PayPal, and for that matter all the alternative payments providers, operate with little federal regulatory oversight. Is that smart? PayPal’s revenues at more than $4 billion put it in the upper tier of banks by income, and the question of whether it should be, in fact, regulated like a bank, was raised on LinkedIn.
The argument goes something like this:
With the high crime rate of stolen credit card numbers and cyber theft, restitution with companies like PayPal, Square, etc take valuable time, all while the consumer is in the negative on their funds, paying interest on fraudulent charges and more. Customer service is null with these companies, most connection is via email all offering a higher rate of frustration. Absolutely, these companies have a lower interchange rate, processing fees and more; however, where do you draw the line? …
With $4 billion in earnings last year, PayPal has become one of the largest “banks” in the world without insured deposits, a charter, examinations, disclosure or other typical oversight afforded banks, except the requirements to provide transparency to the investing public. Local check cashing stores have it more difficult.
Valid points. But the answer to the question of whether PayPal and its ilk should be federally regulated is … maybe. Here’s why:
We all agree that the less financial regulation the better, so the central question is not whether PayPal is of a particular size, but whether PayPal — or rather payments companies as a group — in and of itself requires regulatory oversight.
Stating the obvious first, we all know that the Federal Reserve is quite focused on payments today. The Fed’s March report on mobile banking and mobile payments exemplifies this most recently. Therefore, at least on some level, the Fed is clearly “watching” the sector, PayPal included. That’s something. Additionally, PayPal has notable oversight from state financial services regulators. Again, regulators are watching.
Beyond that, and I think most crucially, when it comes to payments the market is a far more brutal regulator than the federal government ever would be. If even a small number of consumers, say, lose their stored cash or don’t get paid via PayPal Here, they will ditch PayPal so fast eBay’s shareholders won’t have the time to dump their holdings. In fact, within the last year, there was a bit of an online outcry about PayPal’s shoddy customer service. PayPal wasn’t “screwing” anyone — it just wasn’t replying to customer requests in a timely manner. Oh, what an uproar! I have no doubt that PayPal’s business would crash to $0 if it started “screwing” people.
So before we jump to the conclusion that PayPal and the other payment providers should be federally regulated like banks, let’s first determine whether there is sufficient risk to the consumer/user to merit the additional oversight, which would demand taxpayer dollars, let’s not forget. My determination: maybe.
Hans, thanks. I can’t say I knew that — but I was referring to the US market only.
Pay pal freezes bank accounts of eBay merchants who have a 100% approval rating no complaints!!! If you sell on ebay your account will eventually get frozen by pay pal and that’s a fact.I am not going to jump through flaming hoops to get pay pal to unfreeze my account ,when I did nothing wrong.They are a bank that is not regulated as such.I will never do business with pay pal they are the biggest scumbags in the world.Ebay has an illegal monopoly which forces you to use it’s “payment” system pay pal and illegally excludes competition.
If you have ever fallen victim to some of paypal’s activities you would realize that it does need regulated. I was a seller and sold an item. The buyer wanted a refund but opened a case on me by ebay. Paypal “froze” the money available which would have refunded the buyer.
The only funding source was a debit card on paypal. I would not give paypal my checking account routing nor account number to them. Previous bad experience was paypal. The debit card was lost and the bank cancelled it. Somehow, paypal fraudulently got my bank routing number and checking account number and deducted the refund from my checking account without my knowledge and authorization. I had funds in my paypal account to pay for the refund. If an average person tried using another person’s bank account they would be prosecuted and either put in jail or probation.
The money in my checking account was basically stolen. I will no longer deal with these crooks. Paypal needs some type of banking oversight. They transfer billions of dollars a year and not just to the US but overseas. We are living in a new era which includes high tech crimes. We have become so careful about money transfers after 9/11. How about paypal and it’s illegal freezing seller accounts for no reason. If anyone including a bank, Walmart, Target would freeze payments to their vendors they would be out of business. Somehow, paypal gets away with all of this activity. If you work you get a paycheck. If you sell something on ebay. That’s still work. Modern day crooks.
Wrong question to ponder on. Better question is: is PayPal stealing off of customers by not being regulated as a bank. They clearly are stealing.