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To: StocksMan who wrote (20276)10/29/2004 9:30:50 AM
From: StocksMan  Read Replies (1) of 20297
PayPal is sorry, but sorry isn’t good enough

PayPal offers some sellers a fee-free day, but many of the online payment service’s disgruntled users are not consoled.

October 28, 2004

PayPal dubbed Thursday “Thank You Day,” but the company’s irked customers called it “Thanks for nothing.”

To make up for millions of dollars that merchants couldn’t get to during the company’s five-day outage earlier this month, PayPal, purchased by eBay in 2002, announced that U.S.-based clients would not pay transaction fees as they funneled money through the largest online payment service in the world.

Many of the small retailers, non-profits, and eBay merchants - a total of 56.7 million users worldwide - said they lost access to unquantifiable sums of money and couldn’t do business during PayPal’s technical glitch.

“Recently, the PayPal site had technology issues that may have hindered your ability to conduct business using PayPal,” an announcement on PayPal’s site stated. “To apologize and to show appreciation to our PayPal customers for your continued business, PayPal is going to credit PayPal customers for PayPal transaction fees incurred on October 28, 2004, between 12:00:00 a.m. PDT and 11:59:59 p.m. PDT.”

The gesture was not well-received in many parts of the PayPal universe.

“This is an insult to the PayPal users’ intelligence,” said Tim Hendricks, an eBay seller based in Torrance, California. “To make up for Paypal’s issues, us users must make a payment or accept a payment with the time frame allowed to receive any compensation for Paypal’s huge mistakes. Let’s get real about this issue. How about refunding every sellers’ listing fees…for the almost two weeks the PayPal system would not work properly?”

About 630,000 transactions push $50 million through PayPal’s system every day, and PayPal gets to keep 2 to 3 percent of that amount plus an additional fee per transaction. Approximately 30 percent of PayPal’s business comes from international sellers and buyers who were not eligible to participate in “Thank You Day.”

American PayPal clients said their foreign counterparts weren’t missing much and that the timing of “Thank You Day” seemed geared to benefit PayPal, not the clients.

“Don't think some brainiac didn’t sit around analyzing the best day of the week to offer this to have the least impact on the bottom-line,” said Jeff Smith, another eBay seller.

PayPal officials declined to answer questions about the timing or the strategy behind “Thank You Day,” but said client complaints are to be expected during technical problems.

“We understand that people are obviously upset by this,” said PayPal spokeswoman Sara Bettencourt. “We know these site issues were a big inconvenience to our customers. That’s why we’re doing this, to thank our customers for their patience and to apologize to them.”

PayPal doesn’t have to worry about losing disgruntled customers. Even if PayPal clients wanted to take their business elsewhere, there is no equivalent alternative.

“Drop PayPal? I’ve thought about it,” wrote an eBay seller who identified himself as Autochains. “I would have to say 75 percent of my buyers use PayPal, so if I were to just stop accepting them, I would think I’d lose a good percentage of my business.”

Industry analyst Steve Weinstein said the angry clients are a “vocal minority” who will not affect PayPal’s business in the market. In 2004, the number of PayPal’s users increased by 61 percent over the previous year. In the third quarter of this year, eBay, based in San Jose, California, had net revenues of $805.9 million.

“eBay built an incredibly efficient platform for a lot of sellers and has created an opportunity for them to do business,” said Mr. Weinstein, an analyst with Pacific Crest Securities. “There are no viable alternatives to sellers - for larger sellers who take credit cards, sure - but this is not an opportunity for anyone to step in on PayPal’s area.”

This week, Yahoo! announced the shutdown of its person-to-person online payment service Pay Direct due to a lack of users. Analysts said PayPal’s popularity contributed to PayDirect's demise.

Mr. Weinstein said that because of the relative youth of eBay and PayPal, problems are an inevitable part of growing up.

“These aren’t systems that have been in place for years and years and years,” Mr. Weinstein said. “I understand why people are upset, but it is still the best platform. Despite this problem, eBay and PayPal are still the best opportunity for smaller merchants.”

While analysts opined about growing pains, PayPal clients ranted on eBay discussion forums, their venom directed straight at PayPal.

“Talk about a slap in the face,” one user posted. “I had no access to my money when I needed it most. So far I’ve had one PayPal transaction today. How is that going to make up for that horrible weekend?”
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