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PayPal not as safe as everyone thinks?

PayPal Discloses High Rate Of Chargebacks
The Banking Channel

Oct 03 2001 : PayPal's move to file for an IPO at
this time, has mystified analysts, but may be
related to its USD 8.9 million in chargebacks from
unauthorized credit card use in 2000, which led to
a fine from MasterCard. In its filing, PayPal states
that its liability for chargebacks from fraudulent
transactions could cost it the right to accept
credit card payments, which comprised 50.5 per
cent of its business in the quarter to June 30.
Since the firm has enough funds to remain in
business for two years without new funding,
Avivah Litan, of Gartner, notes, "they have cash,
so this doesn't compute. This is the worst
possible time for an IPO".

Apart from the risk of online fraud, PayPal faces
competition from Citigroup, which is co-marketing
its C2it service with AOL Time Warner and
Microsoft, and can quickly gain substantial
market share. IDC analyst, Ian Rubin, expects
further competition to emerge, as "eventually
some of the incumbents like American Express,
Visa and MasterCard will either create their own
products, or evolve their credit cards to do
something that will compete head-to-head with
PayPal". Rubin also notes, "P2P online payments
are kind of in vogue right now, but I don't see them
necessarily having a long shelf life".

PayPal's filing also indicates that its undefined
status under state, federal and global financial
regulations, especially in light of US, and
international, regulation of Internet transactions,
could lead to penalties. For this reason, Litan
questions PayPal's filing for an IPO, since "they're
not likely to raise very much money, and now they
subject themselves to public reporting and the
whole overhead of being a public company".
PayPal itself refused to comment on the filing,
due to being in an official "quiet period" with the
SEC, but is known to have had USD 134.6 million
of cash and short-term securities, at June 30,
2001.

FYI

Tim
tkmetz
lakefrontroad
302 posts
 
I had a theft from my Paypal account about a year ago. It took three months of having my money locked up to get it released and have the theft of $900 returned by Paypal. In the end it was only agravation. The insurance portion was never kicked in, although I made an FBI and local police report. Travelers did not respond. Paypal ultimately paid me back and stated it was a "disputed transaction". No, actually it was an outright theft.

I too am concerned about their position that they are not a bank and not subject to banking regulations and obligations. I have been thinking of moving a fair amount of cash to my Paypal account and using the debit card in lieu of my credit cards. I figured out that with the 1.5% refund I can get about 27% on the cash necessary to fund my monthly credit card payments.

Thanks for everyones' thoughts. I really don't need the 27%. Once again I'm reminded that it's better to have an empty house than a bad tenant!

Bill E.
glen's avatar
glen
714 posts
 
You guys are scaring me. I use pay-pal all the time, no problems to date. Sugarbrie your not bidding at any of my auctions right now are you? (just kidding) If you do win one of my pieces I will except USPS money order as payment :~)
sugarbrie
3,854 posts
 
I find it scary too. They have no follow up on what is in their accounts. I did nothing weird to get such a messed up account. I only moved and changed banks.
jmoney7
1 posts
 
I had a Paypal account that was ripped off. I made the account and never used it once. Then a ~$500 debit came up on my account. It took forever to get through to Paypal and when I finally did they told me someone had hacked their database and stolen my number and used it to distribute money into another account. Paypal refused to correct the situation and they told me to goto my bank since it was a fradulent charge made by someone else. Only after hounding them for about two months would they fix the situation. No one at Paypal seemed to know what was going on. I dealt with many different people who apparently didn't keep track of what was going on through a computer since i had to explain my situation almost everytime I called them.
blues_man
133 posts
 
Now everyone should now why so many internet companies went under. A lot of them are just in it for a quick buck and don't have a good foundation. If you've had problems with them, let the SEC know. There is a big review phase before they can go IPO.
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