Difference between revisions of "PayPal"

Revision as of 21:23, 23 April 2018

PayPal Inc.

"PayPal Inc." Site Type Financial Services Launch Date December 1998 Status Active Product Line Payment Services Credit Cards Platform Financial Services Website www.paypal.com

PayPal Inc. is an American e-commerce service which enables users around the world to send and receive payments and money transfers over the internet. Initially founded in 1998 by Max Levchin, Peter Thiel, Luke Nosek and Ken Howery, the company was then taken public in 2002 and has since grown to become the world's most widely used online payment service, processing nearly 8 million transactions daily. ^[1] In addition to servicing online financial transactions between individuals, PayPal also operates as an intermediary between online businesses and customers. As of 2017, PayPal has nearly 200 million registered users and supports transactions in 25 different currencies. ^[2] The company is headquartered in San Jose, California and has 18,000 employees. PayPal Inc. has undergone numerous transformations since its founding through its expansion of services and product offerings which have had an influential impact on the advancement and overall landscape of the entire online payment industry. Some of the procedures and practices exhibited by PayPal have been met with substantial ethical criticism and consumer complaints.

History

PayPal initially was founded under the name Confinity in 1998 as a company that developed cryptography services used in the making of Palm Pilot payments. It was not until 1999 that the company officially launched and adopted the name PayPal as a money transfer service. The following year, Confinity merged with Elon Musk’s company X.com, adopted its name and began solely focusing on further research and development into the PayPal product. After a corporate restructuring in 2001, the company decided to change its name one last time to PayPal Inc. since many of its surveyed consumers found the name X.com to be too vague.

With only 600 employees and $50 million in revenues during the final quarter of 2001, PayPal Inc. decided to file for an IPO and was taken public in 2002 with share prices of $13. Upon becoming a public company, PayPal Inc. was soon acquired by the online auction and shopping website eBay for $1.5 billion and quickly grew to become the primary method of payment used on the site as eBay gradually phased out its own competing payment service Billpoint. ^[3] PayPal Inc. remained a subsidiary of eBay until 2014, when eBay and its board decided to separate the two companies in order to allow PayPal Inc. to exist as its own individual public company. ^[4]

Ethics in the History of the Company

PayPal was founded under practices that have raised controversy. The evidence for this section is referenced from the recent book, Brotopia: Breaking Up the Boys' Club of Silicon Valley.^[5]

Founders and Early Employees of PayPal

Peter Thiel, CEO of PayPal, has gained press for his statements against diversity and his campaign contributions and public support of Donald Trump's successful presidential campaign.

Hiring Practices

Collectively, the early team at PayPal was referred to as the PayPal Mafia. This culture was defined as "men posing as gamblers with cigars, drinks, and a deck of cards." This branding has been hypothesized to have further brand successful technology start-ups as lead by a certain type of group of men. The ramifications of this kind of culture extend beyond possibly discouraging women from getting involved in start-ups but also are seen in popular culture such as on the HBO television program, Silicon Valley.^[6]

It has been documented that PayPal primarily hired from within their network from Stanford. In fact, the founders defended their practices of hiring individuals who were extremely similar to themselves, being white or Asian, attending an elite higher educational institution, age, and gender identity (man). Thiel and other founders have described PayPal as a meritocracy and have promoted meritocratic-based hiring practices in speeches and press. Merit, however, is, much like all of socially-constructed concepts, based on unconsciously biasing behaviors, and has been shown to propagate gaps in wealth, hiring, and leadership across gender, ethnic, and other identity lines. According to research, implementing strictly perceived "meritocratic" practices has been shown to make companies, organizations, and corporations "more gender biased, awarding promotions and extra money to men over equally performing women."

Services

Since its initial inception as the payment service used for eBay transactions, PayPal Inc. has vastly expanded and branched out into multiple other product lines offering an array of different and more advanced services. Using the $60 million raised during its first IPO, PayPal Inc. launched an aggressive and unique marketing campaign to expand its user base. The company created a referral program which offered $10 to each new user who signed up for PayPal and added a credit card to their account as well as $10 to the person who referred them. This strategy used until late 2003 was a tremendous success and led to a 7-10% daily growth rate in customers and ultimately increased the PayPal user base from 100,000 members to over 100 million by 2010. ^[7] Today, PayPal offers numerous a wide array of services.

Peer-to-Peer Services

PayPal supplemented its original business model, consumer to vendor transactions, by allowing individual users to send and receive online payments between one another. It currently advertises the ability to "send money to family and friends at no extra cost" with a PayPal account. ^[8]

PayPal Credit

PayPal Credit is a virtual line of credit for consumers to use at all of the online vendors that accept PayPal. The PayPal Credit service essentially emulates the same experience of online shopping with an ordinary credit card.

PayPal Here

PayPal Here is a mobile payment system intended for small businesses similar to the Square Reader. The system includes an app for businesses to process and track its sales as well as a physical card reader which plugs into the headphone jack of a smart phone or tablet.

PayPal Mobile

PayPal Mobile was launched in 2004 and allows PayPal users to make and receive payments via text messages on their mobile devices.

PayPal MasterCard

The PayPal MasterCard is a debit card which can be used by the holder to withdraw funds from their PayPal account at any MasterCard ATM.

PayPal Application

The PayPal app affords users around the world with the ability to make mobile payments to other PayPal users. The application also provides users the opportunity to make mobile payments to participating vendors.

PayPal My Cash

The PayPal My Cash is a card that allows users to transfer physical money into their PayPal account. Users can purchase and send money with My Cash, all without using a bank account or a credit card. The users can transact $20-$500 dollars at a time.

Paypal Digital Gifts

PayPal also provides PayPal Digital Gifts, a system through which users can purchase and send gift cards to hundreds of brands online. ^[9]

Venmo

Venmo is an app owned by PayPal Inc. as a result of the acquisition of Venmo's previous parent company, Braintree, for $800 million in 2013. ^[10] Venmo is similar to the PayPal app in servicing payment transactions between individuals. In recent news, PayPal started making money from Venmo by allowing merchants to accept Venmo as a payments option. Merchants such as food delivery services and ticket vendors are now able to accept Venmo payments from customers who place orders through Venmo’s iPhone apps. Although, these merchants are charged a small fee for each transaction. ^[11]

Paypal CEO has quoted that "the secret sauce of Venmo is turning a transaction into an experience,” adding that Venmo was the third most popular mobile app downloaded last year. “It’s almost ubiquitous among millennials.” ^[12] Venmo has a unique social media aspect to it by posting the users' transactions chronologically in a news feed style, which can explain its appeal to the younger demographics.

PayPal Buyer Protection

If you don't receive the item that you ordered, or it shows up significantly different from its description, you could qualify for Purchase Protection, and PayPal will reimburse you for the full purchase price plus any original shipping costs, subject to terms and limitations. If you are charged for a transaction that you didn't make, let PayPal know within 60 days, and they will cover you under the buyer protection.

Purchase Protection covers all eligible purchases where PayPal is used, as well as payments made through our website. To take advantage of Purchase Protection, PayPal requires, among other things, that PayPal accounts be kept in good standing and ask that a dispute be filed within 180 days of your purchase or payment.

Things that are covered within PayPal Buyer Protection are when you buy a book and receive something different, bought something advertised as new yet it is used, something came in the mail with missing parts, or if an item is damaged during shipping.

Ethical Concerns

Since its conception, PayPal has been under continuous scrutiny for some of its unethical practices. Many of its features and services have been labelled as controversial due to the novel mechanisms the PayPal.com platform introduced to the consumer financial service industry. The processes the company employs to mitigate issues including fraud protection, financial security, and information privacy have been major points of contention. These practices have sparked mainstream media attention on a number of occasions.

Fraud

Identity thieves target PayPal because it is an Internet-based service that records financial transactions and the private information of its users; the nature of the service makes it a lucrative and feasible target for hacking and phishing schemes. Using social engineering techniques like phishing, attackers have been able to steal user login credentials by fooling users into logging into their account through a fraudulent website. ^[13] After such attacks occurred, the attackers illegally executed withdrawals from a large number of stolen accounts. To address this problem, PayPal implemented a fraud detection system named "Igor" that uses the latest artificial intelligence technology to detect fraudulent transactions through pattern recognition. PayPal now has only a loss rate of 0.5% of transaction dollar-volume, which is currently the lowest rate in the industry. ^[14]

Authority over Transactions

PayPal has frequently been criticized by its users whose accounts are frozen and transactions withheld. Users occasionally publish irate stories detailing their experiences with transaction holds and their communications with PayPal's support service. PayPal's rationale for restricting these users' accounts is often not made public, however the company is legally classified as a "deposit broker," a status which entails a host of legal regulations which govern how the company's platform processes and handles transactions among its users. ^[15] Thus, when PayPal's customer service department is not transparent, many users are left to speculate about how their use of the platform caused their transactions to be delayed. Additionally, because the company assumes ownership of its users deposits rather than simply serving as the intermediary between two parties, the company has a degree of legal leeway to manage transactions as it sees fit.

In 2010, Moises Zepeda sued PayPal for closing his account and pocketing his money and interest in the company ^[16] Additional complaints from other consumers extended the legal process for almost seven years.^[16] Many of these consumers claimed their accounts were closed for alleged suspicious activity. Due to a lack of damage and flawed legal citations, a settlement was reached in March of 2017.^[16] This $4 million settlement resulted in a modification of PayPal’s reserve and hold practices.^[16]

In April of 2016, users noticed a specific phenomena on PayPal's Venmo service in which transactions labeled by users with the word "ISIS," made in reference to the Islamic State of Iraq and the Levant and often made in jest, were automatically held by the platform. ^[17] Users who tried to make such a transfer received automated emails notifying them that their transaction had been flagged and withheld. Upon contacting Venmo's customer service division, many users were informed that their funds could not be returned. The company cited "Foreign Asset Control" legislation, which is intended to prevent enemies of the state from leveraging American infrastructure to further their causes. ^[17] As a result, affected users criticized the bias introduced by the company's illicit transactions filters, which they claimed lacked consideration of the context of the users' humour.

Security

PayPal uses data encryption technology, two-factor authentication, firewalls and information access controls in order to keep personal information collected from its users secure as well as to prevent unauthorized alteration or disclosure of this data. Additionally, when a transaction is made through PayPal the recipient is unable to see any sensitive financial information such as bank account or credit card numbers. However, in May 2014 PayPal affiliate eBay suffered one of the largest data breaches in history on 148 million of its customers. The information which was compromised in the breach included the customers' name, encrypted password, email address, physical address, phone number and date of birth. ^[18] This begs the question as to how secure the PayPal security measures really are and whether there is a possibility of a potential data breach in the future.

In January 2016, a cybersecurity expert and PayPal user discovered that has account had been hacked due to the poor authentication protocols in place with PayPal customer service. His account had been accessed by simply providing customer service with the last four digits of his SSN and a former credit card number over the phone. The account was shut down by PayPal after the hackers attempted to wire money to an email account associated with an ISIS group member. ^[19]

Privacy

When a user signs up for PayPal and creates an account using their email address they must consent to providing PayPal with personal information to use the service. PayPal states that this is necessary in order to help personalize and improve the user's experience as well as to provide targeted marketing and advertising. The personal information collected includes: financial information such as credit card and bank account numbers; personal information such as date of birth, SSN, or national ID number; contact information such as address, email and phone number; as well as web information such as data about the pages you access, computer IP address, device ID or unique identifier, device type, geo-location information, computer and connection information, mobile network information, statistics on page views, traffic to and from the sites, referral URL, ad data, and standard web log data.

While all of this information is available for its consumers to view in the PayPal privacy policy, many of the users do not read this and therefore do not realize the extent to which their personal information is being recorded and tracked. PayPal additionally uses cookies, web beacons, flash cookies and HTML 5 cookies to operate across all browsers which can monitor activity on the users device even when they are not using PayPal's website or services. Furthermore, PayPal clearly states that it does not currently respond to 'Do Not Track' browser signals so there is not an easy way to opt out of these surveillance methods. PayPal also retains the personal information collected from your account "for a certain period of time" even after the account has been closed if the user wishes to no longer use the service. ^[20]

References