Comment by jiaweihli

The reason sellers don't go elsewhere is that buyers really like it, because it gives buyers a lot of power.

I've had them be annoying to me before. My favorite PP fact I found out the hard way: never put the string 'aleph' in the note field. Apparently that's flagged as a Terror-Word(tm), and it held up a transaction of mine for over a month.

I still use them, but only under modified-casino rules: never play with money you can't lose. Have a separate bank account just for them, so they can't get up to shenanigans with more than you intend; never depend on them for anything time sensitive; and never send money anyone depends on for anything important.

The problem is that securily sending someone's money to someone else while avoiding fraud is hard. So you have a service that is difficult and expensive (for the merchant typically), or you have one that sucks for some users but good enough for most.

For what it's worth, I've never had a bad experience with PayPal. I've heard all the horror stories, but nothing has come close to that. I sold something on Ebay once and the buyer didn't receive the item, and did what he should and reported it to Ebay/PayPal. Paypal started the dispute resolution process, and I uploaded a receipt of me sending it. The dispute was resolved in my favour.

I started accepting donations from a community gaming website via PayPal and I was very hesitant about using it due to the bad stories I've heard. A couple of months and a couple of hundreds of dollars later, no problems yet.

The biggest 'problem' I've had with PayPal is moving to a new country. You can't add International cards to your account, and you can't change the country of your PayPal account. The only solution for me was to create a new account, which is fine I guess.

But then I guess you never have a bad experience until you do.

If you accept PayPal as a merchant, every dollar you have received is 100% at risk until you have a) received it in your bank account, and b) removed it from any account for which PayPal has the information necessary to perform ACH withdrawals. For merchants, PayPal is a nightmare.

As far as alternatives, customers seem to love PayPal, because they side with buyers effectively 100% of the time in any disputes. So even if there were a convenient PayPal clone (which there isn't, at least in the US), you still wouldn't match the conversion rate that PayPal has, as many people will only use PayPal.

So, you can either accept a lower conversion rate by going with something like Stripe (because users don't want to enter their CC information directly on small merchant sites), or you can accept PayPal and be essentially guaranteed that at some point your account will be closed and you'll be screwed out of a significant amount of revenue. Currently, these are the bad choices that merchants face.

Suppose I sell things on my website, and you visit it and buy something. You pay with a credit card. Maybe I accept credit cards directly and you pay that way, or maybe I accept PayPal and you pay me that way, and pay PayPal with a credit card.

Now suppose it turns out I have misrepresented the items I sell. When your item arrives, you find that my site was pretty much fraud. You try to contact me to demand a refund...but no one answers the phone or responds to email. That's because I took all the money from you and the rest of the people I deceived and moved far away, to someplace safe from extradition to the US and that won't enforce US civil judgments.

So you call up your credit card company, tell them what happened, and they quickly refund your money. As do the credit card companies of all the other people I took advantage of.

Where does the credit card company get the money for all those refunds? They aren't going to get it from me. They certainly have no interest in eating those losses themselves.

What they do is require a business that accepts credit cards to have an account at a "merchant bank". When someone pays that business by credit card, the credit card company does not pay the business directly. They pay the merchant bank, which pays the business.

In order to be allowed to do this, the merchant bank has to enter into a contract with the credit card company that says that the merchant bank will pay the credit card company for all refunds and chargebacks. The merchant bank will try to get the refund money from the business, but if they fail they have to make up the difference.

The way merchant banks do this is they hold back some of the money they receive from the credit card company for the business, to build up a buffer to cover refunds and chargebacks. As the business establishes a track record and the merchant bank becomes more confident in its estimates of the refund/chargeback risk for the business, they will adjust the amount they hold in reserve.

I don't know exactly how it works when a buyer uses a credit card to pay PayPal, but somewhere between the credit card company and the seller there is an entity taking the role of the merchant bank and guaranteeing that the credit card company won't be left holding the bag if the seller can't cover refunds/chargebacks.

I suspect that the entity is PayPal itself, and most of the incidents you hear about of them holding some seller's money is them increasing the reserve because there was some change in his selling pattern that suggested the current reserve was no longer in line with their estimates of his refund/chargeback risk.

I think people don't switch to alternatives because the alternatives, at least the ones that provide strong consumer protection, almost all have the same or similar mechanisms to try to make sure that if the seller is bad it is the seller who pays.

They could switch to alternatives that do pay the seller directly with no mechanism for a refund other than asking the seller, such as most cryptocurrencies, but then they would probably lose a lot of buyers unless they were very well established businesses with outstanding reputations. (But if that were the case, then they probably could accept credit cards without their merchant bank requiring a large reserve).

Taking money from paypal is a risk, as there's a period of time it's in paypal before you extract it Sending money to a store on paypal doesn't seem to be a problem

As I understand it, expensive processes required for compliance with financial system/anti-money laundering laws make a moat for most money transmitting businesses. That moat prevents upstarts from challenging incumbents effectively.

Presumably someday cryptocurrencies will be able to fill the PayPal niche, but that requires a more robust buyer-merchant ecosystem than exists at present.

Bitcoin was floated as a solution for people who were wronged by PayPal and the banks, before the speculators moved in.

Using a bank and had similar experiences. BBVA flagged flights booked on Southwest as gambling. Nothing they could do about it.

Because there is a disconnect between reality and what you hear. PayPal is fantastic.