Paypal's New Policies
In the past few months, Paypal has made some major changes to their fee structures, developer integrations, and they way they handle risk management on seller accounts.
1.) First off, Paypal now has the ability to place a reserve on a Paypal account if they deem it to be higher risk. A reserve is money that Paypal holds for a certain period of time, and then released back to the seller after the time has elapsed. A rolling reserve, which is what Paypal described, would hold a certain percentage of revenue, until the elapsed time, where it would be automatically released back into the Paypal account.
Reserves have existed with traditional merchant accounts since the beginning of credit card processing. They are a way for a processor to hedge against chargebacks if a merchant shows behavior that may result in fraud or financial liability to the processor.
Ironically, I think a reserve system, something generally considered to be disruptive, could actually help Paypal's service. Hopefully, it will reduce the account holds that Paypal is notorious for giving out without notice or reason.
2.) Paypal now offers free person-to-person (P2P) transfers*. This is a huge change in the way that you send money in Paypal. As long as the money is being sent from a bank account or Paypal balance, to a relative or friend, there is no fee to send a P2P transfer from any account. The catch here is that personal accounts are now charged fees for P2P transfers unless they specifically state that the transaction is going to a friend. I haven't hear how closely Paypal is going to scrutinize P2P transactions, but it's hard for me to imagine that they would make a move that did not end in more revenue. This P2P transfer change also applies to international transfers. While not completely free, there is now only a small cross-border fee for sending money to another country.
Additionally, the sender can chose to pay the fee if they are send money funded with a credit card. Traditionally, the receiver was always charged the fee, as with normal credit card transactions. Paypal is also allowing money to be sent to people without Paypal accounts.
3.) Paypal is making the largest changes by opening up their platform to developers. Their new API's are currently in a Beta state. You can find more information at: http://www.x.com...(Must have been a low cost domain...) . Thus far Paypal is the only processor to create an international API.
Paypal's API is also allowing a feature called aggregating. The best way to explain aggregating, is that it is exactly what Paypal is doing, accepting payments for another person or company. Aggregating is a feature most needed by companies that act as platforms for independent providers. A site like: GetAFreelancer.com is a perfect example. GetAFreelancer.com would accept payments into an escrow, subtract their fees, and then pay the developer once the work is complete. Aggregating is closely scrutinized by Visa and MaterCard, so it's unclear to me how far Paypal will go with this new service. Paypal's benefit is that they provide their own conflict and chargeback management, so it might work.
Judging by many of the new features, this is in response to Amazon payment's far superior API and development capabilities. Nevertheless it is a strong and long-overdue move from Paypal.
2 Comments
Bryan Johnson says:
Regarding Adaptive Payments, I think the big story in this is the following: the major card brands such as Visa, MasterCard, American Express and Discover have done an exceptional job over the years building a global network of cardholders and accepting merchants to facilitate commerce. It’s now a global standard. They have built substantial barriers to entry for others (look at Revolution Money who has raised around a $100 million to try and penetrate the U.S. market).
Collectively, the internet, globalization, social networks, and mobile phones have been shifting the payments landscape and reducing these barriers. It’s the wave that Paypal and other innovators have been riding and has turned what was a potential threat and minor scratch for the card brands into an open wound.
Braintreepaymentsolutions.com/blog/PayPal-Adaptive-Payments/
mmurthy says:
As you might recall x.com is the company that acquired PayPal in March 2000. X.com is not some low-cost domain (which I am sure you referred to in jest)
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