I may actually close my paypal account

[Dana_W]

Check out this letter I just got from Paypal.

I'm seriously thinking of switching to only taking Visa and Mastercard instead. Do you think it's possible to run a profitable internet marketing business without paypal?

LETTER FROM PAYPAL:

An important change to your PayPal account

Hello Dana Willhoit,

Your business is important to us, and we are working hard to provide an easy, fast and secure payment service to you and your customers while keeping our prices competitive. We're also committed to clearly communicating changes to our policies and procedures. To that end, we are writing to inform you of a change to your PayPal account, which will take effect 30 days from the date of this email.

Beginning 07/23/2009, a small percentage of the total payments you receive will be held temporarily as a reserve in your account. This small reserve amount helps to ensure that funds are available to cover payment reversals or buyer chargebacks, if you do not have a sufficient PayPal account balance and do not provide the funds to do so.

A reserve is like a security deposit for your PayPal account and is standard practice in the payments industry, especially for retail segments like Internet & Network S where there is a higher-than-average risk of reversals or chargebacks. This does not mean that you have done anything wrong. We are requiring a small reserve in your account because you sell in a category that has a higher risk of reversals and chargebacks.

Your reserve amount will be 10% of the total payments you receive, which will be held on a rolling 60-day schedule. That means 10% of the money you take in each day will be held in your account, and then made available for withdrawal 60 days later.

For example, if you receive $2,000 every 60 days into your PayPal account, then a reserve amount of about $400 would be required on a rolling 60-day period. In other words, about $6.67 would be held in reserve each day, then released 60 days later.

If you are a PayPal Money Market Fund customer, you will still earn interest on your total balance while your money is in reserve. Click here for more information or to enroll in the PayPal Money Market Fund.

We recognize this is a change in the way we do business with you. By requiring some merchants to reserve money in their accounts, we're able to lower our own costs. This helps us to continue providing competitive pricing for all sellers who use PayPal.

If you have any questions about this change, please call us at 1-877-729-7252. We appreciate your business and look forward to a continued partnership.

[jakesellers]

I've found Google Checkout is a pretty decent alternative to Paypal if you don't want to establish your own merchant account. Paypal has huge traction especially among older people and eBay users; I've talked to people who wouldn't pay for anything online with anything other than paypal.

[Dana_W]

I understand that, but Paypal is saying they are going to keep ten percent of MY MONEY for 30 days in case someone wants a refund on something. That's just not acceptable to me.

I don't mind establishing a merchant account through my business bank account.

[raylm123]

I'm sure it's possible to run a business without paypal, but the real question is whether not offering paypal will hurt your business.

Paypal is easy for customers to use and a lot of online shoppers are comfortable using it. I've read a split test report from a guy that showed that having a paypal button increased his sales. His hypothesis was that people may consider the money in their Paypal account as "play money" and are therefore more likely to use it for impulse purchases.

The only way to find out is to test it.

[Nick Brighton]

Hi Dana,

Whilst Paypal has it's moments, I can't really see why this would cause such an issue. For me personally, it automates what I do manually...that is, makes sure there are funds available to cover refunds etc.

I'm presuming you DO reserve some of your balance for refunds, right?

However, on the other hand I think a better way would be for them to look at your account's individual history for refund rates...and recalculate accordingly.

To blanket 10% across the board seems random and needless...IF that's what they have done.

Who knows, perhaps they DID look at your account individually?

Either way, I can't see a major issue here personally...but I suppose it's a case of getting to used to such changes as smoothly as possible.

Perhaps a little more notice would be nice too!

[CDawson]

well, although they are holding a small amount for refunds wouldn't that be a good thing just in case you do get a refund.

[Dana_W]

No, I can't imagine that they looked at my account personally - and they say in their letter that they specifically are targeting internet marketers, not individual accounts - but if they looked at my account, out of my thousands of transactions, I have had ONE PERSON file a refund request with Paypal. And I refunded that person within a day.

[Nick Brighton]

Originally Posted by Dana_W

I understand that, but Paypal is saying they are going to keep ten percent of MY MONEY for 30 days in case someone wants a refund on something. That's just not acceptable to me.

I don't mind establishing a merchant account through my business bank account.

Also, if you have a 30/60 day guarantee, then technically it's not YOUR money until the 30/60 days have passed.

If it's for services, then it's different for sure. But there's still a need for having reserve funds for disputes etc.

[Dana_W]

Originally Posted by CDawson

well, although they are holding a small amount for refunds wouldn't that be a good thing just in case you do get a refund.

If I get paid, say, $6000-$7000 in a month via paypal, sometimes more, and they withhold ten percent - to me that's not a small amount. And if I were getting $600 to $700 a month in refund requests, I'd say my business had some MAJOR issues.

I normally keep several thousand dollars in my paypal account anyway so I can pay designers, press release distribution sites, etc., so having money on hand for a refund isn't an issue for me.

What's infuriating is Paypal saying they are not going to give me a significant portion of MY MONEY for 30 days.

[CDawson]

Originally Posted by Dana_W

No, I can't imagine that they looked at my account personally - and they say in their letter that they specifically are targeting internet marketers, not individual accounts - but if they looked at my account, out of my thousands of transactions, I have had ONE PERSON file a refund request with Paypal. And I refunded that person within a day.

Well you do have a point there :P, I would contact top-management and advise them that you like their service but if they are going to withhold YOUR money then you are going to have to find another company. If they want your business bad enough then they won't mind your request

[Melody]

This is STANDARD practice in the payment processing industry - most merchants that have their own direct credit card processing accounts are subject to reserves - and 10% is actually on the low end for digital products, which is considered to be a high risk category.

The truth is that PayPal has been covering the reserves until now and has finally decided to pass it along to the end user.

With credit tightening - you will start seeing more wallet type payment solutions doing the same thing.

it's really nothing out of the ordinary - it's just that PayPal is finally putting into place some of the same rules that every other processor has had in place for years.

Melody

[CDawson]

IMO, paypal has grinded their teeth into this so called "economic crisis." For example, about 5 months ago I accidently purcharsed a paypal credit card (big mistake). I can't remember exactly what I bought with it but it was approximatly 7-8$. I was never reminded about this payment I had made and I got a call from one of the customer service reps saying I was overdue for payment. I payed that day but unfortuantly they put that unpaid payment on my credit the day after the payment was due.

[JackPowers]

Originally Posted by Melody

it's really nothing out of the ordinary - it's just that PayPal is finally putting into place some of the same rules that every other processor has had in place for years.

But does Paypal really want to compete with merchant accounts? They already have horrible exchange rates and fees.

[Topher Walker]

Dana, they're not keeping it for 30 days but 60.

Depending on your prices and demographic of your buyers I'd consider split testing with Google or a merchant account or just making the switch. Anyone under 30 thinks that Google has the rights to all their personal details so they're not going to be bothered about using their credit cards on google's checkout system!

[Emailrevealer]

You're better off with a real merchant payment system like authorize.net.If you offer buyers both payment methods you'l find that only about 10% will use paypal and then out of that 10% thats where most of your claims and disputes and chargebacks will come from.

[Lee McIntyre]

If it makes you feel any better we're currently on a rolling six month 15% reserve with our merchant account, and this month alone they'll keep more than $15,000 of our money.

Even if our business doesn't continue to grow we'll still have $90,000 in the reserve before any of it gets released.

I just view it as a cost of doing business though so I don't worry about it.

Cheers

Lee McIntyre

[John Sullivan]

Hi Dana,

PayPal can be a problem at times, but the problem is that the majority of people are used to buying using this company, so you may be excluding many customers by not using them any more. They seem to limit accounts for reasons that I have no idea the reason but that is their policy.

John

[danyray]

Paypal is probably right in doing what they are doing in general, given the economy these days, however, the amount they reserve should be adjusted according to the account history. It seems to me that if many paypal account holder will complain and suggest that, they may change it, it is just common sense.

[Kay King]

Dana -

I can understand why Paypal needs to start doing this. We've seen posts here several times from those who took all their money out of paypal when they had sales and are complaining that they "owe Paypal".

I cringe every time I see someone posting about a "negative Paypal account" because that type of poor money management ends up hurting all users.

Paypal can't trust users to put money in to cover refunds as required. I expect this problem has been increasing with the current economic troubles.

kay

[Jeremy Kelsall]

Dana,

Paypal did the same thing to us and then lifted it 60 days later I think. It was like a savings account

When it first happened I was pretty pissed off to say the least, but after talking to a paypal rep she basically explained that because we were doing such a high volume and had just transfered $XX,XXX a couple times in a row from paypal leaving very little in there that they didn't want to get stuck with a bunch of refunds etc if we should pull a disappearing act.

In the end, I guess it is smart business for them and it didn't affect us at all so, not a big deal.

[Melody]

Originally Posted by JackPowers

But does Paypal really want to compete with merchant accounts? They already have horrible exchange rates and fees.

Actually, no, their rates are not awful - the average merchant pays none of the usual fees affiliated with having your own direct merchant account, which are anywhere from $25 to $100 per month on top of your txn fees, and the standard "rolling reserve" period is actually 6 months - not 60 days. Small merchants rarely pay less than 2.75% - and digital products are often as high as 5%.

Find out what the competition charges before you complain about PP - you might be surprised.

Melody

[derekwong28]

Dana, holding a reserve amount is standard practice among payment processors. If most of your clients are webmasters, it would be a great mistake if you do not accept PayPal as this is porbably their payment methods of choice.

Derek

[Steven Wagenheim]

Dana, you apparently don't deal with Clickbank at all. They hold a significant
amount of your sales in reserve each month and don't release it for 6
payment periods.

This is standard with them and has been since the beginning of time.

I guess it's what you're used to.

To me, this wouldn't be a big deal since I always keep about 10% of my
money in my PayPal account in case of a refund request anyway.

But to answer your question objectively, not using PayPal will absolutely
cut into your income because there are many people out there who won't
use their credit cards.

You'll simply need to decide which is more important to you, getting more
money or being pissed off at PayPal for something that, in all honesty, is
not a big deal given the nature of the industry.

[Texjd]

That would twist my tail too. But don't over react and hurt your sales. If you keep the balance amount you mentioned it doesn't really change anything.

I keep a balance since I often use it for purchasing with debit card. I've use my debit card all over the world and it's a big convience since it tracks easily.

From time to time PayPal does something wierd, just ignore it and continue to march. I've had payment processors and they are much worse to deal with, believe me. And bottom line is that PayPal rates are reasonable and the ease of use is unbeatable.

[kanus]

As a customer I trust paypal, I wont enter my credit card into websites anymore, got screwed twice. I trust when I am redirected to the paypal website, my information is safe. Whether it really is or not, I dont know, I look at the URL, thats about it. Perception is reality.

[Am2m]

While this is a major frustration to me, just the thought of not having access to all my money when I want or need it I can also just as easily see why they are doing this. Think of this: When a scammer makes a sell on eBay, they withdraw their money the second its put in, then when the buyer goes to file a claim, all the money is gone. This way, paypal has access to at least a portion of that money. Its for the protection of all users.

[slvrsrfr]

i don't have a problem with it. one alternative is to stop selling stuff, then 60 days later you can take out all of your money.

they're not stealing from you and 10% isn't too bad.

[Rod Cortez]

Been using a merchant account and Paypal for years on most of my sites, this combination generally out pulls any of my sites that have only used one or the other. Give them a phone call and discuss that e-mail with them, they might lift it, but even if they don't I'd still stay with them.

[Seattle Mike]

Originally Posted by Melody

Actually, no, their rates are not awful - the average merchant pays none of the usual fees affiliated with having your own direct merchant account, which are anywhere from $25 to $100 per month on top of your txn fees, and the standard "rolling reserve" period is actually 6 months - not 60 days. Small merchants rarely pay less than 2.75% - and digital products are often as high as 5%.

Find out what the competition charges before you complain about PP - you might be surprised

What I was going to say

Really read those merchant account contracts before you sign them. You can get trapped in some long term agreements with a lot of fine print. The fees are high and they can get higher with short notice. I have been burned. Info products sellers and home businesses in general get charged plenty extra.

For what paypal offers even with some things I disagree with, still a pretty good deal. Plus online it has that name recognition that people trust vs. Joes Website who wants me to enter my cc# including the security code. Joe could buy a ton of stuff before I get the bill in 30 days.

[Trader54]

Originally Posted by Creative Thinker

This is a rip off I would say. What authority does PayPal have to hold our money back? Isn't it enough they charge fee on every transaction!!

How is it a rip off?

You are using their merchant account for any credit card transactions
and they are protecting themselves from refunds and charge backs.

Originally Posted by Trader54

How is it a rip off?

You are using their merchant account for any credit card transactions
and they are protecting themselves from refunds and charge backs.

Protecting themselves? What?

They probably have millions of dollars left in their corporate account from blocked PayPal accounts which never got unblocked because the user was not able to provide the right documents.

They should take care of chargebacks with their own money. And perhaps put our account on negative balance if such a thing happens. Holding the money back is definitely a bad idea.

[tommygadget]

I guess they haven't done it to me because I leave a lot of money in the account for vendors. That's good to know, I need to budget for that in case it happens to me.

TomG.

[Popstar]

For the people who will only buy using Paypal, you'll be losing 100% forever instead of 10% for 60 days. The math still favors offering Paypal as an option.

I agree with the person who told you to call Paypal. You'd be surprised what you can do if you talk professionally and without anger to your merchant rep.

Debbie

[Paul Buckley]

A 10% reserve is not uncommon for payment processors and merchant account providers.

[Kay King]

They probably have millions of dollars left in their corporate account from blocked PayPal accounts which never got unblocked because the user was not able to provide the right documents.

And those "users" can't provide documents because they gave false info when they signed up with Paypal. I've known several who did that and got caught and their accounts frozen. Every one of them got their money after six months or so (and their accounts were closed). That's because some credit card companies may allow chargebacks for a full six months.

kay

[Mike Hill]

Personally I think it is the cost of doing business however I also have 2 different Bank Accounts that are confirmed with PayPal plus a credit card...

Even if there is no money in my PayPal account at the time they can withdraw the amount to cover a charge immediately from my Bank account.

It also helps keeping up with their security measures such as getting the Security Key for added protection. I got mine that sits on my computer



Mike

[melanied]

I know it's frustrating, but look at it this way - it's kind of like when actors end up in the tabloids. It's very irritating, but it's also an indication of your success!

[Jeremy Kelsall]

Mike,

Originally Posted by Mike Hill

Personally I think it is the cost of doing business however I also have 2 different Bank Accounts that are confirmed with PayPal plus a credit card...

Even if there is no money in my PayPal account at the time they can withdraw the amount to cover a charge immediately from my Bank account.

It also helps keeping up with their security measures such as getting the Security Key for added protection. I got mine that sits on my computer



Mike

We have all that too...plus a refund rate of under 1% over a year and they still held a reserve for a couple months.

I personally think that something triggers it though...In my case, we had just made our second large transfer out of paypal in a matter of 2 weeks, plus our volume doubled, then we got the notification...

When we called the lady told us that they were just doing it to cover their ass and we accepted it because it wasn't a big deal. By the time they notified us about the reserve the account was almost empty anyway and only had like 3K left it in so, we could have walked away from that.

But, the business that I do is on the up and up and paypal is a part of that so, it wasn't a big deal. I can honestly say though, I didn't expect it I've seen a ton of posts about this kind of stuff and always thought there must be a reason, but at this point, I'm convinced that when it's your time, it's your time

[Josh Anderson]

Originally Posted by Melody

This is STANDARD practice in the payment processing industry - most merchants that have their own direct credit card processing accounts are subject to reserves - and 10% is actually on the low end for digital products, which is considered to be a high risk category.

The truth is that PayPal has been covering the reserves until now and has finally decided to pass it along to the end user.

With credit tightening - you will start seeing more wallet type payment solutions doing the same thing.

it's really nothing out of the ordinary - it's just that PayPal is finally putting into place some of the same rules that every other processor has had in place for years.

Melody

Actually this is better than standard practice... in the processing industry the usual is a 6 month rolling reserve.

When I first stared out in IM this was common practice among payment processors.

It has only been in recent years as processors decided to take more risk (much like the banks) that the reserve has been required less often... but in many markets its just a given. Now that providers are being more conservative to deal with the current environment in the banking industry they are taking less risk, denying more applications, and requesting reserves more often.

Its great to look for other processing options such as a merchant account but don't write off paypal completely just because of a 60 day reserve.

Heck you may even suddenly find your merchant provider asking for a 6 month reserve after you make the jump ;-)

[nizhama2]

I'm one of those who will not buy unless via paypal. Maybe many people like me outside there and you will lost your costumer. Anyway adding another payment method is the best solution.

[Dr Dan]

This is something that most merchants will require if you sell virtual products or non tangible products online or over the phone. Also depends on credit. Its a small price to ensure that you dont charge a few thousand and then spend the money and then the customers ask for a refund after the money is spent. Just the cost of doing business. Or I shouldnt say cost since it isnt a cost but a deposit of funds. Even banks do this on personal checks you deposit for amaounts that exceed your balance. They hold part of the funds and make available after a few days to weeks. I dont agree with it. But it is what it is.

[Alexa Smith]

Originally Posted by Creative Thinker

They probably have millions of dollars left in their corporate account from blocked PayPal accounts which never got unblocked because the user was not able to provide the right documents.

I'd think that money will be in a client account, not a corporate account. And I'd think they'd be breaking the law if they used any of those funds to cover other people's chargebacks.

[JayXtreme]

Hey Dana

As detailed above, this is pretty standard practice and is something we will all see more of in the coming months (years??).. Paypal routinely do this to all online sales teams that start to move bigger bank than your average sale here and there..

It's a sign that you are doing well..

Although, I do think they'd be better evaluating each case individually... .. I've never had an issue with it being released.. so it's no problem.

Peace

Jay

[billbarrett]

Hi Dana,

As far as I know, ClickBank holds 10%, too for the purpose of chargebacks, etc.

You can try 2checkout.com - it is a very nice payment processor and they now offer to transfer your earnings directly to a debit MasterCard. )

Good luck!
Bill

Originally Posted by Dana_W

I understand that, but Paypal is saying they are going to keep ten percent of MY MONEY for 30 days in case someone wants a refund on something. That's just not acceptable to me.

I don't mind establishing a merchant account through my business bank account.

[copywarrior]

Dana, I understand you are feeling frustrated at the moment but I would suggest you to stick to paypal. If you switch from paypal to any other payment method,you may possibly lose some business. It's always good to have some money in the reserve.

Just my 2 cents.

[n7 Studios]

Paypal sent me a similar email a few months back, promising to implement it back then - but they never did.

[Akky]

Hey Dana,
Why not use 2CO ? People can pay with PayPal, the money will go to your bank account. They are very good at what they do . Just my suggestion.

Thanks!

[Dana_W]

Well, this has given me some food for thought. I am royally ticked off, but at this point at least, I'm probably better off not getting rid of paypal entirely. What I will do, though, is set up a merchant account so I can take Visa and Mastercard, and encourage people to use those options when paying me online - so at least I have as little money going through paypal as possible.

But I probably would be giving up a substantial amount of money if I don't accept paypal, so for now, I'll just deal with it.

[Tsnyder]

Originally Posted by Dana_W

Well, this has given me some food for thought. I am royally ticked off, but at this point at least, I'm probably better off not getting rid of paypal entirely. What I will do, though, is set up a merchant account so I can take Visa and Mastercard, and encourage people to use those options when paying me online - so at least I have as little money going through paypal as possible.

But I probably would be giving up a substantial amount of money if I don't accept paypal, so for now, I'll just deal with it.

I'm not sure why you're royally ticked off. As many in this thread
have explained, this is not uncommon for payment processors... and
it's going to become more common as time passes.

It's not like PP is taking your money. It's just being held in reserve
temporarily to cover your business. I have no idea why anyone would
think that's a problem that would warrant closing an account.

Tsnyder

[Project-Octagon]

Sorry to hear Dana however, this must mean you are making a lot of money. I used to have an acct that made loads of cash and the more I made, the more PayPal became a nightmare but that was in its early stages. Now I have another acct but not selling as much there and all is fine. Sorry that the more you make the more PayPal seems to come down like a hammer at times. I would just look at it like a new savings acct but do have another merchant approved and ready to go on standbye in case PayPal decised to ever do anything else like freeze an acct for 180 days(6 months). I know they use to do that if chargebacks got too high. (WINK)