[jasonlotito]

Yes, and no.

I had a startup in this industry, and I still work in it. Here's your biggest problem. It isn't PayPal or Google or any online service.

It's the credit card companies and the banks that control this. The best part is, your entire business will be based on the premise that the bank lets you process. They can drop you for whatever reason. It's not hard. Trust me, they'll manufacture whatever evidence they need to. Sure, you could take them to court, but meanwhile, you are without processing.

No. You cannot disrupt an industry when you rely on that industry to help you disrupt it.

Of course, you could bypass the credit card companies all together. A lot of companies do this with prepaid cards. Not only does it allow those without a credit card purchase their service. You could create a generic pricing card. But then you have to convince merchants to use your system, a system that has no users. And users need to buy your cards with no merchants on board. It's a chicken and egg problem.

Honestly, I think social networks will play a part in this in some manner. Flattr, while using credit cards, shows a unique angle on micro-payments, and is probably the first really innovative payment scheme I've seen since... well, ever since credit cards. Being positioned in Europe probably helps matters.

[pinksoda]

The banks only want to drop you if you're attracting too many charge-backs, fraud, or money laundering. If you have a good system in place to minimize these problems, they will gladly take their processing fee from each and every transaction you process and they will do it with a smile.

PayPal's automated fraud detection is notoriously inaccurate. They also don't have very good customer service. For years their phone number was hidden 10 pages deep where no one could find it. They freeze your account and hide from you.

A while back they ran into some trouble with the bank that was sponsoring their merchant account, they had to quickly make changes to keep processing.

Instead of spending money to improve their fraud/risk algorithm, they just lowered the threshold that triggers an account freeze, which helps with fraud but also drastically increases the number of false-positives, which they consider acceptable collateral damage.

They aren't even nice about it. Why tell me my account is "frozen"? Why can't they say "Congratulations on the recent spike in transactions. Your business must be doing well and we are delighted to hear that! Please give us a call when you can so we can go over some additional documentation that we will need from you".

Think about this: PayPal freezes your account, which brings your business to a halt, then you have to scramble to fix it. PayPal doesn't need to freeze your account, they can just as easily prevent you from withdrawing money to your bank account, which sucks but it probably won't kill your business. At least your customers can still pay you. They even have a "window" to reverse most transactions, but they would rather just freeze your account and act all nonchalant about it.

The logistics of PayPal is all wrong. Work with your customers, not against them.

[jasonlotito]

> The banks only want to drop you if you're attracting too many charge-backs, fraud, or money laundering. If you have a good system in place to minimize these problems, they will gladly take their processing fee from each and every transaction you process and they will do it with a smile.

Wrong. I know this first hand. First, "banks" do not decide whether you process or not. People do, and these people are, in my experience, fairly corrupt. Most people don't deal with the banks directly, but even if they do, the agents their aren't just dealing with you. All it takes is for you and a competitor to end up using the same bank, and if that competitor is bigger than you, they can push you out.

It's not difficult.

I've been on the receiving end of this. I've heard it all. I've had the agent on the phone, and wouldn't answer the question regarding which transaction they were claiming was against their policy. A few weeks later, after closing us down, the send us the information for a transaction that occurred after they shut us down, claiming that was why we were closed.

Chargeback levels? Well below the threshold. We had practically no actual fraudulent transactions, and more than 95% of the transactions that were pending chargebacks were friendly fraud (authorized card holder claiming a chargeback).

I'm not talking about some small time shop. We were pumping 8 figures through our banks at our prime, all as legit as we could make it (which at the time, was far more secure than most other processors at the time).

Your sentiments are right. The banks are interested in money, and if you are bringing in the transactions, they'll process. Unfortunately, if you're a small fish in a big pond (and yes, a small fish processing in the 10s of millions a year), and a bigger fish wants you put down, the bank will take the work to keep the big fish happy.

And if it sounds like I'm pissed, it's because I am. It's working so hard for so many years, pushing forth so many cool things, just to see it collapse. Not because you did anything wrong, but because someone maliciously screwed you over.

That's why I avoid looking at anything as a startup that forces me to rely on a single point of failure. Working with Visa and MasterCard puts you under their control. Sure, accepting money online puts you at their mercy as well, but it's not the same as building your business being an actual processor.

Anyways, I've rambled on long enough. Don't take offense if I caused any. That wasn't my intent.

[jacquesm]

This comment is dead on, but there is one tiny footnote that I'd like to add.

There have been some less than scrupulous operators of payment systems in the past which have made it much harder for bona-fide operators to get started or to become even moderately successful. The fact that any such service instantly attracts a bunch of money launderers also does not help (that's not fraud from your perspective, but it is illegal and you are instrumental in making it work).

[gommm]

If you can talk about it, I would love to read more details about this...

[jasonlotito]

I can't get into specifics, sorry.

[gdee]

  >  PayPal doesn't need to freeze your account, they can
  > just as easily prevent you from withdrawing money to 
  > your bank account, which sucks but it probably won't 
  > kill your business. At least your customers can still 
  > pay you.

I can't believe I'm writing in PayPal's defense but facts are facts.

They did this to me last week. They sent a message Friday night that they would need some extra documentation. I acted upon that on the spot. They then proceeded to restrict my account next Monday because they didn't bother to process my response to their request from Friday. That sucked, but they only locked withdrawals. My customers didn't see a thing, and they finally suspended restrictions Thursday. Took a few phone calls to make sure they hurry (to a number that is not free and not on the front page, but definitely not "10 pages deep": from your account > contact (footer) > call us).

Like anticipated, I feel dirty for speaking to their defense.