Why PayPal finds your money of interest

eBay's PayPal division will start holding payments for up to three weeks for certain "high-risk transactions" next month. Some sellers are pissed, but it's totally legal. PayPal is not a bank. It is not insured by the FDIC — the government program which insures deposits should a bank go under. PayPal is a "deposit broker," meaning the company pools deposits from all its users and holds them in bank accounts under PayPal's name, collecting interest on the money — and deposit brokers are not federally regulated.

PayPal "has gone to great pains to ... not be a bank" according to Christa Quarles, managing director of Thomas Weisel Partners. Some users think the company is holding the cash to make money on the interest, but it's a small enough amount — an estimated $10 million a quarter, tops — that it doesn't make a significant impact on eBay's bottom line. (If it hadn't taken a massive writeoff for its Skype purchase last year, eBay would have made more than $1 billion in net profit.) Instead, PayPal's move is likely an attempt to reduce fraudulent purchases by keeping money in de facto escrow until the purchase has been finalized. Sellers may not like it, but the alternative — PayPal letting sketchy transactions go through, and then recovering the money later — sounds worse.

(Photo by AP/Paul Sakuma)

1:40 PM on Wed Feb 27 2008
By Jordan Golson
691 views
4 comments

Comments

MarkTheMarketWatcher at 02:21 PM on 02/27/08
Reply by Email
*

First eBay talks of ending the practice of allowing sellers' to hold buyers hostage via feedback. And now this?

It looks like eBay is the tech company truly aspiring to not be evil.
macbeach at 03:09 PM on 02/27/08
Reply by Email
*

eBay is the tech company aspiring to be history.

Maybe it's just me, but I've never found anything on eBay that I couldn't get new for almost the same price, or used by going to a local junk shop where I can actually examine the merchandise first.

There is probably a place on the Interweb for some free services like Craigslist to facilitate such local transactions (paid for by ad revenue, or a membership fee).

All the eBay transactions I know about consist of people buying some old junk from someone else's garage thousands of miles away, finding they can't use it after all, and stashing it in their own garage for possible later use or resale. eBay and UPS make out like bandits and we all pretend we are saving the planet somehow.
Magister at 10:56 PM on 02/27/08
Reply by Email
*

@macbeach:

I've bought and sold several good things on eBay. Granted, I'm not a shopaholic and I only really go there for a specific purpose, but I've sold lots of older technology to people who knew what they were getting, I've liquidated merchandise and though I haven't bought a whole lot, right now I'm reroofing my house using a reconditioned pneumatic hammer that I got for half the price.
leenme at 01:17 PM on 04/20/08
Reply by Email
*

ebay is nothing more than a big garage sale for those who find it annoying to spend hours setting up and breaking down for days at a time in which the buyers want to pay no more than a dime or two for items neatly placed and cared for. It is handy to post a picture and hope to get a hit or two. Ebay is the new way to have a yard sale for everyone without inviting strangers to your home. How could anyone not appreciate ebay? There is the option of buying or bidding on new and used items, people usually get what they pay for. I have purchased many times (50+) from ebay with only one bad experience. There is just as much risk buying from retail stores, i.e. defective items, missing parts, I am always refunding or exchanging. Online at least I am in the comfort of my own home on days I do not wish to be around rude, unhappy people with sour faces. Ebay is also good for those hard to find collectibles...I have purchased a few myself. Without Ebay and other sites like it, I would never have found these things. Those other sites though, you must pay a membership fee , what a waste of money if you never find anything you want. There is the real risk. For those who do not like ebay, there is always retail. Ebay also saves me money and gas, I get what I want and get off the internet. At the store, I see too many ohter things and empty my wallet and or bank account. Thumbs up for Ebay.