb

[iDreamCatcher]

PS: Regarding Paypal closed account.
I suspect 2 reasons:

1. Account been accessed from different IP addresses regularly. Why Paypal is anal about it is because people who either been banned or operating from "unsafe" countries ask their buddies in USA to open paypal account for them and then they play with it. Second reason - is Paypal don't want account to be shared by multiple people. Hence accessing it from different IP's adds red flag to this.
So if your buddy travels a lot and access account from every hotel and coffee shop he is in - it could of been a source of a problem.
Solution to that would be to DynDNS to your home computer and access it first and then go from there.

2. Lots of complaints from his customers ignored by the guy.

Eventually some strong competition to Paypal should spurt up - but it might take a long while for someone to gain as wide coverage as Paypal.

Gleb

[JustinPopovic]

Originally Posted by iDreamCatcher

PS: Regarding Paypal closed account.
I suspect 2 reasons:

1. Account been accessed from different IP addresses regularly. Why Paypal is anal about it is because people who either been banned or operating from "unsafe" countries ask their buddies in USA to open paypal account for them and then they play with it. Second reason - is Paypal don't want account to be shared by multiple people. Hence accessing it from different IP's adds red flag to this.
So if your buddy travels a lot and access account from every hotel and coffee shop he is in - it could of been a source of a problem.
Solution to that would be to DynDNS to your home computer and access it first and then go from there.

2. Lots of complaints from his customers ignored by the guy.

Eventually some strong competition to Paypal should spurt up - but it might take a long while for someone to gain as wide coverage as Paypal.

Gleb

Funny thing is neither of those reasons apply to him. He has a head office where he conducts all of his business out of. Pretty much every Paypal transaction happens there.

Also, he has an unmatched reputation for support. Whether he sold a $5 or $500 product, every buyer can get ahold of him or his staff. He has a 30 day money back guarantee on all purchases.

I'm sure he will get to the bottom of it but 2CO is definitely a worthwhile option. I will be getting setup with 2CO myself!

thanks for your feedback

[Gene]

I use 2Checkout but be sure to read the terms of service and follow the rules. One of the rules use to be that each product page had to have a notice saying the product was sold by 2Checkout so the credit card companies would not refuse transactions.

I also use PayPal and use it more often than 2Checkout.

[successprinciplesonline]

This is really bad. If they could do this to someone whose been doing business with them for 10years without any wrong doing, then everyone has to be careful using PayPal.

The bottom line is that don't allow your money to be much with them and look for other alternatives such as 2CO. It will be great to see more alternatives to PayPal becoming a lot more population soon. That will certainly break Paypal's monopoly for good.

[Aleksander Krstic]

Wow an eye-opening post. Thanks!

[yannay]

Is their anyone else he can use or open a new account?

[JustinPopovic]

I forgot about this thread and I saw some recent comments. I wanted to provide an update...

Brad made a post on his blog about the situation with paypal. A VERY large tech blog picked up his feed and his story started going viral. It must have hit Paypal's radar at some point because someone from their office actually called Brad's head office offering to resolve the situation.

Within a few days, he was able to resolve the issue and they ended up releasing his funds back to him. He is still wary about future sales with Paypal but I guess it is so widely used that its pretty difficult to totally abandon it.

[ar81]

It looks like a small scale Ponzi scheme somehow...

[vartann]

yeah i have already kicked paypal and ebay altogether out of my Reality