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Security
How well are merchants and customers protected through PayPal? Quite well, it appears to me.
First, the order form that pops up to take the customer's credit card uses PayPal's SSL (secure sockets layer) secure server. With PayPal the merchant doesn't need a secure server, only a standard website. PayPal provides the secure order form.
PayPal members, both sellers and buyers, are also covered by PayPal's contract with Travelers Insurance for up to $100,000 for unauthorized withdrawals from the PayPal account. Be aware, however, that US buyers who make purchases using money in their PayPal account rather than paying via PayPal directly by credit card don't have the same legal protections that they would if they make the purchase with a credit card. Buyers who encounter problems with a purchase can, however, submit a Buyer Complaint Form that will prompt an investigation by PayPal that could result in the suspension of the merchant's PayPal account unless the merchant cooperates. PayPal doesn't have much tolerance for bad sellers or buyers.
In this policed environment, merchants are fairly well protected against credit card fraud. PayPal allows merchants to specify exactly what kinds of payments they will and will not accept: non-confirmed addresses, unverified users, international users, unconfirmed bank accounts, Web Accept and instant purchase payments, and payments using the "Send Money" capability on the PayPal website. This allows merchants to determine their own levels of risk. Elsewhere, you won't find such features outside of the fairly pricey fraud detection systems offered as options by payment gateways.
PayPal offers merchants protection against chargebacks so long as they follow certain guidelines that include: shipping only to a "confirmed address" in the US and obtaining proof of shipment for tangible goods. This chargeback protection doesn't extend to buyers outside the US, nor is it offered for downloadable software, information, or entertainment, but it is a good start -- better than any merchant account or bank will give you! I'm told PayPal is working on confirming addresses of members outside the US to extend their offer to international merchants and customers in the future.
Another way that PayPal protects both sellers and buyers is by displaying information on how many PayPal transactions the seller or buyer has participated in. The idea is that a buyer who has made a lot of purchases via PayPal probably isn't a crook (at least they haven't been reported to PayPal for fraudulent activity). That can be quite helpful in preventing fraud. Merchants may not want their competitors to know how many sales they're making -- and can opt-out of this feature -- but the trust it builds with customers seems worth the loss of business privacy.
As I talk with small business people, the only criticism I've heard of PayPal is that some have had their accounts suspended arbitrarily. That didn't leave a very good impression. I asked Vince Sollitto about this. He told me that last summer and fall cyberthieves, especially in Russia, learned how to use PayPal to get money from stolen credit cards. They would steal credit card numbers, then use PayPal to send funds from these PayPal accounts funded by these credit cards to another PayPal account where they would withdraw money from the system. The effect on the fledgling payment transfer industry was disastrous; many of PayPal's competitors went out of business as a result. Sollitto said that, in the thick of combating this, any PayPal account that had received payments from a stolen credit card was frozen. Now it's pretty well sorted out, he says. As a result of their anti-fraud measures, the fraud rate within PayPal is only 0.45% compared to about 2.6% of all credit card based transactions on the Internet.
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How well are merchants and customers protected through PayPal? Quite well, it appears to me.
First, the order form that pops up to take the customer's credit card uses PayPal's SSL (secure sockets layer) secure server. With PayPal the merchant doesn't need a secure server, only a standard website. PayPal provides the secure order form.
PayPal members, both sellers and buyers, are also covered by PayPal's contract with Travelers Insurance for up to $100,000 for unauthorized withdrawals from the PayPal account. Be aware, however, that US buyers who make purchases using money in their PayPal account rather than paying via PayPal directly by credit card don't have the same legal protections that they would if they make the purchase with a credit card. Buyers who encounter problems with a purchase can, however, submit a Buyer Complaint Form that will prompt an investigation by PayPal that could result in the suspension of the merchant's PayPal account unless the merchant cooperates. PayPal doesn't have much tolerance for bad sellers or buyers.
In this policed environment, merchants are fairly well protected against credit card fraud. PayPal allows merchants to specify exactly what kinds of payments they will and will not accept: non-confirmed addresses, unverified users, international users, unconfirmed bank accounts, Web Accept and instant purchase payments, and payments using the "Send Money" capability on the PayPal website. This allows merchants to determine their own levels of risk. Elsewhere, you won't find such features outside of the fairly pricey fraud detection systems offered as options by payment gateways.
PayPal offers merchants protection against chargebacks so long as they follow certain guidelines that include: shipping only to a "confirmed address" in the US and obtaining proof of shipment for tangible goods. This chargeback protection doesn't extend to buyers outside the US, nor is it offered for downloadable software, information, or entertainment, but it is a good start -- better than any merchant account or bank will give you! I'm told PayPal is working on confirming addresses of members outside the US to extend their offer to international merchants and customers in the future.
Another way that PayPal protects both sellers and buyers is by displaying information on how many PayPal transactions the seller or buyer has participated in. The idea is that a buyer who has made a lot of purchases via PayPal probably isn't a crook (at least they haven't been reported to PayPal for fraudulent activity). That can be quite helpful in preventing fraud. Merchants may not want their competitors to know how many sales they're making -- and can opt-out of this feature -- but the trust it builds with customers seems worth the loss of business privacy.
As I talk with small business people, the only criticism I've heard of PayPal is that some have had their accounts suspended arbitrarily. That didn't leave a very good impression. I asked Vince Sollitto about this. He told me that last summer and fall cyberthieves, especially in Russia, learned how to use PayPal to get money from stolen credit cards. They would steal credit card numbers, then use PayPal to send funds from these PayPal accounts funded by these credit cards to another PayPal account where they would withdraw money from the system. The effect on the fledgling payment transfer industry was disastrous; many of PayPal's competitors went out of business as a result. Sollitto said that, in the thick of combating this, any PayPal account that had received payments from a stolen credit card was frozen. Now it's pretty well sorted out, he says. As a result of their anti-fraud measures, the fraud rate within PayPal is only 0.45% compared to about 2.6% of all credit card based transactions on the Internet.
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Guide created: 03/06/07 (updated 03/11/08)
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