Why PayPal Downfall Is More Than Well Deserved

Ethan
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The internet hates PayPal. On consumer affairs, they’ve got a 1.3-star average rating over 4,500 reviews. It’s even worse on TrustPilot where they’ve got a 1.3 star average rating over 28,000 reviews. You can also find dozens of Reddit threads, YouTube videos, and tens of thousands of angry comments all across social media.


Why PayPal Downfall Is More Than Well Deserved



Chapter 1 The State Of PayPal
Chapter 2 The PayPal Problem
Chapter 3 Unexplainable Bans
Chapter 4 A Fundamental Flaw
Chapter 5 Conclusion


THE STATE OF PAYPAL

As such, it’s safe to say that literally millions of people have been rooting for PayPal’s demise for quite some time and it seems that that day is finally here as PayPal is getting destroyed. After the 2021 top, PayPal crashed 73% which is not that surprising given that much of big tech fell similar amounts. But, since then, most of the big tech has not only recovered but they’ve gone on to make scorching new highs. 


Just take a look at Nvidia for example. PayPal, however, has only sunk even further despite the overall market setting new highs day after day. In fact, PayPal is almost back to its IPO price of about $35. If you account for inflation, their IPO price was actually closer to $45, so a $60 PayPal stock is not that far off. 


graph showing global user number of PayPal from 1st quarter 2010 to 4th quarter 2023


A similar story could be said about their fundamentals as well. They’ve been stagnating and even bleeding active accounts for a few years now. Also, their net income peaked back in early 2021 or 3 years ago. They’ve even had a negative quarter since then in Q2 of 2022 where they lost over $300 million. But, it gets even worse. 


You see, PayPal is not just a monopolistic, anti-consumer payment platform with high fees, but it seems that they’re becoming an authoritarian payment platform that will do anything to maximize profits and push forward its agenda. So, what happened to PayPal and is this finally the end for the hated company? 



THE PAYPAL PROBLEM

I think the best way to really understand what’s wrong with PayPal and why the company is doing so badly is to take a closer look at what customers are complaining about. Fortunately for us, there’s plenty of data that we can pull from. It seems that users generally have 3 overarching concerns when it comes to PayPal starting with nonexistent customer service. 


I’m not even exaggerating, there are literally thousands of 1-star reviews knocking on PayPal’s customer service and they usually go something like this. Greedy, incompetent, and zero interest in providing decent, honest customer service. What a disgusting company. 


S hite company, shite customer service, a bunch of weasels… Please don’t use these crooks. No customer Service. It’s honestly baffling why a multi-deca billion-dollar company is incapable of providing decent customer service. The only reason that comes to mind is that they just don’t care. 


They basically just want to be a payment processor, collect their fee, and move on similar to Visa or Mastercard. But, the only reason that works is because all the card issuers that use Visa and Mastercard provide consumer-oriented support and service themselves. 


With PayPal, however, they are the end consumer platform, yet they don’t care to provide any of the support or service that comes along with that. 


Moving onto the 2nd major concern, we have scammers. "TOTALLY disgusted with PayPal. I thought if I bought with PayPal I was covered BUT watch out for scammers". "They will let scammers and fraudulent transactions happen on your account through your bank account. Don't trust PayPal". "Scammed by PayPal. My account has been breached 3 times. I did everything they asked to secure the account. They paid me back 2 of the scams but insisted I authorized the 3rd". 


Why are such reviews so common? Well, because scammers know how to game PayPal’s policies. For example, the way that PayPal ensures that a product has been delivered is by using the shipping tracking number. So, what scam sellers like to do is send boxes with dead weights in them. As far as PayPal can tell, the product was delivered and the entire burden of evidence to prove that it was a scam falls on the buyer. 


Also, this doesn’t just apply to buyers. Plenty of sellers have been scammed as well. Scam buyers will return products with deadweights in them. As far as PayPal can tell, the product was successfully returned and the entire burden of evidence to prove that it was a scam falls on the seller. And given that PayPal’s customer support is trash and unable to understand nuance, it’s basically impossible to get PayPal to side with you whether you’re a seller or buyer. 


Ironically, the easiest way to get them to side with you is being a scammer and gaming their policies. And that brings us to the 3rd major concern with PayPal which is high fees. They have the audacity to charge 3 percent for handling a simple transaction. Absolute dogwater, clown-level fees, and conversion rates. 


This level of inconvenience and unexpected fees is unacceptable, and it's left me feeling incredibly dissatisfied with PayPal's service. This concern is pretty straight forward and it’s pretty serious too. PayPal now charges 3.49% + a fixed fee for every PayPal checkout, Pay with Venmo, and all other commercial transactions. 


chart showing standard rate of paypal rate of receiving domestic transactions


And if the transaction is international, PayPal tacks on an extra 1.5% fee on top of that. So, really it’s a 5% fee. That might not seem like a lot but it really adds up. For example, let’s say that you were a Canadian seller on eBay and the primary market you sold to was American. 


Let’s also say that you pull in $500,000 in sales per year which might sound like a massive amount but at a 10% margin, you’re only making a modest $50,000 per year. But, you wanna guess how much you paid PayPal? $25,000, only to get crappy support and service and have PayPal side with the scammers. 


If you thought all of that was bad enough, well it gets even worse PayPal isn’t even a reliable payment processor to begin with. 



UNEXPLAINABLE BANS

Why is PayPal not a reliable payment processor? Well, the prevalence of random bans. Any account can be banned on any day. You’ll randomly just get an email saying quote “You can no longer do business with PayPal.” To make things worse, you won’t be allowed to withdraw your remaining PayPal funds for up to 180 days or basically 6 months. 


You can try emailing or calling their risk and compliance department but you’ll probably just be given a mediocre explanation like: “We decided to permanently limit your account as there was a change in your business model or your business model was considered risky.” In fact, if you want more information regarding your ban, you’ll have to get a lawyer to file a subpoena on your behalf. 


Why in the world would PayPal just randomly ban active accounts you ask? Well, this is only speculation, but it seems that PayPal is inclined to ban anyone that they deem to be a difficult or expensive customer. For example, accounts with excessive chargebacks. This is quite ironic given that this is the entire value proposition for PayPal. 


You know, the whole idea that you can pay strangers and get your money back through PayPal if they don’t deliver. Well, it seems that PayPal doesn’t really like it if you use this feature too often or any other PayPal features that cost them money. But, at least here, PayPal has a financial incentive to ban your account. 


The other reason they allegedly ban accounts is a lot more shady: political beliefs. A common theme amongst individuals who were banned from PayPal is controversial political opinions. You know, journalists, political commentators, media personalities, and so on. And you don’t have to be famous for this to apply to you either. 


In fact, a simple controversial post on any social media platform could get your account banned. I know that sounds a bit tin foil hatty but it was literally part of PayPal’s official policy. 


In October of 2022, they updated their policy to include the following. "The sending, posting, or publication of any messages, content, or materials" that "present a risk to user safety or wellbeing" or contain "misinformation" is prohibited. What counts as misinformation is at PayPal's "sole discretion." Violating the policy will allow PayPal to deduct $2,500 from the offending user's account for each infraction. 


After receiving a bunch of backlash, PayPal would immediately backtrack on this policy and say that it was posted by accident. Was this actually an accident? Well, you can be the judge of that. All we know as the public is that PayPal bans a lot of accounts without any clear explanation. Pretty questionable behavior for a company that’s trying to democratize finance, but while morally shady, it’s not illegal. 


As a private company, they have the right to deny service to whoever they want for whatever reason they please. But, the thing they seem to forget is that consumers have the exact same right. They can choose to do business with whomever they want for whatever reason they please, and it seems that the tides are shifting against PayPal. 


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A FUNDAMENTAL FLAW

With all of that being said, it seems that all of PayPal’s concerns and issues can be condensed down into one fundamental flaw which is that they’re a bank that’s not a bank. PayPal loves to position itself as the modern banking alternative, but the issue is that they don’t offer any of the perks that come along with having a real bank account. 


As much as we love to hate big banks like Chase and Wells Fargo and Citi and what they represent, there’s really no arguing against the service they provide. They’re on top of the fraud and scam game not because they care about you but because they’re required to be due to banking, fraud, and money laundering regulations. 


Virtually every traditional bank that you can think of has zero liability protection meaning that if you get a fraudulent charge, you can call them, and they’ll usually immediately reimburse you. I would even take it one step further and bet money that whatever issue you have with PayPal, if had the same issue with a big bank, there’s a far higher likelihood that big bank will actually resolve the issue correctly because they’re not just a payment processor, they’re a bank. 


This is not to say that I support big banks, but rather to show that not being a bank and not being held to the same standards is the root cause of basically all of PayPal’s issues. Not to mention, you don’t get FDIC insurance or interest through PayPal either. 


Despite all these drawbacks though, PayPal has remained popular because it was simply the only widely accepted convenient payment solution. But, that’s rapidly changing due to the big banks. In 2016, all the big banks basically got together and decided that they wanted to take down PayPal, so they created Zelle. 


If you’re not familiar with Zelle, it’s basically just a clone of PayPal that’s directly integrated into these bank’s online portals. They also offer a standalone Zelle app if you prefer that. And using Zelle, you can send payments to anyone else who’s also enrolled using just their phone number or email. And the money will be directly transferred from your bank account to their bank account usually within seconds. 


And you wanna guess how much it costs? 0. It’s absolutely free. I don’t want this to be some sort of ad for Zelle, but the results speak for themselves. Zelle already processes nearly $200 billion worth of transactions every quarter or just under $800 billion per year. PayPal processes roughly double that but Zelle is only available in the US, and other countries are coming out with similar solutions. 


For example, India has Rupay which literally processes billions of transactions per year. Now I do want to note that services like Zelle usually come with absolutely no consumer protection. But given that PayPal doesn’t really shine in that department anyway, you might as well just use Zelle and save on the fee especially if you’re paying someone you know. 


Conclusion

The rise of Zelle has yet to really hit PayPal’s bottom line, but with such terrible consumer sentiment, its own founders turning on the company, a stalling user base, and the rise of such alternatives, it’s really only a matter of time until PayPal finally gets what they have coming.


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