Paypal transactions become even riskier for website sellers

[Clinton]

Paypal has always been a dangeous method of payment for website selling transactions. Should you sell someone a website and receive payment he can file a claim against you and get a full refund whether he has a case or not. Paypal doesn't discuss this. Quite simply if you don't have a postal receipt to demonstrate you've shipped the goods to the buyer, Paypal will debit your account and refund him.

Some sellers got around this by burning the site's files to a CD and shipping them to the buyer just to meet Paypal's rules and protect themselves against unfair claims for refunds.

That won't work anymore. Paypal have now amended their terms. Should you try and use the above protection the buyer can now ship the CD back to you, provide Paypal proof that the goods were returned ... and get a full refund at your expense.

1. now enable not only UK Users but also non-UK Users whose accounts are governed by this particular version of the PayPal User Agreement, to be eligible for reimbursement for Claims in respect of “Significantly Not As Described” items purchased with PayPal outside of eBay. Section 13.7a has been deleted.
2. clarify that a seller will be liable to PayPal if that seller loses a Claim from a buyer with a PayPal account registered anywhere in the world. The relevant part of section 13.7 now reads as follows:
   
   “Sellers: As a seller you are liable to PayPal if you lose a Claim from a buyer with a PayPal account registered anywhere in the world. This includes, without limitation, where you sell to a buyer who is a Full Programme User and the buyer files a SNAD Claim, in which case you will generally be required to accept the item back and refund the buyer the full purchase price plus original shipping costs. You will not receive a refund on your PayPal fees. If you lose a Significantly Not as Described Claim because the item you sold is counterfeit, you will be required to provide a full refund to the buyer and you will not receive the item back (it will be destroyed)."

Are you one of those buyers/sellers still using Paypal? Are you going to change what you do because of this?

[Bryan]

Good find, Clinton!

I admit that I do still use PayPal, sometimes even for $2k+ deals but with a change like this I will most certainly reconsider and leave PayPal for small ($500 or less) transactions if even that.

The main problem active sellers are facing is the lack of alternative payment methods. While there are many payment methods that sellers find acceptable/attractive (As for me personally - I'm perfectly happy with practically any payment method out there - be it wire transfer, Western Union or even a US cheque), the problem is buyers. It's extremely hard to explain buyers that you're not accepting PayPal payments because (unfortunately) many think of PayPal as the only trustworthy payment method out there.

And to be honest, to a degree I have to agree with them. While PayPal is probably the most unsafe payment method for sellers, everything else (apart from escrow) is unsafe for buyers. Be it a wire transfer, a WU payment or a cheque - there is virtually no guarantee that the seller will actually ship the goods once they have the money. Granted, there are contracts - however, without the buyer and the seller meeting face to face contracts don't often mean a thing. Names can be faked, contact details can be faked, everything can be faked.

So - is the ONLY safe and trusted solution we're left with Escrow.com ? Quite curious to hear what others think and if anybody's managed to come up with a better/cheaper/quicker alternative than Escrow is.

Bryan

[Clinton]

Hi Bryan, and welcome to experienced-people.net

there is virtually no guarantee that the seller will actually ship the goods once they have the money.

That's odd. I always thought you sellers ought to deliver the goods to me first before getting payment, not the other way around

But I accept your point that many buyers don't realise how unsafe Paypal is for the seller (maybe you could point them to this thread). From the seller's point of view not only is he at risk of fraud, the buyer has him by the short and curlies and can do one or more of the following
- get a discount by demanding a part refund for no reason other than that he has to power to mess with you through Paypal
- hold you ransom for tech support and tie you up far beyond what was originally agreed
- return the site a few days/weeks down the road even though there's nothing wrong with it (i.e. he gets a free trial of the site)
- take all the earnings from the site for a week or two before returning it for a full refund (in fact, this could become the business "model" for scammy buyers)
- demand a refund through Paypal because he finds he's bitten off more than he can chew (which is not your fault)
- screw the site up in the few days he's had it and then return it for a full refund
- Pump the site full of links to his own properties and then return it for a full refund
There's lots and lots more stuff he can do and Paypal will just give him his money back no questions asked. Paypal isn't meant for transactions like this, it was designed for people selling physical goods through eBay and that's what it's still best geared to do.

So - is the ONLY safe and trusted solution we're left with Escrow.com ?

It's neither only nor safe nor a solution. I'll save regular readers a boring lecture on just how risky escrow.com is, but you can try the search box above for "escrow.com" - there are many threads. Here's the last thread we had on the subject. Here's a more detailed thread on the escrow and escrow.com mechanics and risks.

Quite curious to hear what others think and if anybody's managed to come up with a better/cheaper/quicker alternative than Escrow is.

Sure. I've often suggested using lawyers. That's a far superiour solution to using any third party escrow as lawyers will tailor the contract to your requirements. In the UK they already do escrow transactions on the largest purchase most people make - their residential property. But the cost makes lawyers uneconomical for all but the larger transactions. For smaller transactions you can meet the other party at a location with wifi, deliver cash and take over the files and domain. If the party is too far away you could use an escrow, but do not just go with the first name you find, however famous they may be. Find a local escrow regulated by the authorities in your own country and don't forget to read every single word of their terms and conditions so you understand what the risks are.

There are also options such as escrowdns.com, SEDO, Moniker etc., which do domain escrow services.

[Fish]

I still accept paypal for domains, but only for small transactions or from buyers who are unlikely to be scammers (owners of established businesses, etc.). There's a lot of murkiness in buying/selling domains and websites, and I sometimes complete my part of the bargain in advance (as buyer or seller) - because I realize that I appear to be the more shadowy figure in many cases.

There are times, like this morning, when it doesn't pay to be too cautious. While we are accustomed to dealing with scammers and marginal people at Flippa, domain forums, and elsewhere, in the larger business world there is still the concept of honoring agreements. I'm not going to treat the founder of a successful company with a high profile the same way I will treat some guy who I only know as joeschmo at freemailservice.com. Paypal is fine as long as you can trust the buyer (and the amount involved is not beyond your tolerable loss threshold). This morning I snagged a great deal with a second-best offer, I suspect partly because I offered to pay in advance. Yes, I could get stung even by an apparently upright person, but I think the likelihood is low if I have taken a few moments to see who they are and what they're about.

But for those people where we don't know who the heck they really are...I'll take Paypal for up to around $100, or sometimes just refuse the offer completely.

Aside from the chargebacks, Paypal is dangerous. I wouldn't want too much money sitting there when they decide to lock up the funds for no particular reason - as the are known to do. Both Paypal and Ebay abuse sellers, and will continue to get worse until a serious challenger to their supremacy comes along (or they face an FTC lawsuit).

[Clinton]

Funnily Paypal seems to have a following - like Google fan boys - who believe the organisation can do no wrong. However, as you point out, Paypal is also dangerous for locking up funds. Their approach to customer service - not taking phone calls/ having algos determine who is in the right when there's a dispute etc., - can often be seen as abusing a user (usually the seller).

or they face an FTC lawsuit

That may help those in the US, but is unlikely to help users in countries lke the UK. In fact, Paypal Europe moved itself out of the UK and UK regulators by shifting to Switzerland. Some may perceive that as an advantage because of the Swiss privacy laws, but for most of us not earning millions of dollars every afternoon this is not relevant. Even for those that do - don't be too complacent, if the UK authorities demand disclosure from Paypal, there are many ways they can get it. The big deal here is the regulation. Paypal is neither regulated in the UK nor is it covered by the UK compensation scheme. If they go tits up you'll lose your money.

[Clinton]

Talking about locking up funds...

eBay has updated their terms today to say that they can put a hold on funds in your Paypal account (and draw it out, presumably) whenever they feel like it.

eBay has at times requested, and may continue to request, that PayPal restrict access to funds in a seller’s PayPal account based on certain factors, including, but not limited to, selling history, seller performance, riskiness of the listing category, or the filing of an eBay Buyer Protection case. This may result in PayPal determining to restrict funds in your PayPal account

Ouch!

[Fish]

That is scary. I use Paypal Japan, and any court challenge here can take decades to drag out. On the other hand, they came down pretty swiftly on Citibank a few years ago.

[Clinton]

Fish, any chance you could email me a copy of your Paypal (Japan) Terms and Conditions? (webmaster @)

What happened with Citibank?

[Fish]

Clinton, I sent the main part over. I don't know the details with Citibank, but they were mostly shut down in Japan for doing something that was apparently common practice for Japanese banks. The JP government is tolerant of a great deal of corruption in successful companies, but there is an "old boys" club here, and foreign companies are for the most part not included. If Paypal is encroaching on the territory of a Japanese payment service (and if they're doing their job, they should be), then they will have to watch their backs. Ebay was a complete washout in Japan, so one would think Paypal might play it a little more carefully. But who knows? Their arrogance doesn't bode well for them.

[Clinton]

I got a notification about an update to Paypal terms. I believe this applies mainly to Paypal users in Europe but the pricing changes affect everybody so if you're based outside Europe you likely got a (different) notification.

The link.

My quick and dirty analysis:

3. Paying with a credit card. Their change to funding sources raises a risk - if they block you from using your CC you're at extra risk as you don't have the CC protection.

4. Variable recurring payments: If someone charges your account with more than you were expecting it's up to Paypal's discretion as to whether that charge/amount was unreasonable.

7. If you don't use your account and they close it they'll send the balance to your bank account but if they don't have details of where to send it or the account is closed, they'll give all the money to the Luxembourg Treasury.

8d Paypal business payments (if your account is a business account) are not eligible for Paypal seller protection.

9. Various pricing increases and new fees including a Commercial Transaction Refund Fee and a max 2% charge for Paypal Mass payments (which used to be a cheap way to send larger sums)

10. You are forbidden from making commercial transactions from a personal account.

12.1 Changes to privacy policy including that any changes made to the policy become immediately effective and even before they notify you.

12.3 They reserve the right to deliver targeted marketing and promotion to you based on what they know about you and your activities (but subject to your communication preferences i.e. you can jump the hoops to block them from emailing you spam but not from showing it on your screen when you go to their site)

12.4b They've added new organisations they are going to share your data with (including all Paypal group companies such as eBay).