EBay’s highly criticized fee changes—lower listing prices but a 67% increase in seller fees—kicked in last week, and next month eBay’s payment service PayPal will start holding certain deposits for up to 21 days if PayPal considers the transaction “high risk.” PayPal earns interest on any money it holds—and it’s perfectly legal because PayPal is a deposit broker and not a bank. If you do find your money stuck in “high risk” detention, there’s only one way you can attempt to earn money from the delay, and that’s by sticking it in PayPal’s Money Market Fund.
Although PayPal earns interest on the money it holds, it’s not very much when compared to the rest of the company’s revenue streams. PayPal doesn’t release data on how much it earns in interest, but outside analysts estimate it’s less than $10 million per quarter—”a drop in the bucket” compared to the $1.8 billion PayPal earned in 2007.
None of that matters for sellers, though, who will now run the risk of losing access to funds for up to three weeks, even though they still must ship the sold item.
What is sparking reactions ranging from annoyance to panic among some of eBay’s sellers is the company’s criteria for determining what transactions fall into the “high-risk” category. Factors beyond sellers’ control, including the number of “feedback” comments they have from previous buyers and how many of those comments are positive, can trigger the freeze.“It’s like a bad dream, really,” said Dana White, an eBay seller who lives outside Ocean City, Md., and deals in used clothing, shoes and accessories. “I’m a small seller. All I need is two negatives in a 30-day period, and they will hold funds.”
If you started selling within the past six months, have a low number of feedbacks, have had too many instances of negative feedback in the recent past, or are selling a high-priced item or charging a high shipping & handling fee, you could earn the high risk designation.
PayPal’s representative tells CNN Money that the one way you can put that held money to use for yourself is to enroll in PayPal’s Money Market Fund (download a PDF of the prospectus here):
PayPal’s Pires said accountholders should be aware that they have the power to collect interest for their own use on delayed funds. It’s as simple as enrolling in the company’s PayPal Money Market Fund, Pires said.For enrolled accountholders, any funds earmarked for a hold are diverted into the Money Market Fund rather than PayPal’s corporate bank account, Pires said. The dividends earned are credited to user accounts on a monthly basis.
“Every U.S. accountholder has the ability to invest in the Money Market Fund,” Pires said.
PayPal’s Money Market Fund is run by Barclay (BCS)’s Global Investments. No minimum balance is required, and the fund’s current interest rate is 3.46%.
The other solution, CNN Money notes, is to abandon PayPal (and eBay along with it) and go with an alternative e-commerce solution—they list five potential candidates on their website.
“What PayPal does with your money” [CNN Money]
“EBay’s PayPal funds freeze plan draws fire” [CNN Money]
RELATED
Basic Fee Changes [eBay]
“eBay raises seller fees 67% on the cheapest items < $25.00" [eBay Forums]
“PayPal’s 21-Day Hold Policy for eBay Sellers” [Auctionbytes]
“Putting The PayPal 21 day Hold Into Perspective” [Skip McGrath]
“5 PayPal alternatives” [CNN Money]
PayPal Money Market Fund [PayPal]
(Photo: St0rmz)
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The number one priority of eBay and PayPal’s Safer Payments initiative is to make eBay a better place to buy and sell – a responsibility we at PayPal take very seriously. While there has been much discussion around the merits of the 21-day hold policy, it is important to recognize that many banks, merchant accounts and online marketplaces like Amazon have similar rules.
This blog post suggests that the eBay/PayPal policy will affect a large number of sellers, when in fact it won’t. I would also like to clarify why a seller might experience a hold.
Only a very small percentage of transactions will be held. Further, most funds that do get placed on hold are likely to be released much earlier than 21 days — by confirmation of the item’s delivery to the buyer -or- by the seller’s receipt of positive feedback from the transaction.
Established eBay sellers with a good track record should not be concerned. PayPal will not hold payments for eBay items if sellers:
– Have been an eBay member for more than 6 months, and
– Have a total Feedback score greater than 100, and
– Have a buyer satisfaction percentage of 95% or better.
This initiative is designed to improve the customer experience on the eBay marketplace. We think that it gives buyers increased confidence that their purchases will go more smoothly and that they will continue to return to eBay – which will ultimately grow sellers’ businesses and keep the eBay community strong.
For additional information, we encourage all sellers to look at the conditions for when PayPal will hold funds: [pages.ebay.com] as well as our blog post addressing the changes: [www.thepaypalblog.com]
-Michael Oldenburg
PayPal Corporate Communications
Nice to have someone from PayPal to clarify things, it brings in the human touch.
My worst PayPal experience happened today. PayPal put on hold a payment that I received from an eBay sale 10 days ago. I have shipped the item to the buyer’s confirmed address (via UPS through PayPal), the buyer has received it and left me a positive feedback.
Now eBay sent me this email telling me that they need to conduct an investigation on this transaction, without telling me why. The email says do not reply to it (cause no one will read it?), instead log on to your PayPal account and provide information to help the investigation. The funny thing is, there is no way for me to respond to this “investigation” within my Paypal account. I simply couldn’t find a way to respond to it, not to mention that I wasn’t given the reason in the first place.
So I had to call PayPal…the first 2 CSRs could not tell me what this investigation is about and what additional information I am supposed to provide PayPal with. So I was transfered to a supervisor, who finally said there was a problem with the payment.
At this point, I asked why I am even involved in the “investigation” when the information PayPal need from me (when and where the item was shipped to, and whether the buyer received it..etc) is already in my account. After all, I have followed the requirements for the seller’s protection policies. The supervisor admitted that it’s not my problem and I will get the fund released back to me. I asked if they could release the money immediately since everything is cleared on my part, she said I would still need to wait until they “finished the investigation”. In a word, “we know it’s not your fault, but we still want to hold your money”
I don’t mind the eBay or PayPal fee increase. Actually, I prefer selling on eBay over Craigslist for the reasons that I’d rather not spending my time answering phone calls and meeting up with strangers. I am lucky the amount is not huge. However, it’s things like this that PayPal do to its honest customers that make them one of the worst companies. Too bad eBay + PayPal is still monopolistic.
Mr. Oldenburg, I hope your company will fix your problematic business practices. By the way, I met all the seller qualifications you mentioned above.
The number one priority of eBay and PayPal’s Safer Payments initiative is to generate additional revenue and screw customers as you see fit.
Michael Oldenburg, the company you’re a slave to is full of crap, and you have been maliciously screwing good people for years on end.
100 feedbacks is a **heck** of a lot of feedbacks; i bet the vast majority of regular joes out there have less than 100fb + 95% requirements to not have funds held.
@PayPal:
Funny, “Michael”, when a customer has a service issue,you guys cease to exist,but when some principled discussion about PP starts getting tossed about, you’re johnny on the spot. How about resolving customer issues as fast as you spin bullshit ?
@Paypal- Come to think of it, I never got my refund on the “KING OF THE DEATHMATCH” DVD that I never recieved… Think 4 years is long enough?
Something tells me that a press hungry State Attorney General is going to go after the eBay/PayPal beast sooner rather than later.
@homerjay: Not in Japan they didn’t. Sometimes it’s nice to have bank accounts and a friend in foreign countries.