paypal

PayPal is an Internet business which allows the transfer of money between email users, avoiding traditional paper methods such as checks/cheques and money orders. PayPal also performs payment processing for e-commerce vendors, auction sites, and other corporate users, for which they charge a fee. Corporate headquarters are in San Jose, California.

History

PayPal was founded in 1998 by Peter Thiel and Max Levchin. One of its first premises was the 165 University Avenue office in Palo Alto, California, home of a number of other noted Silicon Valley startups. In its initial incarnation, PayPal was a service for users to send money via PDAs. While the PDA concept was a flop, the web-based payment system began to catch on. With aggressive marketing campaigns offering $10 (and later $5) for new users to sign up, the firm grew at a meteoric rate of 7–10 percent per day between January and March 2000 http://www.wired.com/wired/archive/9.09/paypal.html. PayPal was acquired by eBay in October 2002. PayPal had previously been the payment method of choice by over fifty percent of eBay users, and the service competed with eBay's subsidiary BillPoint. eBay has phased out its BillPoint service in favor of retaining the PayPal brand. PayPal's only substantially similar competitor is now BidPay, after Citibank's c2it service closed in late 2003, and Yahoo!'s Paydirect service closed in late 2004. Other competitors include those that sell money orders (that are mailed by the company) over the internet that can be ordered via credit card. One such competitor is run by Western Union, known as AuctionPayments.

Legal issues

Due to the manner in which PayPal operates, it does not qualify as a bank and is not obligated to abide by the legislation that governs banks. PayPal is considered a money transmitter in many states and is licensed as such where required. PayPal is the most widely used service of its kind. However, a number of users have had frustrating situations with PayPal authorities. A controversial aspect of PayPal is that they have a policy and history of closing accounts and withholding funds for reasons that they will not disclose. Another controversial aspect is that PayPal is not subject to normal banking regulations, which means that users do not have many of the legal safeguards they would with conventional banks. In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California state law. Most of the allegations concerned PayPal's dispute resolution procedures. PayPal denies any wrongdoing. The two lawsuits were merged into one class action lawsuit, In re PayPal litigation. An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices, including changes to its dispute resolution procedures to make it compliant with the EFTA, as well as a U.S. $9.25 million payment to members of the class.