A Virtual Terminal & PayPal Payments Pro Warning

[AugyTek]

Hi all,

I don't normally post in the forum seas, but I am doing this so that future small business owners will know to stay away from the Virtual Terminal and PayPal Payments Pro services.

I had signed up to use these services, and after about 2 days, today I received an email with a phone number and verification code because they needed additional information.  The guy I talked to on the phone was nice enough, and I answered all his questions, which all seemed to be fairly legit questions about my brick and mortar business.

I do have an e-bay account, but I do not use it for anything but purchasing tools and other hard to find antiquidated equipment parts for use in my shop. 

My business concept is a green concept business that attempts to eliminate all forms of wasteful paper use by using digital methods instead.  So the Virtual Terminal is an ideal solution to that.   But I digress.

The guy I spoke to on the phone said that everything looked good and that there probably wouldn't be any problem getting my account started.  Great I thought.

About 45 minutes later I received an e-mail stating that my Payments Pro Account was active.  It also said:

You're approved for PayPal Payments Pro with a rolling payment reserve. This means that we're going to start holding 100% of your daily sales in reserve for 30 days.

I'm sorry... what!?  I double checked the headers just to see if it was a Phish.  It wasn't.  They really wanted to hold all of my transactions in NET 30 terms.  The guy on the phone DID NOT DISCLOSE THIS POSSIBILITY, NOR MAKE ANY MENTION OF A RESERVE, PERIOD.

I am a Verified Business Premier Account holder as well,  so its not like I am some overseas fly by night company with no history.

So after a little digging, I found this number:  <removed>.  Called it, waited for the prompt, and said virtual terminal. 

After a short wait, a woman got on the phone with me, and I explained the situation politely, and that I would like to cancel this service.   She processed the request, said it would be about 24-48 hours before it was completed.

I asked if I would be charged the $30, and she said no.

So we shall see what transpires, and if the rolling reserve will still be attached to my PayPal account as some stories I have found say.   I am posting this as a warning to other small business owners, DO NOT use this service and avoid the headache I may potentially be facing.  My account has a perfect history, and is one of the highest accounts you can have with PayPal with all the bells and whistles.    

I will be making future arrangements to NEVER transact with PayPal again.  I am completely offended that they would even talk about that with the tens of thousands of dollars I have run through this account over the years, and the money they have made off of it.  I feel like I have been treated like a common criminal after being a loyal customer for years, and I would like to take this opportunity to help other small business owners avoid this treatment, and pre empt any suffering caused by a very unscrupulous business practice of what used to be the world's preferred way to pay.

I understand about protecting your business financially, I studied and trained for years on the methodology of it.  At no point did I EVER encounter anything about putting your clients or customers out to do so.  That chapter must have been added later on.

If you are like me, and need an online payment processor still, I recommend Helcim.  They are completely transparrent about their processing fees, and their entire site is dedicated to explaining the process of what they do, and you even get a demo of the virtual terminal prior to the least bit of commitment, other than your email address.  I was looking at them at the same time as the Virtual Terminal and PayPal Paments Pro, and went with my "loyal" brand out of loyalty.

If you want something a bit lighter, and ONLY do small type transactions (100 or less) then I would recommend SQUARE.  Beware though, if you do larger than 100 dollar transactions, they will do the same thing as PayPal, and hold the funds for infinitely longer, so they can make more interest on it.

This is a very shady and illegal method of making money off of other people's money.  It is federally prohibited to profit off of what are called transistional funds by abnormal delay of processing those TF's, acting as an interim party for holding or evaluation, or redirecting those funds to a place other than the intended source.  In the old days, they called this Racketeering and Embezzlement.  Now I guess it's called "rolling reserve".  (Also, the mafia of the old was FAR better at doing it than PayPal is, and really didn't hurt or afflict honest businesses that didn't get in bed with them, unlike how Hollywood portrays it.)

 Essentially although worded differently, PayPal claims that it's your money. 

THAT IS A LIE.

If it was truly your money, you could do what you wanted with it AFTER the transaction completed and the money is shown in your account.  

The truth is in the above post, which is how they get away with not violating business law.  "This means that we're..."  aka PayPal is holding the money, and therefore by pretense of possession it is THEIR money, not yours, and they can make money off the interest in an escrow pool account, which is technically illegal, even if you agreed to their holding terms in the terms of service.  They can make your balance say anything they want to, they can make it say ten million dollars while processing, or negative 40 billion.  It's coding, thats all it is.  

Your money is "there" by means of display only.  You can't touch it, move it, or do anything with it for the allotted time period, except pay taxes on it.  Welcome to 21st century economics, where we all lie about how much money we actually have, and big business corporations make interest off of it, while small fish companies get stuck paying taxes, fees, and fines on imaginary money for themselves and the big corporations, just because the computer screen displays it.  (It's been happening longer than 14 years, but again I digress.)  

Their stock share prices also rise because of the increase of THEIR assets on hand, which is profit off of HOLDING YOUR MONEY.

If no one complains about it though, nothing will be done.  PayPal can make whatever policy they want about rolling reserves, transactional delays, blah blah blah, it's still illegal.  When the State of California subpeonas their financal records, lots of people will be going to prison for a very long time.

Until that happens though, I recommend to all small and micro business owners that you stay away from the Virtual Terminal and PayPal Payments Pro services, if you would like to have your business remain functional and not have someone you previously trusted rob you of your capital flow.

This post probably won't remain up for long, the others were archived in just days of being posted.... that's okay, I have sent copies off to individuals that are great at reposting things in places that people read and share.  I also can post it on my own sites, so the SEO ranking goes up.

Knowledge is power.  I am sorely disappointed that PayPal would ruin our working relationship that we have had for years over a matter of potentially making a few hundred dollars, but the least I can do for other small business owners like me is warn them ahead of time to either look elsewhere, or simply continue using the basic shopping cart, and look for other streamlined terminals elsewhere.

[Wizwares]

Happened to us too, 30,000 plus positive feedback 100% rolling reserve for 30 days. Contacted them last week to cancel if it can't be removed and was promised a return call in 25-48h 4 days later still no call but instead an email stating that they have reduced reserve to 20%but increased time to 90 days!!! Absolute con. Been with paypal for 7 years and turn over 100,000+ per year through them with NOT ONE disputed transaction in buyers favor

[Lise7]

Hi. Wow you are soooooooooo right and this is very scary that so many companies (On-line especially) are getting away with this.  I am waiting for 2 orders that should have arrived by now however as you know....I just wanted to suggest The Media as I think if this was made Public (TV, Radio etc.), many more people will come forth and PayPal will be sued and owing out more then they are scamming in as we speak.  Just an idea to try and put back some sort of Justification back into our world as it seems we haven't any what-so-ever anywhere!!!!  Good Luck my friend.

[AugyTek]

Here is an update.

As I caught this immediately, my account did not get hit with the reserve when I cancelled it.  This tells me that some additional monkying with my account is needed, and the order for it was cancelled before it was completed.

I was not charged the $30 either.  I surmise this is from me not actually using the service and cancelling immediately after receiving the e-mail.

Here is the thing I think that is triggering these reserves.  My business is successful.  As such in Credit Card sales, I can expect to only increase my volume month to month.  I am also a brick and mortar as well as eventually expanding to have web based sales.  I have looked back at other cases, and they all have a single string in common with mine.  They are all successful businesses, B and M, or e-commerce, and present very little, if any, risk.

The potential capital flow that PayPal could use as escrow interest will only increase with a successful business.  I also contacted Lifelock, and my credit rating was never reviewed by any company within 2 weeks surrounding the timeframe that I signed up for this service.  So without a credit check, there was ABSOLUTELY no basis for my rolling reserve... it was just extortion.  BTW, even if you have had PayPal disputes, legally they can only use them for history info up to 7 years, or whatever your state's statute of limitations are for financial info, whichever is less.  That was a very fun fact I found out.  Processors are governed by the same laws of the originating state of the CLIENT, not the processor.

This means that not only are they violating about 1000 different federal processing laws by telling people fraudulent information, they are also discriminating based upon critera that would net them the most financial gain, and have the least amount of risk for them.  I am all for low risk high gain myself, but would never go to the point of discrimination to get it, that's just wrong on a moral and ethical level.

Now that I have this slew of information all locked away to where PayPal can't get at it, I might very well go to the media with it.  I could even contact some news specials too and see if they would be interested in the story and buying the information off of me.

Something is telling me though that with this virtual terminal it might not actually be PayPal pulling the strings, but a bank entity behind it.  Most banks that are passthroughs for virtual terminals are usually pretty shady to begin with, and are often small unheard of banks because they usually go belly up, get bought out with service cancellations for the VT program, or simply just don't have a lot of accounts.  Want more info...?  Google Mt. Gox and the bitcoin disaster.

My final determination is this:  I would have been more than willing to use the VT service through PayPal, without any of that silly rolling reserve junk.  I know what PayPal's solubility is, I had my broker get me the details.  They could easily afford 1K of chargebacks per client if they had 10 million customers all do it at the exact same moment.  That's right.  10 billion in assets they could easily take a loan against, and that is not even the full extent of their solubility.

So my question is...  what are they doing holding up to 30 days of other people's money if they already have assets to cover it????  Greed... that's what.  30 days is the minimum amount of time to earn interest on a holding account.  BTW, these are not legal in the US, they are transferred to another country, which is why PayPal can make money.  They can also change it into bitcoin too and given the flux of bitcoin at the time of this post, it is really a buyer's market.  In the case of 90 days, this is where they can invest it into a foriegn exchange, because 90 days is the minimum for account duration.  

How do they get away with taking your money overseas?  They don't.  It's a nice little loophole that I would imagine they have been exploiting for quite a while, and absolutely anyone can do it.  It's called the principle switch.  They can prove on paper that your assets are not being transferred at all (other than to your account), and are sitting idle in a "reserve".  The way that their agreement is worded gives them the financial right to add it to their total assests while funds sit in this reserve.  It is the same for SquareTrade, most banking entities, and just about any entity that handles money.  If they were ever audited, ti would show, to the penny, that every cent is kept in a non interest bearing reserve account that is debited accordingly to what is needed on a daily basis.

Let me illustrate:  They have 10K on average in "rolling reserves" from a client's account, this frees up to 10K that they can invest in an overseas equities, bitcoin, whatever they wish, of their own money.  Because there is no provision, federal, international, or otherwise that prevents processing entities from re-investing their profits, they do this with little risk of loss, and absolutely no risk if audited.  They can also take out a domestic or foriegn loan because they are adding those reserve assets as their own, and using them as collateral, even though it's really not their money, but they DO HAVE POSSESSION OF IT.

They are essentially creating their own investment bubble.  It will all go well and smooth until it pops, where I would imagine there would be 5 million very **bleep** off people not getting their money.  Of course you will see reserve time frames be extended first.

More than likely what they are doing, and this supports why the turned off the money market account for clients, is that they are investing only a small percentage of what they hold in reserve, probably 1-3% of the monthly average depending on market flux.    When the money market was still available for clients, on a simple level, you were getting a small tidbit of that foreign interest money given to you.  Greed is the only reason why they stopped it, not because the market was souring.  Money market accounts still do very well if invested in properly.  This means that PayPal found a way to get around paying out money to people, and keeping 100% of the profits to themselves.

This was all uncovered simply for a couple hours of my time for research and talking to a market expert.  Big companies and corporations do things like this all the time, and since I am a business owner, I was actually offered a guiding hand to get into this if I wanted, for a nominal fee of course, simply because I had sniffed out the trail.  Most people never discover these things, it is amazing what a little digging will uncover.

I also discovered too, that PayPal owning E-bay, and being the only digital method of instant payment and processing would be subject to the anti-monopoly laws, save for one detail.  E-bay allows their participents to accept other forms of payment that are not PayPal, they just aren't digital.  But the anti-monopoly laws are old and not updated for the world we live in.

So in closing, it seems to me that PayPal is a company that is all about the loopholes and quirks, and changing wording terminology to suit them and line their pockets with gold.  I would venture to guess that if some other processor came about that didn't do all this, PayPal would be broke in a year.  See Google Wallet.