PayPal

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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. 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 allows transactions in 25 different currencies. The company is currently 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. The procedures and usage of PayPal have been met with substantial ethical criticism, consumer complaints, as well as involvement in several class-action lawsuits.

History

PayPal initially was founded under the name Confinity in 1998 as a company which developed cryptography services used for making Palm Pilot payments. It was not until 1999 when 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 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. PayPal Inc. remained a subsidiary of eBay until 2014, when eBay and its board decided to separate the two companies allowing PayPal Inc. to become its own individual public company.

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. Over this time period, PayPal began offering numerous new services including:

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.

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 which started in 2004 provided PayPal users a method of making and receiving payments via text messages through their cell phones.

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 App

The PayPal App allows users around the world the ability to make mobile payments to one another as well as 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.

Venmo

Venmo is an app owned by PayPal Inc. as a result of the acquisition of Braintree for $800 million in 2013. Venmo is similar to the PayPal app in servicing payment transactions between individuals, however it does not allow for transactions from individuals to vendors. Additionally, Venmo has a unique social media aspect to it by posting the users' transactions chronologically in a news feed style. PayPal also provides PayPal Digital Gifts, a system to buy and send gift cards online for hundreds of brands.

Ethical Concerns

Since its conception PayPal has continuously been scrutinized for its ethical practices and many of its features and services have been controversial for straying away from traditional standards. Issues such as fraud protection, financial security and information privacy have been major points of contention and have sparked mainstream media attention on a number of notable occasions.

Fraud

Because PayPal is an internet based service, specifically one used for financial transactions, the company has continuously been a means for fraudsters to conduct scams to gain users' sensitive information through phishing in order to conduct identity theft. In addition to this, PayPal has also had issues with hackers gaining unauthorized access to PayPal accounts and continuously transferring money out of them. At one point in its early stages, PayPal was earning gross revenues of $14 million per year but was losing $10 million per month due to international hackers. In order to combat this problem PayPal used artificial intelligence technology to create a fraud detection system named "Igor" to algorithmically detect transactions that were potentially fraudulent through pattern recognition. PayPal now has only a loss rate of .5%, the highest in the industry.

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.