PayPal under fire over “arbitrary suspension” of merchant accounts

Online payments provider PayPal has issued some key advice to small businesses to help them avoid arbitrary suspension of their accounts, but admits the process needs to be improved.

According to an article in The Australian Financial Review, small businesses using PayPal are being hurt by the account suspensions.

Arbitrary suspension is triggered by PayPal’s automatic systems.

Often, a merchant’s account can be suspended by a trigger such as a larger than normal transaction or unusual usage.

If an account is suspended, PayPal then needs to verify infor­mation about that merchant before it can restore access to that account.

According to PayPal Australia spokesperson Adrian Christie, merchants can prepare for this by having documentation on hand that proves their identity and verifies the nature of their business.

This might include a certificate of business registration and utility bills, which provide proof of address.

He also recommends that merchants who are about to conduct an unusually large transaction notify PayPal in advance.

“We can then ensure all the checks are done upfront, to avoid having to put accounts on hold pending those checks,” Christie told AFR.

The news comes just four months after high-profile Australian blogger Darren Rowse published an open letter to PayPal on the internet in order to get a response to a request for payment data.

Rowse, who runs a number of blogs including Digital Photography School and ProBlogger, initiated a report request via PayPal’s systems in January for three months of transactions.

The report usually covers several thousand transactions, so Rowse generally receives an email from PayPal within 12 hours to let him know when it is ready to download.

But this time, PayPal emailed Rowse saying it was unable to process the request and the failure was probably caused by an “unexpected system error” or “unusually high demand on servers”.

Rowse initiated another download request and received the same auto response twice more before attempting to contact PayPal via email.

The only response he received from PayPal was automated emails in a process that took more than two weeks.

In desperation, Rowse decided to draw on his 158,000 Twitter followers and 78,000 Google Plus circles, and posted an open letter on March 18 to PayPal on the social media networks.

Rowse’s open letter received numerous comments and shares on the networks, with many commentators reporting similar problems with PayPal.

Christie conceded there are flaws in PayPal’s system.

“We’re not as good at addressing things as quickly as possible. There are risk triggers which we need to lift as quickly as possible, and we know we need to improve the process,” he said.

Unfortunately, complaints made to the Financial Ombudsman Service regarding cashless payment systems are on the rise.

The agency’s annual report recorded 499 disputes involving cashless payment systems in 2010-11, up from 248 the year before.