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PayPal draws ire of stranded customers

PC World

By Tom Mainelli

(IDG) -- While most of PayPal's 15 million customers are blissfully buying and selling with the online payment company's handy service, a small but vocal group is questioning the firm's commitment to customer care.

PayPal's online payment service has earned a well-deserved reputation for exceptionally low fraud. The company claims that only 0.42 percent of its transactions in 2001 ended in fraud, well below the 1.3 percent fraud rate average of online credit card transactions measured by Gartner Research.

But some customers who experience account problems because they are mistakenly caught in PayPal's fraud prevention programs, as well as those who experience the rare case of actual fraud, say the company's e-mail and phone-based support are sorely lacking. INFOCENTER
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Take Sheila Stawicki of Woodville, Alabama, who sang the service's praises for more than two years -- until in January someone fraudulently accessed her PayPal account to the tune of nearly $3,000. After almost 45 days of repeated phone calls and e-mail, she says PayPal had offered her little more than long phone wait times (which often ended in disconnects) and canned e-mail responses.

However, PayPal executives say Stawicki's experience is far from the norm. Most PayPal customers receive prompt and satisfactory help within 24 hours, according to the company.

Degrees of service

"This represents one of the more atypical inquiries we get," says Vincent Sollitto, vice president of corporate communications, of Stawicki's situation.

Premier and business-class customers (who pay per transaction) get access to a toll-free help line, and they usually reach someone within 9 seconds, he says. These paying accounts make up about 20 percent of PayPal's customers, but make more than 90 percent of payments, he says.

Owners of a free personal account, like Stawicki, aren't supposed to call. They're supposed to contact PayPal's customer service center only through a Web-based e-mail form. In fact, PayPal lists only toll numbers on its Web site (on its terms of use and privacy policy pages) in order to encourage free-account users to communicate by e-mail. Even so, Sollitto says 85 percent of problems with personal accounts are resolved within 24 hours; 99 percent are resolved within four days. And if a free account user calls instead of using the e-mail form, PayPal will serve them, he says.

PayPal contends most delays occur when the company needs more information from the customer. Sollitto says the company handles an impressive 200,000 transactions per day, and moved about $3.5 billion in 2001. The company launched its service in October 1999, and it began in 2000 with about 10,000 customers.

Conflicting numbers

Despite PayPal's rosy customer service statistics, Stawicki certainly isn't the first PayPal customer to complain loudly about bad customer service. Message boards on auction and auction-related sites such as and are filled with complaints. And disgruntled former PayPal customers have launched their own gripe sites, such as and, where users trade stories and reveal the company's hard-to-find phone numbers.

Several unhappy customers have even sought legal help. PayPal faces several class-action lawsuits, including one filed last week in San Jose, California. That suit, by attorneys at Girard Gibbs & De Bartolomeo in San Francisco, claims, among other things, that PayPal provides poor customer service.

"PayPal places barriers between itself and customers, resulting in customers criticizing PayPal for its lack of access, poor customer services, and the burdens imposed on those who need assistance when a problem arises regarding a transaction," the complaint alleges. The suit also contends that PayPal goes overboard in its fraud prevention measures, sometimes freezing or closing customer accounts for "suspicious activity" that turns out to be erroneous.

"PayPal intentionally makes its customer service phone numbers difficult to find," the complaint alleges. "Customers complain that when they do manage to find a phone number to call, they are placed on hold for long periods of time, need to make multiple calls before they are actually able to speak to a live person, and are transferred from one PayPal representative to another."

Customer service representatives are often "rude and combative" and sometimes "hang up in the middle of calls," the complaint alleges. Overall, a lack of customer service at PayPal has frustrated many users, says Eric Gibbs, the attorney behind the complaint.

"There are a lot of people out there who feel that they have been wronged by PayPal," he says.

PayPal's official response to the class action lawsuits is that they are "without merit," Sollitto says.

Conscious decision?

It's a PayPal business strategy to treat paying and nonpaying customers differently, says one industry analyst who closely monitors the company.

"They are an agile company, and they have made a decision that they are not going to provide top-notch service to anyone who is not a business-class customer," says Avivah Litan, vice president and research director at Gartner Research.

PayPal's Sollitto denies Litan's charge. "I take issue with the statement that we've made a decision not to provide top-notch service," he says. "We provide excellent customer service to all of our [customer] classes." PayPal has 400 customer service staffers, nearly two-thirds of its employees, he says.

Hacker Proof?

PayPal and some of its critics also spar over security. The company is known for its homegrown security protocols, including several patent-pending processes designed to root out fraud. But former customer Stawicki says she's convinced someone broke into her account.

"I believe their system was hacked," Stawicki says. "They say I clicked on a link I shouldn't have, or that I gave out my password. That's not true."

Sollitto says PayPal's systems have never been hacked. A fraudulent purchase usually occurs because the cheated customer used an insecure password, he says. "Or it could be that they received an e-mail from a fraudster trying to draw this information from them," he says.

"We use military-grade encryption," Sollitto adds. "This just speaks to the need to safeguard one's password with as much care as possible."

Gartner's Litan sides with PayPal on its security.

"Their fraud protection program is the difference between life and death, and they probably have the best out there," she says. After thwarting Russian hackers who tried to use PayPal's system for fraud, the site's security has become truly formidable, she says.

"They learned the hard way, and now their fraud is way below the industry average." Most of the time, that means happy customers, she adds.

In fact, a recent Gartner survey finds PayPal enjoys remarkable brand recognition and trust. "Customers and noncustomers see them as most trusted," Litan says. Its February initial public offering was the first from the technology industry in months.

Most PayPal users seem happy, agrees Rodrigo Sales, chief executive officer of AuctionWatch, which maintains active message boards regarding online auctions. PayPal is a frequent topic of discussion.

"From what we see, the majority of people who are using PayPal are very happy," Sales says. "But when they have problems, they get nervous, and rightly so. Given the nature of the product -- people's money -- when there is a problem people scream loudly."

One happy ending

Customer Stawicki's situation with PayPal has been resolved. After contacted PayPal, and nearly 47 days after her first e-mail, the company took action to refund her money.

Stawicki stopped payment on $1500 of the theft. The other $1450 was successfully withdrawn from her bank account by debit card, and her bank refused to replace her money. PayPal refunded her money last week.

"Apparently it wasn't our best hour," Sollitto admits. He cites some confusion over obtaining Stawicki's affidavit, initially sent to her by postal mail and later electronically. PayPal requests affidavits from customers who allege an unauthorized payment; it now handles everything electronically. "She got caught in a brief transition process," Sollitto says.

Transition or not, Stawicki is glad to have the issue resolved. But the company's eventual support hasn't won her back as a customer.

"Now I'm using strictly money orders," she says. "I will not go with any online payment service again."


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