How my bank forced me to switch to PayPal

One thing banks are concerned about with PayPal is if users place more funds on account, as this means you could operate a revolving debit account within PayPal with no funds ever flowing through the banking system.  For example, I could place £1,000 on debit with PayPal and then use that to buy and sell goods, continually topping up, and never use my bank's credit or debit card. 

Some $2 billion sits on the network this way at any one time, as in users who keep debit balances within PayPal, and obviously the more that increases the more powerful PayPal becomes.  So you would think it would be in the banks' interests to ensure that people don't put funds into PayPal on revolving debit, but use the banking system to pay for goods online via their credit or debit card, for example.

So far, so good.

But then a little thing called 'fraudulent transaction' rears its ugly head. 

I encountered a suspected such transaction the other day, when I purchased goods on eBay for £800 and the seller only accepted PayPal payments.  This should have been no problem as I've had a PayPal account for years but, as I authorised payment, the message came back: "PayPal is unable to authorise this transaction, try another credit card".

Gggrrrrrrrrr.

I go to PayPal and add my AMEX card and try again.  "PayPal is unable to authorise this transaction, try another credit card".

Bigger ggggrrrrrrrrrrrr.

I then spot that I can send the seller an e-cheque, which means funds from my bank account are transferred to PayPal and, when cleared, those funds are then wired to the vendor.   So I go for that option but that is going to take 10 days to clear and, in these days of instant gratification, that's a real bummer.

Super gggggrrrrrrrrrrrrrrrrrrrrr.

What's the problem here?

Well, the first payment was rejected by my bank as it looked like a fraudulent transaction.  I use PayPal irregularly and rarely for transactions of  more than £100, so an £800 payment appearing late on a Saturday night looked fraudulent.  I knew this when they rang me on Sunday morning, 12 hours later, and asked me to clarify and prove it was me trying to make the payment. 

The same with the second transaction with AMEX, who rang me 36 hours later on Monday with the same request.

And the third transaction just falls foul of the lengthy period of time it takes the banking network to move funds across borders (something that's been a SIBOS theme for the last three years).

What this really goes to prove is how inadequate the existing methods of managing digital identities is right now.  I mean, why call me 12 to 36 hours after the event ... why not call me or text message me or email me or use MasterCard SecureCode or whatever to enable the payment to go through there and then? 

What this also goes to prove is how the inconvenience of the banking system will force users to find alternative methods of making payments that are more convenient. For example, the lack of ease of payment in this process forced me to take a reasonable amount of balance (£1,000) out of the banking system and put it into PayPal to ensure this never happens again.  In so doing, I now find I'm operating a closed-loop, off the bank network, transaction service for higher volumes of low to high value retail payments.  It's called PayPal.

In other words, the banking system forced me to do exactly the opposite of what they wanted me to do, and to place funds into PayPal's off-bank network.

In these days of cut-throat competition, if banks are unable to find remedies for tracking fraudulent transactions and then an effective, and immediate, method of gaining proof of identity to either accept or reject the transaction, others will.  And those others may well just be the same organisations who spotted the opportunity to manage digital payments in the first place.

I wonder who they might be?

Comments

[Dave Birch]

You've hit the nail on the head as always Chris. It's absurd to call 36 hours after the event when they could text you instantly. But I wonder if the problem is more to do with an outdated business model that loads CNP liability on to the merchants might be at fault as well?

[Chris Skinner]

Thanks for this Dave and I followed up yesterday with the Xiring card reader roll-out. If that's the solution for CNP, then I'm a donut!