PayPal is an e-commerce business allowing payments and money transfers to be made through the Internet. It serves as an electronic alternative to traditional paper methods such as cheques and money orders. PayPal performs payment processing for online vendors, auction sites, and other corporate users, for which it charges a fee. On 3 October 2002, PayPal became a wholly owned subsidiary of eBay. Their corporate headquarters are in San Jose, California, at eBay's North First Street satellite office campus. The company also has significant operations in Omaha, Nebraska; Dublin, Ireland; and Berlin, Germany. Beginnings
PayPal, Inc., as it is known today, is the result of a March 2000 merger between Confinity and X.com. Confinity was founded in December of 1998 by Max Levchin, Peter Thiel, and Luke Nosek, initially as a Palm Pilot payments and cryptography company. Confinity launched its milestone product, PayPal in late 1999. X.com was founded by Elon Musk in March of 1999, initially as an Internet financial services company. Both companies were located on University Avenue in Palo Alto. At Confinity, many of the initial recruits were alumni of The Stanford Review, also founded by Peter Thiel, and most early engineers hailed from the University of Illinois at Urbana-Champaign, recruited by Max Levchin. On the X.com side, Elon Musk recruited a wide range of personnel, many of whom remain at PayPal today, such as Amy Klement and several other members of the senior team.
To block potentially fraudulent accesss by automated systems, PayPal devised a system (see CAPTCHA) of making the user enter numbers from a blurry picture, which they coined the Gausebeck-Levchin test; according to Eric M. Jackson, author of the book The PayPal Wars, PayPal invented this system now in common use; though, there is evidence AltaVista used a captcha as early as 1997, before PayPal existed.
eBay watched the rise in volume of online payments, and realized its fit with online auctions. eBay purchased Billpoint in May 1999, prior to the existence of Paypal. eBay made Billpoint the official payment system of eBay, dubbing it "eBay Payments", but cut the functionality of Billpoint by narrowing it to only payments made for eBay auctions.
For this reason PayPal was listed in several times as many auctions as Billpoint. In February of 2000 there were approximately an average of 200,000 daily auctions advertising the PayPal service while Billpoint (in beta) had only 4,000 auctions. By April of 2000 there were more than 1,000,000 auctions promoting the PayPal service. PayPal was able to turn the corner and become the first dot-com to IPO after the September 11 attacks.
Acquisition by eBay
In October 2002 PayPal was acquired by eBay. PayPal had previously been the payment method of choice by more than fifty percent of eBay users, and the service competed with eBay’s subsidiary Billpoint. eBay has since phased out its Billpoint service in favor of retaining the PayPal brand. Most of PayPal’s major competitors have shut down or have been sold; Citibank’s c2it service closed in late 2003, and Yahoo!'s PayDirect service closed in late 2004. Western Union announced the December 2005 shut down of their BidPay service, but subsequently sold it in 2006 to CyberSource Corporation. Some competitors which offer some of PayPal’s services, such as Wirecard, Moneybookers, 2Checkout, CCNow and Kagi, remain in business.
PayPal’s total payment volume, the total value of transactions in Q4 2006, was $11 billion, up 36% year over year. The company continues to focus on international growth and growth of its Merchant Services division, providing online payments for retailers off eBay.
As of the end of Q4 2006, PayPal operates in 103 markets (including China) and it manages over 133 million accounts. PayPal allows customers to send, receive and hold funds in 17 currencies worldwide. These currencies are the U.S. Dollar, Canadian Dollar, Australian Dollar, Euro, Pounds Sterling, Japanese Yen, Chinese RMB, Czech Koruna, Danish Krone, Hong Kong Dollar, Hungarian Forint, New Zealand Dollar, Norwegian Krone, Polish Zloty, Singapore Dollar, Swedish Krona, and Swiss Franc. PayPal operates locally in 13 countries.
Residents in 48 new markets can now use PayPal in their local markets to send money online. These new markets include Indonesia, the Philippines, Croatia, Fiji, Vietnam and Jordan. A complete list can be viewed at https://www.paypal.com/worldwide.
In China PayPal offers two kinds of accounts:
• PayPal.com accounts, for sending and receiving money to/from other PayPal.com accounts. All non-Chinese accounts are PayPal.com accounts, so these accounts may be used to send money internationally.
• PayPal.cn accounts, for sending and receiving money to/from other PayPal.cn accounts.
It is impossible to send money between PayPal.cn accounts and PayPal.com accounts, so PayPal.cn accounts are effectively unable to make international payments. For PayPal.cn, the only supported currency is the Renminbi (RMB, ISO: CNY), whereas PayPal.com supports Canadian Dollar, Euro, Pound Sterling, U.S. Dollar, Australian Dollar, New Zealand Dollar, Swiss Franc, Hong Kong Dollar, Singapore Dollar, Swedish Krona, Danish Krone, Polish Zloty, Norwegian Krone, Hungarian Forint, Czech Koruna.
PayPal’s operation center is located near Omaha, Nebraska and PayPal’s international headquarters is located in Dublin, Ireland. The company also recently opened a technology center in Scottsdale, Arizona.
In March 2002, two PayPal account holders separately sued the company for alleged violations of the Electronic Funds Transfer Act (EFTA) and California law. Most of the allegations concerned PayPal's dispute resolution procedures. The two lawsuits were merged into one class action lawsuit (In re PayPal litigation). An informal settlement was reached in November 2003, and a formal settlement was signed on June 11, 2004. The settlement requires that PayPal change its business practices (including changing its dispute resolution procedures to make them EFTA-compliant), as well as making a $9.25 million payment to members of the class. PayPal denied any wrongdoing.
In August 2002, Craig Comb and others filed a class action against Paypal in Craig Comb, et al. v. PayPal, Inc.. They sued for alleged mishandling of customer accounts and customer services, with regards to Paypal's user agreement. Allegations included the up-to 180 day restriction on deposited funds until disputes are resolved, forcing customers to arbitrate their disputes under the American Arbitration Association's guidelines (a costly procedure), and requiring users to file claims individually, restricting class action suits. The court deemed these actions unconscionable and ruled in favor of Comb.
According to PayPal's little-updated "About Us" webpage, "PayPal has received close to 20 awards for technical excellence from the internet industry and the business community at large - most recently the 2003 Webby Award for Best Finance Site and the 2003 Webby People's Voice Award for Best Finance Site."
They have won awards since, notably the "Best Finance Services Site" and "People’s Voice Award" at the 2006 Webby Awards.
• PayPal's Seller Protection policies do not cover intangible goods or goods sold outside of eBay that are "not as described" (PayPal will investigate items sold on eBay for "not as described" buyer complaints).
• In various countries, PayPal only offers a "send only" service, which allows users to send money from, and not receive money to the account. PayPal has recently announced an "amendment to the user agreement" that enables various countries to receive money as well, beginning from September 14, 2006.
In the United States, PayPal is licensed as a money transmitter on a state-by-state basis. Although PayPal is not a bank, the company is still subject to and adheres to many of the rules and regulations governing the financial industry including Regulation E consumer protections and the USA PATRIOT Act.
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