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  1. #1

    Question PayPay fraud--Is it worth accepting?

    Hey All,

    I saw there was another PayPay thread currently open, but it's not really the same question, and I don't want to derail the interesting conversation in progress. Besides, of my 800+ posts, I can only recall ever starting a (very small) handful of threads, so I don't want to waste a good opportunity like this.

    My question is for hosts (or any merchants, for that matter) accepting PayPal. Site5 currently does not, and never has, accepted PayPal. Honestly it isn't a prohibitive issue for all but an incredibly small minority--people are usually happy to pay via credit card instead.

    However since we will be including support for PayPal billing in the billing system we're writing, it will be a very simple matter to start accepting this form of payment.

    Despite this, I'm a bit hesitant to accept PayPal payments due to the high fraud rates that have been reported by other merchants. With a credit card, there are several ways of verifying the authenticity of the transaction (CVV2, AVS, bank verification, etc.) before processing the order. With PayPal, it would seem that if the purchaser has the right email address/password, you have little choice but to accept PayPal's word that the transaction is valid. Please correct me if I'm wrong about this--I haven't done very in-depth research on their fraud-prevention and merchant chargeback policies.

    So the questions are:

    1) Do many people choose to pay via PayPal instead of credit cards?

    2) Is there any reason that you would recommend *not* accepting PayPal as a form of payment?

    3) Are PayPal fraud/chargeback rates higher than normal credit card orders?

    4) Is PayPal a merchant-friendly organization when it comes to addressing chargebacks, or will they pull the "we're freezing your account and hold your dog hostage" move if there's a problem?


    Any feedback on the matter is greatly appreciated. Please don't feel obligated to answer ALL of the questions--just share any thoughts you may have!

    Thanks!
    Matt Lightner - http://www.mattlightner.com/
    - First initial to the last name at the mail service provided by the world's largest search engine
    - Founder and CEO (Former) Site5.com, sold in 2008
    - Really honestly wants to be a good WHT citizen but can never remember all the correct etiquette. Mods, sorry in advance

  2. #2
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    1) For us I'd say 40% paypal, 60% credit cards.

    2) I don't have any, we've used it from day one.

    3) Paypal fraud is a bit higher from what I've seen, but paypal seems to be very good at catching it lately. Last time there was a fraudulent payment they canceled the order within an hour of the order taking place. As far as actual chargebacks, we've had very few of them, so it's pretty much equal between Paypal and Credit Cards.

    4) Paypal will not freeze your account because of a chargeback, but they will simply refund the payment that is being disputed 99.9% of the time. There is very little you can do to try and fight a chargeback with paypal.

    Overall, we've had very little fraud since we implemented Varilogix phone verificatoin, so for us we can see absolutely no problem with accepting either form of payment. Paypal's fees very low, compared to some 3rd party processors and just about the same as a merchant account, your only problem is that they aren't very cooperative. with chargebacks.

  3. #3
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    IMO, its better to treat Paypal as just another payment source, credit cards pay as well right away if they have the right numbers, same as if they have the username/pass for Paypal.

    By checking the order information you can catch 99% of my fraud. Such as does the ordering IP match the billing address? Phone valid? Does the email appear phishy and at hotmail or so on? Just apply the same fraud catching tools you use with credit cards to Paypal. Are you guys trusting Paypal more as a payment source instead of the amount of skeptisim to credit cards?
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  4. #4
    I tend to just e-mail the paypal address, if it's fraud, then you generally get someone on the other end who doesn't have a clue that they ordered something

  5. #5
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    Paypal is fairly reliable. Millions are currently using it and some do prefer it over credit card payments. I just depends on you.

    Did you clientel ask for you to accept paypal?
    David

  6. #6
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    From my experience, over 90% of customers I had wanted to pay with Paypal. Some did so because they preferred to keep control of who had their credit card details - can't blame them, what with all the scammers nowadays.

    Out of 18 months in the business I only had one issue with Paypal, and it was because a customer's account had been comprimised, so they pulled back all payments the customer had made that day. Issue was resolved within a couple of weeks and I believe that customer is still with the company.
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  7. #7
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    It all depends on your business plan. When we started, we only accepted checks / Paypal. And now all of our customers pay us by credit card or EFT. No one uses Paypal that I know of now.

    As far as fraud - that will happen anyway. Paypal does its best to help but you always have to use your gut and look at everything else that is given to you when a new client signs up.

    One thing you have to look at Paypal is that some users will be under 18. Unfortunately there is not a true way to verify the age of people when they sign up with Paypal and this gives minors an ability / power / responsibility that they should not have

  8. #8
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    Originally posted by Corey Bryant
    One thing you have to look at Paypal is that some users will be under 18. Unfortunately there is not a true way to verify the age of people when they sign up with Paypal and this gives minors an ability / power / responsibility that they should not have
    That doesn't have to do with fraud, though. The issue now is more of people with other peoples' accounts through phishing schemes. We've caught all fraudulent PayPal attempts pretty easily, however.

  9. #9
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    But if you are your user to abide by your TOS, accepting a credit card from them helps to verify that are hopefully eighteen years of age to enter into a biding agreement (even though you cannot use a credit card to verify age).

    And usually the hackers are sometimes younger any way, thinking they can get away with it. (which they usually do at times.)

  10. #10
    This is the reason I do not use a automatic account creation script! When someone pays with paypal I get in touch with them every time before creating the account and accepting payments! If it is fraud they will probey act funny.

  11. #11
    Here's what I do. When a customer wants to use PayPal, I have them send the payment from logging in to the account AFTER I have verified the order already.... works for me - and I dont have to worry about subscription screw ups!

    Word to the wise....TRUST BUT VERIFY!


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  12. #12
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    Same here.. we verify all orders before accepting Paypal payment.

  13. #13
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    1) Do many people choose to pay via PayPal instead of credit cards?
    Due to our market, I'd say about 95% pay through PayPal. Our merchant account gets very little use, less even than mailed checks and money orders.

    2) Is there any reason that you would recommend *not* accepting PayPal as a form of payment?
    None that I can think of. Many people view PayPal balances as "extra" unaccounted income so are freer in spending it.

    3) Are PayPal fraud/chargeback rates higher than normal credit card orders?
    In five years of using PayPal (from way back in the X.com days) we've had zero chargebacks.

    4) Is PayPal a merchant-friendly organization when it comes to addressing chargebacks, or will they pull the "we're freezing your account and hold your dog hostage" move if there's a problem?
    When it comes to virtual products like hosting they're very merchant friendly. Their terms of service don't cover virtual products or services so chargebacks are very few and far between, usually with extreme circumstances such as purloined PayPal accounts or the infamous AngelNetworkz fiasco.

    On a side note, PayPal is becoming more and more recognized as a payment option outside of the virtual world. Another of our businesses involves plastic packaging and several of the manufacturers/importers/distributors we deal with happily accept PayPal payments now.

    That said, we do not offer automated registration. All new hosting signups are verified prior to acceptance.
    It's time to kick back, pop in a From Autumn to Ashes CD, and relax.....

  14. #14
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    Originally posted by CactusCounty
    2) Is there any reason that you would recommend *not* accepting PayPal as a form of payment?
    None that I can think of. Many people view PayPal balances as "extra" unaccounted income so are freer in spending it.
    And that is exactly how I usually view mine. I have people that might want to send me a few bucks for helping them with something so I have my Paypal account as mad money

  15. #15
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    For last few months more then a half of our PayPal orders is "fraud" or "possible fraud" which is means when we trying to contact customer who paid us - never get any reply, we just have to refund money after 30 days to avoid chargebacks.

    Better DONT accept paypay at this moment until they start verify buyers MORE carefully then today (may be phone authorization can help).

  16. #16
    Paypal is very simple and userfriendly. Much less hassle.

  17. #17
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    Re: PayPay fraud--Is it worth accepting?

    Originally posted by Site5-Matt


    1) Do many people choose to pay via PayPal instead of credit cards?

    2) Is there any reason that you would recommend *not* accepting PayPal as a form of payment?

    3) Are PayPal fraud/chargeback rates higher than normal credit card orders?

    4) Is PayPal a merchant-friendly organization when it comes to addressing chargebacks, or will they pull the "we're freezing your account and hold your dog hostage" move if there's a problem?
    1) My company has a decent size customer base and 60% are currently using PayPal. Approximately 39% are using credit cards and less than 1% are using mail-in payments.

    2) I have no reason to not recommend PayPal. We have accepted thousands of transactions through it and probably close to $100k. Not one significant problem in the 5+ years we have been using it.

    3) Amazingly, we've had one credit card chargeback to date. We tend to get about a 50/50 rate of fraud purchases via PayPal / Credit card orders. Fraud is pretty easy to spot and PayPal usually catches it themselves pretty quickly.

    4) We have never been threatened with our account being frozen. The phone reps have been extremely helpful. We have only had three disputes over the past 5+ years and thousands of transactions and have won each one to date IIRC.

  18. #18
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    From what I understand, there is much more fraud through credit card than there is through PayPal for us. It's pretty easy to catch fraud on PayPal anyway.

    Thanks,
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  19. #19
    Thanks to everyone who commented--excellent info and suggestions!

    We've made the decision to move forward with PayPal support, so I'll know exactly who to blame if things explode.
    Matt Lightner - http://www.mattlightner.com/
    - First initial to the last name at the mail service provided by the world's largest search engine
    - Founder and CEO (Former) Site5.com, sold in 2008
    - Really honestly wants to be a good WHT citizen but can never remember all the correct etiquette. Mods, sorry in advance

  20. #20
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    Good luck with it Matt. I doubt you'll regret the decision.....

    We just look at PayPal as one more option for accepting payments. Even though it's mostly a credit card processor it's evolved into something much more and now it's not atypical to see sites advertising that they "accept Visa, MasterCard, American Express, money orders and PayPal".
    It's time to kick back, pop in a From Autumn to Ashes CD, and relax.....

  21. #21
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    Re: PayPay fraud--Is it worth accepting?

    Originally posted by Site5-Matt

    So the questions are:

    1) Do many people choose to pay via PayPal instead of credit cards?

    2) Is there any reason that you would recommend *not* accepting PayPal as a form of payment?

    3) Are PayPal fraud/chargeback rates higher than normal credit card orders?

    4) Is PayPal a merchant-friendly organization when it comes to addressing chargebacks, or will they pull the "we're freezing your account and hold your dog hostage" move if there's a problem

    Thanks!
    1. About 25 - 30%
    2. Absolutely no reason not to...and many reasons to accept.
    3. Paypal fraud is almost non-existent. Obviously, you would put those orders through the same fraud checks as cc orders (voice verify, etc.).
    4. Never had a chargeback. They briefly froze our account once because of suspicious activity. A quick phone call to them rectified the situation.

    We've processed five figures ($xx,xxx) a month via Paypal for a very long time and I can't say enough good things about them. There have been maybe 3 glitches over the years, quickly solved with a phone call, and MUCH MUCH MUCH less hassle than dealing with various merchant accounts and credit card processors. If I thought we could get away with only accepting Paypal...we would.

    --Tina
    Last edited by Tina J; 06-21-2005 at 08:16 AM.
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  22. #22
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    I've been using paypal for about 4 years now, and have done over $100,000 in transactions. For shared/reseller hosting which is what Site5 offers, it is very easy to catch fraud. When a customer signs up just look at their IP that they used, and see if it resembles where they are actually located (as filled out in address info). If the IP is from vietnam, always cancel it, it is 99.9999% of the time fraud. If the IP doesnt really match, but is sorta close, no big deal, they could be using a proxy. If the IP doesn't match make sure their paypal account is verified. Also if it's a customer from the US, and their paypal account says Non-US, thats a no no. Also check to see if their paypal e-mail is a free one or not. If you're getting things like [email protected]. There is a high risk for fraud there. If you want to make it even less risk for fraud, make sure each customer that signs up, has a confirmed paypal address, matching that of the signup. And make sure the account is verified. Following these steps, i've had merely 2 fraud signups get past me in my whole life, wihch paypal simply reversed, and I deleted their account. Suprisingly i've gotten about 500% more fraud accepting credit cards than I have with paypal. Just need to be cautious and make sure everything checks out.

  23. #23
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    For us, fraud checking is so very simple. Call the number on the order form.

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  24. #24
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    I do not think Paypal's fraud rates are very high... I got like 15,000 payments through them and maybe like 15 were fraudulent/charged back. One out of 1000.

  25. #25
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    I get about 60% of my sales through paypal, and I take fraud measures such as fraudcall to protect against fraud
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  26. #26
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    many people really prefer paypal.

    as for fraud, it depends on your customer base. if you have a quality audience, you will notice that you will get next to none fraud.

    if your audience is in rather 'fishy' communities, if i may be so bold, than it is possible that you might get a hard time with paypal.

    however, whatever your clientele is, it is sure that some script kiddies will try to do some frauds 'they think' that will put you out of business by ordering your biggest package with the most expensive addons with the longest termed, most expensive domain registration, then waiting for 29 days, and then reclaiming the payment via paypal. this they must be possibly contriving, will put 'the other webhosting kiddie with his father's credit card out of business for good'. (you will have spent the amount the kiddie 'lent' you 1 months ago, and your paypal acc will be on the shorts.

  27. #27
    Originally posted by Tebow
    I get about 60% of my sales through paypal, and I take fraud measures such as fraudcall to protect against fraud
    What is fraudcall?

  28. #28
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    calling the customer probably.

    but again that is no sure measure because they might give any phone number compliant with their faked address and ip

  29. #29
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    Hello,

    We are actually a customer of the Varilogix FraudCall product. It can be integrated with any billing system, and it is a call verification system that calls the customer during the order process (or you can do manual call). We have been using it since August of last year and have yet to receive 1 chargeback from PayPal or our credit card merchant. The thing is with call verification is that fraudulent people arn't likely to enter in their phone number, so they may enter someone elses number and if they do even proceed to that length, whoever picks up the phone will decline it as they didn't place the order, which is why it's guarantee of 99.9% 'real legit signups' is so high. If your real customer approves the call, then it will redirect to PayPal, if not, it will say phone call denied, or user error (depending on the configurations of the billing system you are using) There are two main phone verification providers.

    1. FraudGate - I was a customer of theirs for about 3 weeks, and did not like it at all. It takes a while to configure (which I never did do) and I had to continue to e-mail support just to set it up (which I never got accomplished) because the support department never explained exactly what features do what. Off that, the lady who calls the customer sounds muffled and sounds like one of those ladies on the phone where you call a 800 number by incident but it's a chat line for people to meet other people. it sounds horrible. There billing is also horrible. They charge you for even declined calls, or any calls placed period, PLUS you pay a monthly fee. Like I said, I left within weeks.

    2. Varilogix FraudCall - One of the best, plus their technology is probably 10x's better than FraudGate, as you get more than what you get with them. Currently even WITHOUT AFIS, it's a good product. It performs the same tasks as FraudGate, except everything is easy to configure (the matter of entering a company name, phone # that will appear on Caller ID, and simple customizations). As well, the voice is MUCH clearer and it takes the Package name, company name, dollar amount, and puts it into a sentence for your potential customer to either deny or approve the transaction. You pay only for accepted calls, being that any error or declined call is considered a free call. there is no monthly fee, no monthly minimum, and their system is completly text to speech meaning that anything you send through their system can be spoken to your customer, you do not need to setup menus. They have an API that is avaliable for use in any online billing software or system.

    I hope this enlightens everyone on WHT who thinks PayPal is a risk.
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  30. #30
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    Funny thing just happened to me this morning. Although these are measures to prevent from receiving fraud orders, my PayPal account was just hacked (personal PayPal) and someone used over $400 and charged it to my credit card. Thing is, I NEVER give my password out, or at least this one as it's my personal account, so this makes me question PayPal's own security.
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  31. #31
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    about 10 to 15% of our new customers use paypal, probably because we have a very large international client base.

    We simply call each and every customer after signup.. whether paypal or credit card... Works well for us
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  32. #32
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    Our way of doing things is to have an order submitted but give no payment links until after we've got their basic order in the system. Once there, we'll do IP lookups, we may ask the customer a few random questions, phone them up and then finally give them a payment link. We know it p*sses off the real sign-ups to have to answer stupid questions that aren't really necessary but the fakes rarely respond to the order at all and we bin the sign-up in the system. Possibly turning away real customers? yes. However we've never had a chargeback or any fraud payments as of yet and don't intend to receive one
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  33. #33
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    I used to use PayPal almost extensively however then my credit card sales grew, and I considered the small amount of profit or popularity I might lose from not accepting PayPal, and decided to ditch PayPal. The experience I have had with them has been horrible. I had a verified account, and took every security measure recommended to me from PayPal, yet received a large payment which was supposably "fraudulent", they locked my account, and demanded $350. Personally I don't think that makes any sense, and I do believe they are up to no good. I've lost all trust in them, thus I no longer use them. I feel like my company has not suffered at all, in fact believe it has improved due to the fact that I will not be losing large amounts of money by having my merchant account locked, tampered with, etc.

  34. #34
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    You MUST put in proper anti-fraud security measures in place, this includes manual call verification, or a service for call verification. Even with a credit card, you can always get a fraudulent order.
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