October 4, 2000 6:50 PM PDT

PayPal cracks down on business customers

Money-transferring site PayPal ignited a new round of debate among its customers after setting new limits for its free service.

Later this month PayPal will begin requiring customers who receive $500 or more in credit card payments during a six-month period to open fee-based business accounts. PayPal, acquired by privately held X.com in March, said the enforcement of the policy will get business customers to help pay some of the costs.

Last month, PayPal began notifying high-volume customers that it expected them to open a business account if they were operating a business. PayPal is one of the largest person-to-person payment services, with 3.6 million customers.

"We determined one of the best ways to determine whether an account was being used for business purposes was if it received a high volume of credit card payments," said PayPal spokesman Vince Sollitto. "Like any enforcement rule, it is probably a little over-inclusive and under-inclusive, but we believe it is fair and equitable."

Person-to-person payment services are exploding on the Web. But while the industry is seeing a flood of interest, many sites are wrestling with how to turn customers into cash. Part of the problem for the industry is the high costs.

X.com chief executive Elon Musk has said that charges for credit card transactions are among the company's highest cost. PayPal charges businesses a 1.9 percent and 25 cent transaction fee. The service is still free for customers who use it for personal transactions, such as buying goods, lending money or paying bills.

But on Web message boards, several people posted messages complaining that PayPal had gone back on promises it made when it launched late last year.

"(PayPal) gave it away free until they got us hooked and then started charging," one person said on AuctionWatch.com's message board.

Part of the problem for some PayPal users is that they don't consider themselves businesses.

Many of the people complaining about PayPal's policy change on message boards such as AuctionWatch and AnandTech were auctioneers who said they sell on eBay as a hobby or on a part-time basis.

"eBay is a national garage sale for a lot of folks," said one person who posted on AuctionWatch. "Garage sales aren't run for profit. They're run to get rid of stuff, clear out, make room for new stuff, make back a little of the money you paid for your stuff."

That's not how PayPal sees it. If customers are making profits using PayPal's service, then they should help pay some of the costs. Many customers agreed.

One person on AuctionWatch came to PayPal's defense. "Paying customers are necessary in order for a service to stay in business. Is that so hard to understand?" he said.

Some analysts see the requirement as a key to PayPal's success.

"PayPal and X.com won't achieve success unless they demand a level of commitment from their customers," said KeenanVision analyst Vernon Keenan.

 

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