PayPal, the on-line payment service long associated with its owner, e-Bay, made the headlines in the Business Section of the New York Times, and like many companies these days, not in a good way. It’s actually not the first article about the company’s questionable fraud security practices, but it is certainly the biggest so far.
Similar to most credit card companies, PayPal uses a system of complex mathematical algorithms looking at millions of transactions, attempting to detect a pattern that might indicate fraud. In one example cited, if you had a series of transactions of $30, and a transaction of $3,000 appeared, the algorithm would kick it out, and PayPal would automatically freeze the account. The cash would still flow into the owner’s account, but the rub is that PayPal will then refuse to release the money, often for months’ at a time.
Victims noted in the articles range from a $1 million account who services bike and foot races, to other small business owners and individuals, start-up companies, even charities.
Katherine Hutchinson, senior director of risk management at PayPal, said “situations where people had to wait to reach their funds were rare, affecting about 2 percent of accounts.” PayPal claims 113 million accounts, world-wide.
Four points come immediately to mind:
1) PayPal sees nothing wrong with having 4 million dissatisfied customers?
2) According to the piece, some customers have even notified PayPal of expected sudden spikes in planned activities. Their calls went unheeded, their accounts frozen anyway.
3) PayPal claims it has hundreds of mathematic scholars with Ph.D’s working on software to prevent fraud. Perhaps the money would be better spent on humans who could make these fraud prevention decisions? Its long been proven that machines do not make better abstract decisions than humans.
4) Many feel PayPal is guilty of the more sinister motive of keeping the money in their hands for longer periods to earn additional returns, at customers expense
PayPal is Not Alone:
We all have our own horror stories with large corporations, from dealing with automated phone systems that put the caller into such a maze, the only way out is to hang up, to cable companies incessant rate increases and blackouts, telephone installers who never show up, even after the phone company insists on a 4 hour window for a 10 minute job.
What companies lose sight of in their insular worlds, is overpriced companies providing customer-abusing service always, without exception, attract new companies, new competitors.
A Few Examples:
Cable companies like Comcast have lost market share to satellite companies for some time. But now, Time Warner Cable, Direct TV and Dish, who routinely lead “The worst companies for customer service” list, are all losing in the total subscriber metric over this last quarter. These infamous customer abusers are losing out to the internet, where streaming network content is not only free, but usually devoid of commercials.
And internet providers are not immune to putting their foot in their mouth, and chewing vigorously. Netflix infamously raised its rates 60% a year ago, and handled it as badly as any company possibly could. over 800,000 subscribers promptly left the service. Its explanation, attempts to split the business into two parts, even the proposed web site were PR disasters. Ultimately, Netflix published a mea culpa and price rollback. Meanwhile, companies such as RedBox and Amazon quickly stepped into the turmoil, offering better services at cheaper rates. Netflix may recover, but their stock will never again sell for $300 a share.
Customers of large credit card companies like Citi, Bank America and Chase, for example, are voting with their feet, leaving the overpriced, fee-laden companies for member owned Credit Unions and smaller, lower cost banks. The groundswell against outlandish fees rose to such a fever pitch last year that Bank America was forced to roll back a $5 debit card fee.
Perhaps its the huge influx of MBA’s with no practical experience flooding the corporations with their “this is the way the world should operate” mentality; perhaps it’s company executives protected in corporate wombs and impervious to conditions consumers face today. Whatever it is, corporations seem more inclined these days to step on their tongues, and customers more inclined to run, not walk, to greener pastures where their business is appreciated.
Is a new wave of consumerism being formed? A recent article in Bloomberg BusinessWeek says no. I disagree. Time will tell.
But that’s just me…
- PayPal Antifraud Measures Are Extreme, Some Users Say (nytimes.com)